Friday, April 13, 2012

Consolidation of Services and Functionality: A Growing Trend in the eDiscovery Field. Will It Cost Customers in the Long Run?

Reed Smith, a US based international law firm, announced this week that they would be bringing Relativity in-house, continuing their expansion into the eDiscovery market (in 2011, the firm established a team dedicated to eDiscovery that has grown to over 50 lawyers). This marks a developing trend in the industry; many law firms are taking deliberate steps to ensure they keep eDiscovery work in-house and take back any business they may have lost to traditionally lower cost eDiscovery vendors and service providers. From the firms’ perspective, this makes sense; keep as much business inside the walls as possible, even if that means making capital expenditures.

Reed Smith indicated they would utilize Relativity primarily for document review, which is a relatively cheap (from the firms perspective) and easy way for the firms to make money off their clients. Money, that previously often went to eDiscovery vendors who offered superior technology. Many other firms are employing a similar strategy. With the acquisition of programs like Relativity, the vendors no longer clearly offer superior technology, and decisions about who performs the work become more contingent on relationships, which are often to a law firm’s advantage. In the long term, this is smart business for the firms.

From the clients’ perspective though, this could mean higher costs, as law firms traditionally charge higher rates than their eDiscovery vendor counterparts do. For the eDiscovery vendors, it obviously hurts them, as Firms like Reed Smith will take some, although not all, business that the vendors previously attracted because they had better technology and tools.

Software companies are likewise consolidating the functionality they provide either via development or via acquisition. One need not look any further than KCura’s Relativity for an example of the former, while Symantec ‘s acquisition of Clearwell is a clear example of the latter. Both KCura and Symantec offer products regarded as best in class, and both are aggressively expanding those products’ capabilities, sometimes at the expense of other less dynamic companies and products that not that long ago were consider must-haves in the eDiscovery world.

KCura is aggressively developing Relativity, once limited to review functionality, on both the front and backend of the review process. KCura is improving Relativity’s processing capabilities, adding the ability to ingest and process raw/native data, and creating tools like Fact Manager, which allows users to track and manage important facts, people, and documents within Relativity. The first improvement is a direct attack on programs like Law Prediscovery, while the later provides direct competition to CaseMap, a Lexis product.

By developing and adding these new functions, KCura has not only increased Relativity’s value and utility, but it is threatening formerly symbiotic products by poaching their customers; if you are going to use Relativity for a given matter, and especially if you are going to use it for multiple matters, it simply makes more sense to use the functionality built into Relativity and included in the price rather than license and pay for multiple products. While products like Law Prediscovery and CaseMap and will remain viable options for those not using Relativity, they will also begin to see their customer base shrink because of Relativity, which could mean difficult times ahead if they are unable to adapt quickly.

What all of this consolidation and expansion likely means is that it is going to be more difficult for the small and niche services and software providers to survive. eDiscovery shopping may become more convenient, as one-stop shops and applications become more common, but it may also become more expensive, as customers are forced to pay law firm prices and purchase programs that do everything and have a price tag to show for it.


  1. Brandon, Nice post. Can you expand on your thought that ediscovery will become more expensive. Seems to me the market has figured out that ediscovery through law firms is more expensive and there are plenty of solutions providers willing to provide them good solutions at better prices. Is this just about convenience?

    Don't you think large corps with heavy litigation and multiple outside counsel will implement their own solutions?

    BTW, I do agree it is a relationship business and law firms have relationships.

    VeDiscovery LLC

  2. Wayne,

    Thank you for your comments. Regarding your question, about eDiscovery costs increasing, I see this potentially happening generally in two ways as a result consolidation. The first is essentially that as a result of firms acquiring the same technology as vendors, those firms will keep more customer business for eDiscovery services that they previously lost to vendors, and since firms traditionally charge more, those customers eDiscovery costs will increase. This has a lot to do with convenience and relationships. Clients usually hire outside counsel first, and often have a preexisting relationship with them; they trust them and the recommendations they make. Law firms like Reed smith, who buy products like Relativity, now have one more argument why the client should not hire a vendor for eDiscovery tasks. I think the vendors will lose work to the law firms as a result of this, and those clients will pay more money as a result. I realize there are plenty of vendors who will offer competitive pricing, but that can be a hard sell at times, especially if the firm is whispering in the clients other ear.

    Conversely, I think your comments highlight how the opposite is possible in part. Vendors will look for new ways to pry the work away from law firms, since technology will no longer be the deciding factor, vendors will lower their price to incent the clients. Those clients who do use a vendor may therefore pay less for eDiscovery services. In fact, some law firms may then lower their rates to keep the work from the vendor. However, I believe the potentially lower law firm costs will still be higher than the current vendor costs, so that if a client does use a firm (which, again, I believe is now more likely) they will still pay more than if using a vendor today.

    The other way it becomes more expensive is if consolidation of technology into products that do it all forces niche products out of business. This would eliminate some competition but also eliminate the ability to purchase one piece of the technology puzzle; customers would only have the option of buying a do it all product that is much more expensive upfront, or alternatively using a vendor or law firm’s technology on a case by case basis, which is usually more expensive. For some large customers with caseloads that justify the outlay on do it all products, the costs could be less and the convenience will certainly be better. However, for clients with little money , or even large customers without the caseload to justify purchasing a product like Relativity, they could lose some options in terms of what is on the market for purchase and therefore have to outsource more and therefore pay more.

    I do think more and more companies will implement their own solutions (whatever those may be), and I think they should to the extent they are able. The economics of it make sense in most situations, the difficult part will be convincing lawyers (in-house and outside counsel) that they should not simply hand everything over to outside counsel and let them handle it as they have traditionally done. While there will inevitably be pushback against that culture shift, to me it is a no brainer for many corporations that uses eDiscovery services.