E-discovery, or electronic discovery, is a tough job, but managed service providers (MSPs) in the legal vertical want to do it.
But, e-discovery—which refers to the process of seeking, locating, securing and searching boatloads of information ranging from email to Word documents to instant messaging chats and social media postings for potential use in civil and criminal litigation—also inspires a certain amount of dread.
The explosion of electronic documentation in recent years has made e-discovery an increasingly arduous task for law firms and corporate legal departments. And a hugely expensive one. In past years, those organizations would often outsource e-discovery to service bureaus charging as much as $3,000 per gigabyte of data.
The current trend, however, has been to bring the job back in-house. The availability of e-discovery software made this possible, while the potential for cost cutting made it desirable. This in-house migration will paradoxically create a managed services opportunity, industry executives contend. They believe legal teams will hire outsiders to manage software, provide hosting services and handle e-discovery tasks -- all on a fixed-price, subscription basis.
Martha MacPherson, director of marketing at D4 LLC, an e-discovery firm, said the market is just now opening up. D4, based in East Rochester, N.Y., launched a managed e-discovery service earlier this year and will open a data center to support its customers in about a month.
“Managed services in this space [are] just really starting and will continue to grow,” MacPherson said.
The needs of corporate legal departments and small to mid-sized law firms drive demand, she added.
But as managed service providers zero in on the services opportunity, so too are some software companies. E-discovery vendors offering their wares in the cloud may present a challenge to channel players. Differentiation may keep MSPs thriving, however. That could mean providing deep vertical expertise or cultivating trusted-adviser status in local markets.
MSPs, vendors eye the document deluge
Attorneys have been mining electronic documents for years, but the 2006 amendments to the Federal Rules of Civil Procedure opened the floodgates. The amendments made all “electronically stored information” part of the discovery process.
Coming up with that information means combing through an organization’s stores for relevant material and then preparing it for use in litigation. In the early days of e-discovery, specialized service providers handled those steps for their legal clients.
“For a long time, it was only a services play,” said Dean Gonsowski, associate general counsel at Clearwell Systems Inc., an e-discovery software and services vendor. “Practically speaking, there was not an e-discovery software market.”
That was the case a decade ago. Today, customers have a number of products to choose from -- Autonomy, Clearwell, FTI Technology and kCura, to name a few. The availability of software for on-premises solutions made it possible for enterprises to bring e-discovery in-house. But being able to avoid the hefty per-gigabyte charges from service bureaus sealed the deal.
Clients realize a proactive stance on e-discovery can help them “control the process more and keep the cost under control,” said John Holland, chief executive officer at D4.
Gonsowski suggested some customers take a hybrid approach as they reclaim e-discovery. Those organizations like to reuse enterprise software but don’t want to support an on-premises deployment. So, they hire service providers to sweat the details of managing and patching an e-discovery system. In addition to IT skills, service providers also contribute e-discovery process expertise and may take on quality control and early case assessments, Gonsowski explained.
D4, with its managed e-discovery service, will manage a customer’s on-premises gear. The company also provides e-discovery personnel if the customer isn’t staffed to handle it. Hosting is another D4 service. It hosts e-discovery software and works with vendors such as Clearwell and kCura.
Similarly, Evolve Discovery, a litigation consulting firm based in San Francisco, offers a mix of e-discovery managed services and hosting, working with kCura.
Evolve has a reseller agreement with kCura and provides that company’s Relativity software to law firms as an in-house solution. Then the consulting firm’s project managers support the application remotely. Customers catch a break in this arrangement: While kCura charges by the seat for its software, customers who purchase Relativity through a reseller don’t pay for the seats needed to manage the customers’ accounts, noted Shamir Colloff, chief technology officer at Evolve. Those free seats facilitate follow-on business with customers.
“I am more likely to see their business in other aspects of e-discovery.” Colloff said. For example, customers may tap Evolve’s e-discovery hosting services for large cases they prefer not to keep in-house, he added.
The e-discovery software market this year is forecast to pass the $1 billion mark for the first time, according to Gartner Inc. The market researcher predicts a $1.7 billion market in 2014 and an annual growth clip of 14.2%.
“The market is maturing some but continues to grow,” said Nick Robertson, vice president of sales and marketing at kCura .
Robertson said the market is insulated somewhat from economic factors—for one thing, companies’ growing regulatory and compliance requirements are expanding the e-discovery market potential.
Recent merger and acquisition activity provides evidence of increased maturity. Symantec Corp. in May agreed to purchase Clearwell for $390 million in a deal that’s yet to close. That same month, Autonomy agreed to purchase the bulk of Iron Mountain’s digital operations, including e-discovery.
Hosting providers could feel a competitive pinch if these consolidated product offerings wind up in the cloud. Autonomy already offers cloud-based e-discovery services.
Nick Patience, research director for information management, at The 451 Group, said service providers that don’t differentiate themselves will find themselves under pressure. That differentiation could come through software, he said, noting that service providers have purchased e-discovery software vendors over the past couple of years.
In-depth legal expertise -- being able to construct a Boolean search and make it stand up in court, for instance -- is also helpful, Patience noted. A focus on local markets and cases with small data volumes provides another potential shield.
Holland doesn’t see much impact arising from the recent acquisitions. He said his company’s ability to bring a more diverse set of tools to customers provides an edge.
“We have a lot of depth in terms of the products and technology we can bring to the table and the people to support it,” he said. “It requires more than just one tool to put together an effective solution.”
John Moore is a Syracuse, N.Y.-based freelance writer, reachable at firstname.lastname@example.org.
Dig deeper on Managed service provider (MSP) business model