Does ILM replace data archiving?

Not at all, ILM is not a product that replaces data archiving. Rather, data archiving is an important part of any ILM strategy. If you have an established data archiving strategy in place, you already have a very good basis for ILM. You can start from there and gradually work your way towards a full-fledged ILM strategy, by beginning to set up retention rules using ILM policy management, for example.