Will Episerver retain its leading market position?

7 April 2020

Mikko Jokela

This article is a part of CMS selection article series by North Patrol. 

North Patrol helps customers to make smart technology decisions and find the best implementation partners. Typically, we facilitate prestudy projects and evaluate vendors and proposals. Most of our clients are large companies headquartered in Finland.

Despite the current popularity, Episerver's leading position may be threatened in the near future. Company's strategy and role have changed, and these will have an effect on the markets. This article observers the situation mainly from Finnish perspective.

What makes Episerver so popular?

At least the following four factors explain Episerver's popularity in Finland:

1. Natural transition away from SharePoint: Finland has traditionally been very Microsoft-oriented country. There was a time, when SharePoint's position (especially MOSS 2007 and SP 2010) was so strong that basically every digital channel was implemented on the platform. There were many good implementations, but also too many bad ones that caused frustration. People started to seek lighter and more flexible platforms especially for their web content management solutions. Episerver as another .NET based product met these needs with good timing. Hence it was a natural replacement for cumbersome SharePoint.
2. Partner availability: Related to the previous factor, also the implementation partners realized the need for a lighter solution. The learning curve of Episerver for already capable .NET developer was relatively fast and certain level of expertise was achievable rather quickly. Also, affordable and transparent pricing compared to many competitors helped the local implementation partners in selecting Episerver to be represented.
3. Clarity and appeal of content production tools: Episerver serves especially marketing and communications personnel in their content management and web publishing needs. User interfaces for editors are pleasant, page layouts are easy to edit and e.g. site structure and language version management are clear. Content editors who used to work with SharePoint have certainly been very happy with Episerver.
4. Local sales organization: Episerver established a local sales organization to Finland relatively early. The organization has also included competence for consultation almost from the beginning. This has has a major impact on Episerver's success in Finland. The local organization has had a true mandate for negotiations, and they have been able to apply license models to customers' situations in very flexible ways. Also, the implementation partners have had a significant role as negotiating parties. Flexibility and situational awareness have enabled potential buyers to be converted to customers.

All in all, Episerver has provided value for money. The product has met the basic content management and web publishing needs of the customers with high quality. However, now the situation has somewhat changed. You can still get value for your money, but you need to have it slightly more. Also, the level of ambition should be higher.

Change in strategic approach

Episerver, both as a product and as a company, has evolved rather far from its Swedish origins. Today, their main focus is strongly in North America. The direction has been clear since the merger of Episerver and Ektron in early 2015. In fact, the direction changed as early as the end of 2014, when the US private equity firm Accel-KKR acquired Episerver. The same company had acquired Ektron a while earlier.

Combining CMS products was an ambitious project that involved a huge amount of money. However, the investments appear to have paid off, as the market value of Episerver multiplied during Accel-KKR's ownership. The current owner is also US-based private equity firm Insight Venture Partners, which bought Episerver in fall 2018. The transaction amount was reported at USD 1.16 billion.

The rise of Episerver has also been accelerated by the global research and consulting companies Gartner and Forrester, which list Episerver as leaders in their own comparisons. Driven by the success of these evaluations, Episerver license prices have risen. This is a natural consequence of the fact that Episerver is increasingly named as a shortlisted option for large international companies. It seems, that Episerver's main target group is moving away from mid-sized organizations to larger and larger international companies.

Also, Episerver’s current online presence reflects the North American focus. In the past, the online presence used to be very pragmatic and Scandinavian (in a positive way). Now the website content and addressing of visitors are focusing on the international markets.

New role as a cloud service provider

Episerver steers all its new customers to utilize their cloud platform Episerver DXC (Digital Experience Cloud). Conversion of the current customer base to use the cloud service is also underway. DXC is an Azure-based PaaS service managed by Episerver. Now the vendor is completely responsible for the environment itself and related management. The implementation partner is only responsible for the customer-specific application and the related application development.

Unlike before, the "traditional" license model has been changed to a subscription-based model. In pracitice, customer pays a continuous monthly fee to Episerver. In addition, there is a mandatory one-time set-up fee. The old on-premise license model is no longer offered as an option, except in certain individual cases.

The Episerver DXC solution, offered as a PaaS service, provides a lot of possibilities. Unlimited scalability, a constant upgrade path, and the ability to take advantage of new features as they are released are key sales promises of the solution. One practical positive impact for the customer is also that the number of domains used by the site entity in the DXC cloud service is no longer limited by the license.

On the other hand, one practical problem from the customer's point of view is that the customer pays the full fee for the “whole package” right from the start - whether the DXC's potential and features are fully utilized or not. So, there is practically no room for flexibility in terms of cost. The platform should be efficiently used in order to get maximum value for money. Thus, technical scalability can be found, but in terms of cost, scalability is more limited than before. Previously, the customer was able to tender the suitable hosting services separately, but there is no such option in the PaaS model. DXC also imposes certain restrictions on the use of the additional services provided by Azure, so if these services are planned to be utilized, it is recommended to find out whether utilization is possible in the first place.

As already mentioned, the role of Episerver is expanding towards a more comprehensive cloud service provider. In a way, this is a good thing. In most cases, it does not really matter to the customer in which environment the online service runs, as long as it works reliably as agreed. Also, it's rarely relevant to the customer how the total costs are divided between the implementation partner and Episerver, as long as the responsibilities of the parties are clear.

However, it's not that simple.

While Episerver guides its customers strongly into the PaaS model they manage by themselves, the approach makes the business for implementation partners more difficult. Many of Episerver's partners are relatively large system integrators who have productized their services around Episerver's maintenance and hosting. In a PaaS solution, dependence on the implementation partner is reduced. This is kind of a good thing, but correspondingly, dependence on the product vendor, in this case Episerver, is increasing. In the past, when implementation partners have had more power around the solution, they have also been able to commit to customer service level requirements. In the PaaS model, the hands of the implementation partners are tied in many ways, so commitments to the customer cannot be made as extensively as before.

Future is uncertain for Finnish customers

Recent evolution of Episerver is similar to ecommerce platform Magento in many ways. Expansion of vendor's role as a cloud service provider follows global trends. In that sense, the direction seems to be clear and development is mostly positive. Episerver has emerged as one of the world's most significant players in the field of CMS/DXP platforms. It's easy to predict international success to Episerver but at the same time this kind of development raises concerns for the Finnish market:

• Will Episerver continue to acquire new customers Finland? Episerver has become known as a strong solution for mid-market companies. Now, the main target group seems to be large international companies. When compared to international standards, the Finnish market is small or medium-sized at the most. Will there be enough new customers in Finland in the future as well?
• Will the license prices increase also in the future? Continuing straight from the previous point, will there be enough customers in Finland who are able to genuinely invest in their online presence? Besides relatively high license fees, the costs include also e.g. development project, maintenance and support services, and continuous development and optimization, not to mention organization's culture, resources and competences.
• Are Finnish people persistent enough to negotiate with Episerver in American style? The license agreement is made directly with Episerver, and in practice, obtaining a license price requires direct contact with them always. The influence of local implementation partners is very limited in the negotiations. When contacting the vendor, the customer will be first asked for more information about the actual need. After giving enough answers or estimating volumes (e.g. amount of annual page views), the customer will be faced with list prices, which are determined by a certain formula. This license price formula or the parameters that affect it are kept visibly hidden. This is when the actual negotiations begin. However, the negotiations may be a waste of time. And even if the vendor offers some flexibility, in any case, from the customer’s perspective the process is laborious and time consuming. Buying of the product has been made unnecessarily difficult.
• Will the existing implementation partners succeed (and survive) as business becomes more difficult? As noted earlier, Episerver’s PaaS model makes the business of implementation partners harder. It remains to be seen whether the current implementation partners will cope with this more difficult situation or whether the Finnish market will become even more polarized over a couple of top agencies. Initially, one major factor in Episerver’s success has been the large field of local implementation partners. If the partner field shrinks, will it increase the sense of risk experienced by customers when making a purchase decision?

Even though Episerver is currently a very popular CMS in the Nordics, the market position is based very much on an older customer base. It will be interesting to see how the situation changes in the next few years. There is a reason to believe that the leading position in Finland will at least be challenged in the near future.

Episerver's current strategy is attracting fewer but larger customers. For small markets like Finland, this is a worrying development trend, but the big picture is certainly a carefully considered step. From an overall business perspective, less is most likely much more.

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