Behind the Asterisk of Your eDiscovery Proposal (Part 1)
The electronic discovery (EDD) market has exploded since its inception in the late 1990s. The number of providers servicing this market have also grown exponentially. But in recent years growth has slowed in both the size of the market and the number of providers serving it; a natural condition for new markets as they mature and become mainstream. But as the market's pace of growth has slowed, and particularly given economic realities and conditions in recent years, competition has become much more fierce as have the challenges for vendors to grow their businesses and maintain profits.
Reacting to these market conditions, vendors have responded by becoming more efficient and cutting costs. The market has also consolidated and will continue to do so, with some vendors simply going away. But these conditions have also spawned a wave of inventive pricing models and schemes in order to maintain growth or at least keep their offerings competitive. What might once have been included at N/C, has now been uncoupled from standard pricing components (E.g. a per gigabyte charge) and in the best cases set apart as a new line item in the price quote. In many cases, however, this uncoupling and inventive pricing has resulted in the total costs of EDD services being hidden, frequently in the small print or "behind an asterisk".
This three part blog series will look the EDD market from the consumer's perspective. It will try to shed light on how EDD services pricing evolved, where they are today, and finally how to discern value in an EDD vendor's offering when price has become increasingly confusing. In Part I we take a quick look at the size and growth of the market and how these have contributed to pricing for EDD services. In Part II we will look at the key components of most EDD services and see how some vendors have begun to issue pricing with introductory offers or caveats, and with price components issued in small print or "behind an *asterisk". We will also look at what expect/analyze in a price quote and how to differentiate between a vendor with transparent pricing and one where costs may not be immediately clear. Finally, in Part III, we will look at how to discern the value provided by an EDD vendor, what constitutes value for money in these relationships, and try to make a case that not all vendors are alike, though their pricing might look that way.
The Size of the EDD Market
According to the earliest and most reliable data available, the EDD market has grown exponentially since its inception in the late 1990s. "[A] noticeable expansion of the EDD market began in 1999. Starting at about $40 million in revenues in 1999, the market appears to have grown to approximately $70 million in 2000, and then $150 million in 2001. We estimated that the total 2002 domestic, commercial market for EDD services was at least $270 million. (George Socha and Thomas Gelbmann, "The Size, Scope and Growth of the Electronic Data Discovery Market: Survey and Results", 2003) But growth didn't stop there. According to a market research report available from IBISWorld, revenue in the eDiscovery industry has grown at an annual rate of 5.6% over the last five years to an estimated $786.5 million in 2011. In 2010, eDiscovery industry revenue jumped 9.1% and is anticipated to exceed the five-year average growth rate again this year, with an increase of 7.6%. IBISWorld expects eDiscovery industry revenue to continue to rise at an average annual rate of 6.1% and to reach $1.1 billion by the end of 2016.
Let me do some quick math for you. According to these survey data, the EDD industry grew by 1,865% from 1999 to 2011. The industry is poised to grow by an additional 40% over the next 5 years, equaling an approximate total growth of 2,650% since the industry's estimated inception in 1999. Average annual growth of the industry then, according to these surveys, has been about 155% from 1999 through 2011. An interesting side question, but one not addressed here, is whether the volume and complexity of litigation during the same time period might warrant such growth?
How This Growth has Impacted Pricing
As the industry grew exponentially over the last 10-12 years, so have the number of vendors competing for a share of this incredibly profitable pie. A casual tour of the exhibit floor a LegalTech in New York will reveal a great proportion of that space taken up by EDD vendors of one sort or another. Also noticeable is the consolidation of vendors, with a few large ones taking an increasing share of the pie. Also of note are the number of vendors which simply go away because of poor management, competition, or otherwise.
This combination of explosive growth, both in terms of the size of the market as well as the number of vendors competing, has, as it normally/always does, had an impact on price.
In the early days of litigation management, electronic discovery (EDD), pricing was pretty straightforward. Litigation management vendors counted the number of pages collected, multiplied the number of pages by the cost per page and issued their quote. That was then.
Today, data is much more dispersed and takes many different forms. Litigation itself is much more complex and the stakes are higher. Similarly the technology to find and manage discoverable content is now much more sophisticated. As the EDD landscape has unfolded the costs have obviously risen, now taking up an unprecedented proportion of the total costs of litigation. The risks of poor production in the form of sanctions and new litigation spawned by over production or under production have also risen. In keeping with the complexities of litigation electronic discovery and production, the intricacies of pricing have themselves become much more complex.
Once the per page model of discovery pricing became obsolete, the next evolution was for vends to charge per gigabyte of data being collected, culled, managed and produced. But in recent years this model too has begun to expand and unravel as the number of EDD vendors has grown. This increased competition drove down per gigabyte pricing from perhaps $2,500 in 2006 to something in the range of $475 to $550 today. But because vendors themselves cannot control the amount of litigation in the marketplace, and because of increasing price pressures and increased competition, vendors have begun to find new ways to return profits. Enter the asterisk.
With increasingly strained economic conditions, Parties or litigants (defendants & plaintiffs) are looking for ways to decrease the cost of litigation. This in turn has EDD vendors trying to figure out how to maintain revenues and how to differentiate. Because they can't impact the amount of litigation, vendors have to differentiate, compete on price or cut costs. Because the market is so crowded and competitive, it is increasingly hard to differentiate...every vendor looks alike some say. Running their businesses more efficiently or cutting costs is difficult for some vendors. This problem has resulted in market consolidation with large vendors consuming smaller ones, and with a considerable number of vendors simply closing shop. Failing an ability to differentiate or become more lean, some vendors have taken to disguising their existing pricing behind the *asterisk. It has become increasingly difficult to understand what you are getting from an EDD provider and what the final costs will be.
What this means for consumers (litigants) is that you have to look more closely at what is being offered and how it is being packaged and priced. At the end of the day, what consumers should be concerned with is not only price, but also value. In the final calculation, value for most litigants will be found in a viable vendor partner who is predictable reliable as well as expert, and provides a defensible work product. No sanction is worth the savings found in a poor final product.
In Part II we will look at what vendors most typically put behind the *asterisk, what good vendors include at N/C and how to identify what you're really getting when you find that "too good to be true" price quote. In Part III we will go on to look at what really differentiates an EDD/LitMgmt vendor partner, how to select one and what to expect.
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