Defining "Behind the Asterisk” in eDiscovery - PART 2: EDD Pricing
In Part I of this series, "Behind the Asterisk" we looked at the incredible growth of the EDD industry since its evolution in the late 1990s. This explosive evolution and rapid growth led to situations in which EDD vendors first inherited per page pricing from legacy manual litigation management vendors which quickly evolved to a per gigabyte charge model to accommodate increasingly large document collections. This per gigabyte model predominates today in one form or another, but other factors have contributed to the disaggregation of the per gigabyte model and to the addition of new pricing and fees for services which may have once been included in the per gigabyte pricing model for EDD.
The factors which contributed to evolutions in EDD pricing discussed in Part I are worth summarizing. In short, as the market for EDD services rapidly expanded, so did the entry of new providers eager to share in the wealth. These were heady days when litigation rates continued to rise, the number and sources of digital data (discoverable material in digital format) increased exponentially, and when there seemed to be no restraint in the pursuit of every piece of potentially discoverable material regardless of its relevance. It seemed then that no one, even the EDD vendors themselves, really knew the true costs of finding, culling, de-duping and delivering discoverable material. Or perhaps they did! In any event, in those early days, pricing exploded as well with per gigabyte charges of $2,500. But, as always, competition does not allow pricing to sit still.
In the mid-2000s, with the EDD market saturated with vendors and with competition ever stiffer, per gigabyte pricing began to fall. This price deflation was a function of increased competition, faster and more efficient tools and technologies, and market expectations which were increasingly put off by the exorbitant costs of electronic discovery. Something had to change. In fact, we are in the middle of this change. The number of EDD vendors has fallen sharply from the mid-2000s. Some of those providers have been bought and consolidated into a few large and increasingly powerful suppliers of EDD services. Others were simply unable to compete or manage around shrinking price points and margins. Whatever the reasons, what we are left with remains a mix of very large, mid-size and small providers, each differentiating themselves in a variety of ways. Pricing (total cost of a project) has stabilized, meaning that the total cost of an average EDD project is relatively flat.(Is this a fact ?)And so with the market stabilizing after a tremendous period of growth, each vendor is faced with the same question; how do we differentiate ourselves from our competition? With pricing having fallen so precipitously and, at least for the moment, stabilized with buyers knowing in relative terms about how much they should pay for EDD for a given project, differentiating on price (undercutting competitors or the market) is increasingly difficult. In some ways EDD pricing has become highly commoditized very quickly while EDD services are anything but commodity, but we will get to that a bit later.
As an EDD competitor, there are relatively few ways to differentiate. Size and resources is one way reflecting the growth at the top end of the market with a few vendors selling their ability to cover large numbers of projects with large numbers of resources in many locations. Another way to compete remains price. But, as we said, with pricing relatively stable, at least for the moment, suppliers have to be creative with price and what they are offering for that price. The asterisk along with small print can become the featured mechanism for maintaining price and margins while making the consumer believe that nothing has changed. Let's see how.
Costs—the Asterisk*-
The following bulleted items are typical service and cost components for any provider of EDD services. Some vendors have chosen to include these charges as part of their per gigabyte charge, while others, in an attempt to maintain their price point and margins, have chosen to put these charges behind the asterisk or in fine print. Others have chosen to assume some or all of these costs (costs which may be real to the supplier) as a part and cost of doing business. Which of these have you seen in your latest EDD proposal?
* Are there technology charges? Machine charges?
** Hourly fees?
*** Software Charges?
**** Licensing Fees?
***** Set up fees?
** **** Load file costs?
******* Hosting fee calculations?
******** Project Management fees?
********* After hours charges (in addition to Overtime)?
********** Huge cost to pull data from one vendor and send to another?
*********** Is the cost of Early Case Assessment (ECA) the same as EDD?
*********** Another question to ask; is this an introductory offer and what is the contract term?
As once law firm EDD project manager recently said, “This kind of pricing is akin to selling you a new car and then telling you tires, battery and steering wheel are options.” , or as one senior in-house litigator compared, "The handle is free, but wait until you go to buy the razors".
Let's be clear, this is not predatory pricing as the buyers are knowledgeable and savvy. It may or not be deceptive pricing as even suppliers who price this way must expect the lawyers to which they sell to look behind the asterisk and at the fine print. But it is not transparent pricing and it is a way of selling that hopes that the buyer will not look deep and ask questions. It depends on a buyer, a litigator, who is not looking closely at the quote supplied and comparing it to other options. It also banks/bets on the fact that many lawyers do not have the time to evaluate alternatives.
In summary, in Part I of this series we looked at the background that has led us to this place where some vendors feel a need to disguise or at least withhold transparency in how they price EDD services. Here, in Part II we looked at some of the ways in which some providers of EDD services have found new means for maintaining their price point as a basis to compete.
Finally, in Part III of this series, we will look at how a discerning buyer of EDD services can begin to compare apples to apples, expose the asterisk, enlarge the fine print and understand what is being provided and at what cost. More importantly, we will look at other factors which bear on purchase decisions as well as why the old adage "you get what you pay for" may be more important to a litigator purchasing EDD services than perhaps anyone else.
Follow us at the link up top to get the final part in the series when it is available.
One last quote from a senior litigator at a major US corporate legal department will provide a hint as to where this series will end up. "I don't buy law firm services based on the lowest bid, price is only one consideration and is usually number three or four on the list. Ultimately I buy those services because I have a good relationship with the firm, confidence they will work closely with me and for me, and because I am confident that the end product will best serve the interests of the company."