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Will Technology Slow the Growth of e-Discovery Services?

Aug. 4, 2016, 7:17 PM

In the Rand Institute’s oft-cited 2012 report “Where Does the Money Go,” the authors bet that of all possible solutions, predictive coding technology would be most likely to reduce the high cost of large e-Discovery projcts.

“We believe that one way to achieve substantial savings in producing massive amounts of electronic information would be to let computers do the heavy lifting for review,” the report concludes, adding with some caveats, “the savings are ... likely to be considerable and meet the goal we set of a three-quarter reduction in review expenditures.”

At the time, predictive coding could still be considered “nascent” technology, and it cited one study that found the technology cut attorney review hours by 80 percent. But roughly fours years later, judges routinely greenlight predictive coding, and yet the e-Discovery services market continues to balloon: Recent estimates predict the services market will hit between nearly $14 billion and $21 billion in the next half-decade, up from an estimated $8 billion today. That’s in contrast to an estimated $2 billion software market.

The services market could be growing — even if technology is reducing costs of e-Discovery review — because data volumes are growing or for other reasons. But the continued interest of private equity in the services side of the e-Discovery market suggests their analysis shows it continuing to be profitable for some time, and that predictive coding and other technology-assisted review will not cut deeply into the services’ market.

This was illustrated by the $1 billion private equity buyout last week of Epiq Sysyems, which is primarily a services company. And it was shown repeatedly during the past year, as private equity companies and others dropped huge sums of cash to snap up companies that specialize in providing attorney manpower to collect and review data in large e-Discovery projects. There also was Carlyle Group’s reported $150 million buyout of LDiscovery, Shamrock Capital’s investment in Consilio and other deals.

Now consider e-Discovery software headlines from the past year: The Houston-based CS Disco announced $18.575 million in Series C funding on Tuesday; Andreesen Horowitz invested $8.1 million in Berkeley-based Everlaw in January.

The one outlier, kCura, maker of Relativity, announced a $125 million investment from Iconiq Capital in 2015. But it is often described as the largest e-Discovery software company.

There is some evidence to support the notion technology is eating into the services market. On its website, kCura lists testimonials , primarily from service providers such as vendors and law firms, who say technology has created efficiencies on their e-Discovery projects.

“The studies all show that the market is increasing for both software and services,” said David Horrigan, legal content director for kCura.

Rob Robinson, a managing partner at the legal technology marketer ComplexDiscovery which works with services companies, has blogged that he conducted an analysis suggesting the software market will grow faster, at 14.75 percent annual growth, than the services market, at 12.55 percent. But he noted that estimate relied on older data.

Horrigan noted that as corporate data grows, software increasingly is being used for more than e-Discovery, such as general information governance, internal investigations and other purposes in light of the growing amount of corporate data.

And it bears noting that e-Discovery projects require both software and attorneys, and many of the services companies report using predictive coding and other forms of technology-assisted review.

One source, who spoke on condition of anonymity because his company did not authorize him to speak, identified another barrier to large scale investments in software: Each e-Discovery project differs whether it’s the size or the type of data that needs review — be it instant messages, emails, slack messages or social media postings. That variability makes it difficult to produce a software program that fits all needs. As a result, it’s easier to outsource an e-Discovery project to a company that licenses multiple software tools.

“When you look at e-Discovery, it’s fundamentally a service, because it’s part of the litigation,” the source said. “The lawyers look at case law to know what’s going to happen with data.”

Of course, software and services are two different things: The capital outlay required to build software to process and sort data and the returns differ from what’s required to assemble a team of attorneys to manually review data.

There are signs that the e-Discovery software market has faced headwinds. In January, Gartner announced it was discontinuing its Magic Quadrant rankings of e-Discovery software platforms. In an email to its subscribers, obtained by Big Law Business, it cited a “desire to meet the most critical and emerging needs of our clients.”

Several attorneys who spoke to Big Law Business noted that many software platforms feature similar technology.

This winter, at an undisclosed price, kCura purchased Content Analyst company, which produces an analytical engine for e-Discovery review. Nearly a dozen other e-Discovery software companies used Content Analyst technology to power their own analytics engine, according to the company’s website.

Among companies with proprietary technology, it can be difficult to determine whether one platform is better or helps sort documents faster.

“There is no Consumer Reports for e-Discovery tools,” Maura Grossman, a research professor at the University of Waterloo who formerly handled e-Discovery as a counsel at Wachtell Lipton, said via email.

“Unlike cars and other consumer products, you can’t just buy one off the lot and do crash tests,” Grossman added. “Eventually, perhaps, a consortium of users, academics, and service providers will come together to do that, but until then, it’s the Wild West!”

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