Staying Above the E-Flood
Booming E-Discovery Market May Be Headed for a Shakeout
Posted May 23, 2006 2:51 AM CST
By Jason Krause
As in most industries, every few years a new trend dominates the world of legal technology. And, for the past couple of years, legal technology has been dominated by one buzzword that shows no sign of going away—e-discovery.
E-discovery became important when electronic evidence became central to many trials. But there are signs the industry is getting overheated. At the ABA Techshow last month, 30 of the 100 vendors were pushing e-discovery solutions. At the LegalTech conference in February, more than double the number of e-discovery companies attended than in 2005. But showing up and sticking around are often two different things. “My feeling is that next year this time, 75 percent of these companies will no longer be around,” says Michael Clark, an industry analyst with EDDix, a Milford, Conn.-based firm specializing in electronic data discovery.
The Cost Squeeze
According to observers, there is intense price pressure in parts of the e-discovery market. For example, Bill Speros, a Cleveland-based e-discovery consultant, says the average price for turning electronic documents into TIFFs, the standard format for document review, has fallen from about 22 cents to 25 cents a page two or three years ago to as low as 11 cents or less today. “I haven’t used the word bubble or glut, but what I do understand is there has been a deterioration of processing-related pricing,” he says. E-discovery is an immature market, analysts say, and one that is due for a shakeout. Senior analyst Barry Murphy with Cambridge, Mass.-based Forrester Research points out that a search of e-discovery vendors on Google returns more than 1,000 companies. But he also says his firm makes a rough estimate that e-discovery services will be a $4 billion industry by 2009.
And while there is pricing pressure, it is largely in tasks that are easily made into commodities, such as coding, printing and processing documents. Businesses are unlikely to drop prices for services such as consulting for technical and legal issues. Established e-discovery companies are offering services that help litigants not only find and process documents, but also prepare so there are fewer unexpected costs. So how do law firms avoid getting stuck with a dud for an e-discovery partner? Murphy has some suggestions, including:
• See how many customers the e-discovery firm has.
• Check whether it has good technology partners.
• If it’s a young company, check whether it has solid financial backing.
• Ask yourself whether you’d feel comfortable putting the company’s consultants on the witness stand if your client has to defend its e-discovery practices.
Speros tries to tease out whether a company has technical and legal knowledge or is just regurgitating industry buzzwords. “I ask them a specific question, like whether they can put Lotus Notes version 4 into a Concordance database,” he says. “If they say yes, I know they’re full of it because no one can do that.”
Meanwhile, software giants may be poised to change the market that is now dominated by startups. EMC Corp., a leading storage technology company, has announced a new e-discovery service, and enterprise software giant Computer Associates purchased a discovery company called iLumin. Xerox sells corporate litigation services; expect IBM, Microsoft, Oracle and others to follow suit. “A lot of these [small] companies are ideal acquisition targets,” Murphy says. “E-discovery isn’t going away, but there are going to be a lot of changes.”