It would only be a small exaggeration to say they laughed when

EMC

(EMC)

CEO Joe Tucci sat down to buy Documentum in late 2003. Much of Wall Street didn't understand why an enterprise storage vendor would spend $1.7 billion to purchase a company that managed documents and other forms of content.

"Fit is the big question," said Omar Al-Midani, then an analyst with Soundview Technology.

Nearly two years after the deal closed, that question hasn't been fully answered. But it does appear that Documentum is proving to be an asset to EMC in ways that aren't immediately apparent on the income statement. And even more importantly, the takeout has become something of a template for a wave of top line-driven acquisitions in the software industry that are presenting new opportunities for investors.

The highly publicized purchases of PeopleSoft and

Siebel Systems

( SEBL) by

Oracle

(ORCL) - Get Report

featured competing companies with significant overlap and the opportunity to bolster the bottom line by cutting billions of dollars in redundant costs. The new wave of consolidation is moving major players into new markets by acquiring companies with complementary technologies and customers.

Two sectors to watch: supply chain management and enterprise content management software.

Indeed, Oracle's latest purchase of privately held G-Log gives the database giant entry into transportation logistics, a fast-growing subset of the $5.8 billion market for supply chain management software -- and could well force rival

SAP

(SAP) - Get Report

to make its own purchase. One possibility is the resurgent

i2 Technologies

( ITWO). However, the German software vendor could decide it's cheaper to build its own products, says analyst Stuart Williams of Technology Business Research.

"Supply chain is a key technology for companies that want to present a complete software stack," says Richard Williams of Garban Institutional Equities. "So going forward, a deal to acquire i2,

Manugistics

,

(MANU) - Get Report

or

Aspen Technology

(AZPN) - Get Report

seems likely." Garban does not have a banking relationship with any of the companies mentioned.

G-Log also will help Oracle squeeze more value out of another top-line driven acquisition -- Retek, which it acquired earlier this year. Retek sells software used by retailers to manage their supply chains, which are growing ever longer as trade becomes global. "G-Log helps retailers manage supply and transportation costs; it will open up markets we have not played in," says Jon Chorley, vice president of strategy for Oracle's supply chain management business.

Moreover, the entry of players like EMC into the document management space and Oracle into logistics could well force the surviving smaller players to consolidate. "Over time, I think you'll see just two or three vendors dominating document management," says Dave DeWalt, who founded Documentum and now heads EMC's software business.

DeWalt figures that

IBM

(IBM) - Get Report

and Oracle will jump into the space, but are likely to build -- rather than buy -- a solution.

Content Under Pressure

Rob Tholemeier, an independent investor and former buy-side analyst, says the content management companies will have a hard time staying independent, and the best ones will be swallowed by the "stack players," companies that offer infrastructure as well as applications.

Captiva

(CPTV)

, whose software is used to manage data from scanned forms, faxes and XML streams, would be a good fit for SAP, he says. "Being able to move that data into their

SAP's applications would be a plus," he says.

But for the investor, the end result is about the same: Niche players will run up in value as they are stalked by other niche players -- or by one of the giants.

Consider

Interwoven

( IWOV), a leading ECM player with a market capitalization of roughly $346 million that's trading at a rich 34 times estimated 2005 earnings. It has partnerships with

Sun Microsystems

(SUNW) - Get Report

, which resells its software, and

Microsoft

(MSFT) - Get Report

, with which it has agreements to co-market and develop content management software for legal and professional services businesses. Interwoven, says ThinkEquity Partners analyst Nate Swanson, would be a logical buy for either company.

For that matter, either "Interwoven or

Vignette

( VIGN)

a rival ECM player could be next on the list, and perhaps as soon as later this year," he says. ThinkEquity does not have an investment banking relationship with any of the mentioned companies.

If Sun, which recently purchased StorageTek to bolster its storage sales, did buy Interwoven, the motivation would be similar to that of EMC when it purchased Documentum: Use software to generate higher margin revenue and pull hardware sales.

There's still some feeling on Wall Street that EMC didn't get its money's worth for Documentum. In the second quarter, for example, ECM license sales increased by just 1.3%. DeWalt argues that the picture is brighter than it appears. He said sales grew by roughly 13% in the first half of the year and notes that several major deals slipped to the third quarter.

And if service revenue from content management is added to license revenue, the line of business grew by a more reasonable 17%, he says.

Although he was not impressed with Documentum's most recent contribution to EMC, analyst Kaushik Roy of the Susquehanna Financial Group says the software has had a significant "pull" effect on sales of EMC's Centera hardware, itself growing in the high-teens or mid-20s. His company does not have an investment banking relationship with EMC.

Wall Street will watch EMC's third quarter closely for evidence of Documentum's progress. Investors, meanwhile, should be watching the progress of niche players they may have ignored in the past as the new wave of consolidation sweeps the software industry.