MarketScope for E-Discovery Software Product Vendors

Transcription

1 MarketScope for E-Discovery Software Product Vendors Gartner RAS Core Research Note G , Debra Logan, Whit Andrews, John Bace, 21 December 2009, RA Recession has accelerated the move to in-house e-discovery and more companies have brought, or are considering bringing, e-discovery in-house. This report will help enterprises build a business case, create a list of possible vendors and determine which ones best meet their needs. WHAT YOU NEED TO KNOW This document was revised on 22 December For more information, see the Corrections page on gartner.com. E-discovery is a maturing market with entrants from multiple categories, including storage and archiving, search and information access, content and records management, and workflow, as well as tools designed as end-user applications for legal professionals and forensic data collection tools aimed at security professionals, regulators and law enforcement agencies. All of these categories of software vendors have added e-discovery to existing suites or purport to cover various aspects of the e-discovery process. There are also pure-play e-discovery vendors to consider. Enterprises purchasing e-discovery software can reduce the costs of litigation by improving their control over unstructured content, and semistructured content, most notably . Our client references consistently report that they have cut costs and risks by taking control of litigation hold, litigation-hold-tracking, file collection, file processing and legal review, instead of outsourcing these functions. The selection of e-discovery software is a joint decision and sometimes a joint purchase between the IT department and the legal department. These two groups must work together to determine the needs of the organization and the individual users, and to build the business case for purchase. Although many corporations do not know the true costs of their legal activity, there is evidence that those costs are substantial. Because the work of legal and regulatory response is spread over different departments, and legal matters can span multiple years, traditional cost accounting does not do a good job of tracking the cost of litigation and regulation. The legal department pays for outside counsel s services and e-discovery providers; business units pay liability costs if a plaintiff wins a monetary judgment; and the IT department bears the expense of any internal discovery work. That makes it difficult to track costs in a meaningful way. In addition, litigation can go on for years, meaning a single case must be tracked over its lifetime. This, of course, does not follow the way accountants do things, which is on a yearly basis. Legal departments seldom have budget allocated to them but, of course, must pay the bills of outside counsel and other providers of legal services, and that money comes out of the legal reserve (see Note 1). Gartner clients that do track all legal

2 2 Note 1 Covering Litigation Costs Investor Relations Glossary: Public companies are required to have a legal reserve (or obligatory reserve or ordinary reserve) to cover anticipated legal costs. It is obtained by deducting from the annual net profits a sum corresponding to at least 5% of the profits until the reserve is equal to at least one-fifth of the company s share capital. If, for any reason, the reserve decreases, it must be reintegrated. It is one of the accounts that constitute part of the shareholder s capital. In other words, the company s shareholders pay its legal costs. costs, and that have purchased e-discovery software, report that the software pays for itself in a matter of months, or is justified by the projected cost of one big case. The cost savings as reported by clients for early case assessment, along with in-house collection and preservation, can more than justify the purchase of moderately priced e-discovery software ($100,000 to $500,000), or even more expensive software (costing more than $500,000). When interviewed for this MarketScope, clients reported a return on investment (ROI) within three to six months or, alternatively, after one big case, particularly intellectual property disputes (see Note 2). The main areas of cost reduction are in processing data by external service providers, as less time and, therefore, money is spent on outside attorney review, as less material is passed to them. These benefits are achieved by defensibly culling the amount of data that is passed on to further steps in the e-discovery process, by allowing in-house attorneys to go back to the well and refine their searches, either coming up with more data (to avoid sanctions) or refining existing data sets to the relevant documents to pass on for further consideration. E-discovery takes place at the request of outside counsel, or before counsel is retained, at the request of an internal legal department. The amount of material turned over to outside counsel for review has a direct bearing on the cost of litigation or regulatory investigation. Opportunities to reduce spending on both the processes of e-discovery itself and the subsequent review by attorneys of materials obtained during e-discovery are the heart of the e-discovery vendors value proposition. Figure 1. The Electronic Discovery Reference Model Source: EDRM (edrm.net) The MarketScope is copyrighted December 2009 by Gartner, Inc. and is reused with permission. The MarketScope is an evaluation of a marketplace at and for a specific time period. It depicts Gartner s analysis of how certain vendors measure against criteria for that marketplace, as defined by Gartner. Gartner does not endorse any vendor, product or service depicted in the MarketScope, and does not advise technology users to select only those vendors with the highest rating. Gartner disclaims all warranties, express or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose Gartner, Inc. and/or its Affiliates. All Rights Reserved. Reproduction and distribution of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Although Gartner s research may discuss legal issues related to the information technology business, Gartner does not provide legal advice or services and its research should not be construed or used as such. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The opinions expressed herein are subject to change without notice.

3 Note 2 E-Discovery MarketScope Survey Methodology Gartner has been publishing its evaluation of the vendors in the e-discovery space for three years. During each formal evaluation period, we solicit input from the vendors own clients, using both telephone and written surveys. Each vendor provides between three and five references, and previous years references are filed and available. Many vendors in this MarketScope are also evaluated in other publications ( Magic Quadrant for Information Access Technology, Magic Quadrant for Active Archiving, Magic Quadrant for Enterprise Content Management and MarketScope for Records Management ). The reference checks are generally conducted by the authors of the MarketScope, but additional input is obtained from other analysts who cover the space. In addition to the vendorprovided references, Gartner accesses its own client data, consisting of calls that are recorded in a customer relationship management database and then analyzed by a separate group within the company. These are references that are not provided by the vendor, but rather by other clients that use the vendor s software and prospects that may be considering buying the software. Using this report, data center managers, information security officers, information architects, in-house legal personnel and records managers can find information to build a business case, create a list of possible vendors and determine which ones best meet their needs. Note 3 Federal Rules of Civil Procedure At the end of 2006, the Federal Rules of Civil Procedure (FRCP), which govern civil litigation in the U.S. federal courts, were amended to better address issues surrounding legal discovery in the digital age. The FRCP govern the conduct of civil actions in the federal courts, and until these 2006 amendments, the guidelines mostly ignored questions regarding digital evidence. The changes, which took effect on 1 December 2006, addressed six areas: Meetings between adversaries, as well as the judge. What is reasonably accessible for discovery. Procedures for handling inadvertent loss of privilege. Electronically stored information. Production formats. Accidental loss of electronically stored information. The full text of the document can be found at uscourts.gov/rules/civil2007.pdf. For information on how to place this in an IT context, see Organizations and In-House Counsel Must Prepare to Comply With New E-Discovery Rules. 3 STRATEGIC PLANNING ASSUMPTION(S) By the end of 2011, there will be 25% fewer vendors in the e-discovery market as a result of merger, acquisition and vendors exiting the market. Through at least YE10, only 10% of enterprises will acquire end-toend e-discovery capabilities from a single vendor. Achieving full proactive control over unstructured data will take between five and 10 years for most enterprises. MARKETSCOPE Market Growth and Trajectory The e-discovery product market received a boost from the recession of 2008 to Because all costs began to be scrutinized, including previously immune legal budgets, corporate legal departments had to start looking for a way to cut their costs. In addition to the recession, awareness of the 2006 changes to the Federal Rules of Civil Procedure (FRCP) in the United States (see Note 3) and parallel efforts on the part of the European Union, South Africa, Australia and Canada continued to grow among the legal profession, providing further growth stimulus. As a final impetus to growth, the Obama administration stimulated demand among government agencies, particularly regulators, by giving them a mandate to make government more transparent. In addition, in 2009, for the first time, our client inquiry showed accelerating interest and awareness of discovery and disclosure in Europe, particularly regarding privacy versus disclosure. The perception of e-discovery as one of the few growth areas in an otherwise flat or declining software market attracted a number of new entrants in The year also saw a few acquisitions both by those wishing to enter the market and those that sought to add to their existing functionality. In 2008, we wrote: The numbers of new entrants into the market grew in 2007, with more established companies joining the fray in 2007 and 2008, following the market demand with their own established products. Although there have been a few acquisitions along the way, overall, there are more e-discovery vendors in 2008 than there were in We expect this trend to continue in 2009, as this is a rapidly growing space. Since litigation is counter-cyclical, current economic conditions may in fact accelerate market growth. Simply put, there is money to be saved and money to be made and both enterprises and vendors will continue to enter the market despite the recession. These statements have largely been borne out. The year 2009 was one of consolidation in terms of product functionality, as well as overall revenue growth; 2010 will be a year of reckoning. The scope for successful entry into the market will diminish, as the established players take more of the business based on referenceability, scope of functionality and company size. No longer composed of tiny startups or megavendor e-discovery wannabes, the market now contains a number of credible solution providers that can meet enterprises discovery needs either in part or fully. The larger, established vendors are moving toward a suite of products that together constitute a way to govern information in a more effective

4 4 way. and file archiving, records management and content management applications, coupled with software to manage retention, disposition, policy and e-discovery, are all components of a governance platform. In 2010, several vendors will begin marketing governance solutions with these component parts. In 2008, e-discovery vendor revenue grew at 30%. Spending on e-discovery software technologies and service offerings is forecast to grow by 21% annually through This is a decline in the growth Gartner has seen in the past few years, which was running at about 50%. The decline in growth is a result of market saturation and continued overlapping functionality from archiving, content and records management, search, and other technologies. However, we expect net year-over-year revenue will continue to increase through Gartner estimates that the total software revenue in the worldwide enterprise e-discovery software marketplace was $808 million in The five-year compound annual growth rate is approximately 21%. This market is in a period of simultaneous growth and consolidation that should last through User Wants and Needs: E-Discovery Moves In-House In 2009, enterprises became clearer about their actual needs and what part of the e-discovery process they wished to manage themselves. Enterprise demand began to coalesce around a set of features and functions. The consolidation in the market has been around a set of features and functions most desirable to in-house applications. As in previous years, we will use the Electronic Discovery Reference Model (EDRM) to describe both the process of e-discovery and how the vendors fit their products into the model. Despite some credible argument that the model is not detailed enough, it still makes a good starting point for vendor categorization. The EDRM is shown in Figure 1, so that clients can reference it for the purposes of vendor analysis. The main deficiency in the model has proved to be that it lacks a definition of early case assessment, which many vendors discuss, and which is high on the list of functionality that corporate buyers want. This has not prevented vendors from offering early case assessment, or clients from using the capabilities in various tools to perform that function. In February 2008, we wrote: Technologies from simple relevancy calculation-free search to advanced content analytics will provide increasingly predictable value for enterprises seeking to assess the risk or opportunity that a given legal case provides them. Strategies exploiting such technologies will reduce the time it takes to identify likely losing and winning cases, therefore reducing attorneys hours and speeding appropriate settlements. Most studies of legal reviews indicate cost savings of up to a factor of 10 when technology is introduced as a culling agent. Use of such technologies for early case assessment is more palatable, as it does not necessarily have to satisfy judicial scrutiny, and so the potential cost savings stretch across more cases. This is why, as we predicted, more and more enterprises are looking to insource at least part of the e-discovery function, especially litigation hold, litigation-hold-tracking, archiving with accompanying e-discovery functionality, identification, preservation and collection of electronic files, along with processing. Through vendor briefings and client inquiry calls, we have discovered that more companies are taking a proactive approach by investing in content and records technologies and processes to be able to respond quickly to discovery requests, as well as to provide in-house counsel with a tool that can be used to assess potential risk or early case assessment. E-Discovery as an In-House Business Process: Predictability, Regularity and Control Until recently, many companies regarded litigation and e-discovery as things that were not subject to normal business process constraints or rules. The view was that each case was different, the processes involved in preserving and collecting evidence were customized, and most of the work was beyond the scope of what normally happened in a corporation. Thus, e-discovery was largely handled by service providers specialized vendors that dealt with most or all the process on a one-off basis. Since the change to the FRCP in late 2006, that view has undergone a gradual change. Rather than looking at each case as an exceptional event, corporations are recognizing that e-discovery is, in fact, a routine business process. As such, opportunities for making it more efficient do exist and, when it comes to efficient execution, the company itself has more of a vested interest in efficiency metrics than providers that are charging for time and materials. When one considers the number of lawsuits that are ongoing or are begun in any one year, it is clear that e-discovery needs to be treated like any other business process. Opportunities for efficiency and cost savings must be sought wherever possible, which is what e-discovery vendors try to address. For an idea of the volumes of suits faced by companies, we cite Fulbright s sixth annual Litigation Trends survey report (see Note 4). In Fulbright & Jaworski s survey, 53% of companies reported spending more than $1 million on litigation in 2009, up from 45% in The number of smaller companies spending more than $1 million rose from 4% in 2007 to 13% in 2009, while the number of midsize companies spending $1 million or more went up from 26% to 28%. Of the largest companies, 78% spent $1 million or more. In the healthcare, insurance, energy/utilities and telecommunications/ high-tech sectors, spending is most likely to be more than $10 million. Of the companies surveyed, 16% planned to spend more on e-discovery in Forty-five percent of all companies in the survey said they had at least one regulatory matter commenced against them. The survey also indicated that companies were more inclined than previously to handle regulatory inquiries themselves, reporting a decrease in their use of outside counsel. Note 4 Fulbright s Sixth Annual Litigation Trends Survey Fulbright & Jaworski commissions a third-party company to carry out an independent survey of litigation trends. The survey is in the public domain and can be found here: In its sixth year, the survey is a primary independent and objective source for law firms, e-discovery vendors and enterprises. The survey s methodology is detailed in the publication.

5 There are interesting figures from other sources that may be interpreted as supporting the assertion that e-discovery is moving in-house. In Fulbright s Litigation Trends survey, the 2008 and 2009 responses indicated that lawyers were anticipating a decline in both litigation and e-discovery disputes. The 2009 survey indicated that lawyers think 2010 will see an increase in litigation, with 40% reporting that 2010 will bring more litigation than Of the companies surveyed, 48% were doing some e-discovery processes in-house, a trend we expect to continue. Twenty-six percent of respondents said they used law firms with specialized e-discovery practices, a trend that we believe will also drive the tools market, as firms use technology expertise to compete for and win this business (see Note 5). These facts can be interpreted to support the conclusion that in-house e-discovery, and especially early case assessment, may indeed be having an impact on both the overall volume of litigation and its cost. Another corroborative source is the 2009 Socha- Gelbmann Electronic Discovery Survey (see Note 6). Overall, the survey showed a drop in the overall size of the market for services and software of 9% while simultaneously saying overall volume of business is up. Although the authors of this study say these contradictory numbers conceal more than they reveal, we see two possible drivers behind these seemingly contradictory results. First, the move to in-house e-discovery favors product vendors, rather than service providers, and our own research shows that the product companies included in Gartner s MarketScope survey grew for the most part. This has exacerbated the price pressure in the services market. Oversupply has led to price cutting and, as the ranks of service providers have swelled since 2006, pressure to Note 5 Outside Counsel Spending Projected to Drop by 4.3% in 2010 Spending with outside counsel is dropping, according to a survey by BTI, a legal consulting company. Outside counsel spending dropped from an average of $20.8 million in 2008 to $18.5 million this year and is projected to dip to $17.7 million in 2010, according to the BTI Premium Practices Forecast 2010: Survey of Corporate Legal Spending study by Wellesley, Mass.-based legal consulting shop BTI Consulting Group. Sheri Qualters, The National Law Journal, 9 October However, spending on regulatory work is up by 3.4%, as companies seek to come to grips with information management of legal and regulatory issues in their industries. Gartner postulates that ultimately this must drive IT spending on systems to manage this information. Note 6 The 2009 Socha-Gelbmann Electronic Discovery Survey Longtime follower of the litigation support and e-discovery industries, the consultancy of Socha-Gelbmann leads the Electronic Discovery Reference Model working groups and is a respected source of information about the industry. The full survey is available from Socha Consulting s website: provide e-discovery services that are inexpensive, quick and good has increased. In other words, business is up for them in terms of cases and data volumes, but prices are down because they had to cut them to compete. We believe this supports the contention that the market for e-discovery tools that can be used in enterprises or by law firms will continue to grow. The market continues to be driven by the need to control costs, seek early resolution of disputes to avoid litigation completely and to prepare to meet opposing counsel for pretrial discussions about discovery, as specified by the FRCP. How Legal and IT Departments Can Jointly Build an E-Discovery Program Business Case elawforum, an online legal journal, has compiled litigation data over the past eight years, with more than 20,000 cases spread over 500 of its clients (see Note 7). It has drawn the following facts from this data: Among Fortune 500 companies, it estimates the total cost of litigation to be $210 billion in 2008, equivalent to a third of the after-tax profit of those companies. The structure of corporate cost accounting encourages legal departments to delay the resolution of cases, that is, to spread the cost over several years. Delay inevitably increases costs, as Fortune 500 companies prepare every case as if it were going to trial, but 97% of cases are settled to avoid trial and to prevent the matter from entering the public domain. This behavior encourages the plaintiff s bar to hold out longer for bigger settlements, as it knows that the closer the approach of trial, the likelier the chance of a settlement and the higher the monetary value of that settlement. Delayed resolution also leads to higher costs because the longer a case goes on, the larger the fee to the plaintiff s lawyers paid by the corporation if the plaintiff wins. These facts are relevant to Gartner s IT clients, as they form the basis for beginning a dialogue with personnel from the legal and finance departments, as well as for formulating the business case for bringing some of these functions in-house. When it comes to cost justification, the cost of e-discovery software can be offset against fees that accrue downstream. Even though these are not direct IT costs in many cases, any IT program that helps the business and saves the company money should at least get a hearing. Note 7 elawforum Information taken from an article by John B. Henry of the elawforum, quoted in Metropolitan Corporate Counsel. See php?arttype=view&entryno=

6 6 In the absence of the total cost picture, companies can frequently identify at least some of the costs associated with legal and regulatory proceedings. These are typically high, more than $1 million per year. Respondents to our client reference survey for this MarketScope told us that payback periods could be as short as three months, with few reporting ROI taking more than a year. Generally, the cost of software is offset against fees charged by outside service providers to process data for discovery or against the reduction in legal fees charged by outside attorneys reviewing massive amounts of written electronic material. The payback is immediate and direct. It has an impact on bottom-line profitability, with profits being the source of the fees being paid to outside lawyers and other legal service providers. In 2009, the average hourly billing rate for an attorney in a small or midsize practice was $284, with an average of 1,835 billable hours expected for an associate. That means that one lawyer working for one year on a case would bill a total of $521,140. That figure does not take into account the billing rate of the plaintiff s lawyers (on average $413 per hour, for a yearly total of $757,855) or additional costs, such as data discovery or processing and hosting by a service provider. Lawyers hourly rates make e-discovery software look like a bargain when offset against these costs (see Note 8). Against this cost backdrop, when we look at even the high end of the e-discovery software market, with systems costing $1 million or more, clients report ROI in the short term. Market/Market Segment Description The criteria for vendor inclusion in this year s MarketScope have changed because the market has changed. The emerging nature of the market justified inclusion of smaller vendors in 2008, but this year s revenue cutoff of $15 million reflects the growing maturity of the players, as well as their consolidation and growing revenue bases. With the amount of interest and activity in this market, smaller players with interesting technology are likely acquisition targets. Without major differentiating technology, the barrier to successful entry into the e-discovery market became higher this year, and vendors without the budget to create awareness or to develop the necessary channels to market will not be able to rise above the noise around e-discovery. The functionality that the vendors offer is often confused and overlaps with other product categories. It seems likely that enterprise clients will continue to have fragmented e-discovery tactics spread across different product categories for the near-term future. Another change has been in adjacent markets, particularly archiving. E-discovery functionality covering litigation hold and review and/or analysis has become necessary for all archiving vendors. It is no longer sufficient that an archiving vendor provides these capabilities on its own archive to be considered for this MarketScope. It would need to have augmented this basic functionality with the ability to archive and hold other file types, collect (alone or in partnership) on an ad hoc basis and possess more sophisticated review and analysis capability, in addition to a means to export from the archive for production, at least in native format or EDRM-XML. The e-discovery market includes products and services that allow electronically stored information (ESI) of all types to be identified, preserved, collected, processed, reviewed, produced and managed Note 8. Incisive Legal Intelligence Releases 2009 Billing Rates and Practices Survey idus jul-2009+bw The average hourly billing rate reported was $284. Nationally, plaintiffs contingency litigation is the practice area with the highest average hourly billing rate ($413), followed by labor/ employment ($302), general law ($295) and real estate/land use ($294). The billing rate survey data represents a sample of more than 14,000 lawyers throughout the 50 United States, drawn from responses from 255 law firms. over a period of time. There is some overlap with markets beside archiving, including enterprise content management (ECM), records management (RM), content monitoring and filtering, workflow and information access. E-discovery is independent of all of them, despite the overlap. This is due to the combination of functionality that is required, and the unique requirements that result from the e-discovery process being ultimately specified by the FRCP and scrutinized and defined by the courts. To be included in this market, a vendor must address at least three of these functional areas, which have been chosen to reflect the clustering of user wants and needs and the process of e-discovery as reflected in the EDRM: Identification of machines connected to a network, plus the ability to identify, mark and/or copy individual files contained in systems, file servers and other sources. Software must have a means of identifying the requested information using a variety of parameters including file type, creator or custodian, date of last access, date of creation, system of origin and keywords. Identification can also include a workflowbased means for attorneys to identify and track custodian-led collection. Preservation of files and metadata, and the tracking of these preservation requests, known as litigation hold. Preservation consists of knowing a file exists and either holding it in place or copying it to a secure repository for hold purposes. If preservation is custodian-led, the software must have a way of tracking the custodian s responses to preservation requests. Collection can be custodian-led or automated. In custodianled collection, lawyers identify the people who created files or control them, send them a notice to preserve and then ask them to copy or tell them their files will be copied. Collection can also be automated and may involve copy and move. Information deemed responsive must be copied for processing. Reports for the IT and legal departments in terms of what has been preserved and what custodians have been notified is desirable. Products must preserve the integrity of metadata in the collection process and provide logs of collection activities.

7 Evidence repository, archiving repository, content repository or RM repository, which allows at least the preservation of files in an unalterable format, the tagging of files for short- or long-term retention, that is, under the control of a repository database that allows the administration of the files within. Initial processing of data, including culling by file type, deduplication or near deduplication, producing reports that show the amount of data that has been collected, categories that have been culled, and the ability to categorize the data. Keyword search and the ability to view and review files in native formats are also necessary. Note 9. Bates Numbering Black s Law Dictionary defines the Bates stamp number as the identifying number that is affixed to a document or to the individual pages of a document. The term gets its name from a self-advancing stamp machine made by Bates Manufacturing in the late nineteenth century. The number is typically used to identify documents produced during discovery. This is often shortened to Bates number or Bates stamp. Source: Black s Law Dictionary 161 (8th Edition, 2004). 7 Functionality to assist legal personnel in document review for inclusion or exclusion in production for opposing counsel, regulators or courts. Attorney review tools may include Bates numbering (see Note 9), sophisticated search capabilities, process support, visualization and pattern recognition techniques, categorization and classification functionality, redaction, native file format viewers, integration with common desktop tools such as Outlook, and the ability to export files in various formats especially for litigation support databases and other review products. Search and information access functionality, including at least the ability to connect to multiple repositories ( , archiving, file shares, basic content services and document management systems, plus desktops) and a way to find individual items within those repositories, including at least keyword or Boolean search. Ability to produce documents at some point in the process, either as load files for review platforms, or as a set of documents to be produced for an outside party to review. This functionality implies that various viewing and export facilities be provided; for example, the ability to view documents in their native format, or a transformation to another more portable format, or as XML files. The categories of vendors that have emerged are: Information governance players, which include ECM, RM and archiving vendors, that base their capability on existing and file archiving, records or content management, with associated litigation hold, preservation, processing, and early case assessment. Identification, collection, preservation and processing vendors that have either a workflow-based system for attorneys to track custodian-led collection or a search and information access system for the IT and legal departments to use. The vendors that focus on this part of the EDRM are also increasingly claiming to have early case assessment functionality. Vendors focused on processing, reviewing and analyzing documents, either early case assessment or a later state of review, including features such as document categorization, redaction and mechanisms to mark documents as privileged or in other ways to categorize and process them. This category includes the attorney review platforms that have been used for 10 or more years by the legal community to perform document review. It encompasses the older term litigation support databases. Changes in the Vendor Landscape There have been a few significant acquisitions in Autonomy acquired Interwoven, and EMC acquired Kazeon. Clients can expect more changes in the market, including mergers, acquisitions, exits, entries and repositioning. The predicted level of activity in the market is based on the facts that it is fast-growing, and contains large, established players and smaller, technologyrich startups. In addition, the evidence continues to accumulate that corporations can save costs and reduce risks by adopting e-discovery technology in-house, and so the growth of the market will continue. In these fertile conditions, a high degree of movement and change is inevitable. For a complete list of the market changes we have tracked in the past several years, see Dataquest Insight: E-Discovery Market Drives New Information Governance Investments. By the end of 2011, as the market moves from emerging to earlystage consolidation, and the early adopters continue to report their results, there will be 25% fewer vendors in the e-discovery market as a result of mergers and acquisitions and vendors exiting the market. Vendors in this report have met this year s inclusion criteria, including a significantly higher revenue threshold than in Gartner is, however, tracking and recommending other vendors in the market. The e-discovery challenge is complex and the approach that enterprises take varies by vertical industry, size of company, and litigation profile, along with other factors. Enterprises are approaching these challenges in various ways sometimes with very tactical point solutions, sometimes with more holistic approaches. There is still some room in the market for innovative and differentiated technology. The list of vendors that Gartner is tracking includes, but is not limited to:

8 8 StoredIQ: This is a competent vendor that performs identification, preservation and collection, with processing, review and analysis features. StoredIQ is a competitor to Autonomy, AccessData, Guidance Software and Kazeon, among others. Its heritage in search makes it a good choice for clients looking for flexible, powerful identification, collection, litigation hold and early case assessment. StoredIQ is positioned well to take advantage of growing market interest in information governance and legacy information management. Exterro: A competitor to PSS s Atlas Suite, Exterro enables litigation hold and litigation-hold-tracking, along with a workflow tracking of the entire e-discovery process. Its Fusion Genome product is a data map that is automatically and continuously refreshed and linked to the company s organizational structure. It allows enterprises to locate information sources relevant to particular matters. This map is continuously refreshed via automated means. Exterro s applications are built on an extensible workflow platform to support integration with other enterprise applications. Nuix: Nuix competes with Clearwell, Autonomy and other vendors that cover processing and early case assessment. It is highly referenceable among its current client base, with clients citing its scalability, speed, cost-effectiveness and language independence as key differentiating features. It is embedded as an OEM module in the solutions of highly regarded service providers and product vendors. Like many companies that do not have their headquarters in the U.S. (its headquarters are in Australia), its penetration of the vital North American market has been slower than that of some of its competitors. Starting from a different region is no barrier to success, but it does affect the revenue trajectory of the company. kcura: kcura s product Relativity is a Web-based review, analysis, and production platform that competes directly with CT Summation, Concordance, Autonomy s Introspect, CaseLogistix, FTI Technology s Attenex, Ringtail Legal and others. Relativity is offered as both an on-premises solution and a hosted solution by many well-known and highly regarded e-discovery service providers worldwide. Relativity has gained momentum by combining customizable workflow and scalability to accelerate the document review process. These vendors will be formally rated when and if they meet the inclusion criteria. There is no reason not to consider them now if they meet your company s needs. It is worth noting that no vendors in this year s MarketScope scored below Promising. That is an indication that user wants and needs and vendor offerings are converging into an offering that could possibly be evaluated by our Magic Quadrant methodology. This market has moved very swiftly from the emerging to consolidating phase, driven by the changes to the FRCP, the ever-escalating costs associated with keeping vast amounts of data that companies have accumulated over a decade or more of automation of business processes, and spiraling legal fees. For a further explanation of our methodologies and market trajectories, see Magic Quadrants and MarketScopes: How Gartner Evaluates Vendors Within a Market. Looking Ahead to Further Market Changes: Information Governance The recession has made end-user client organizations aware of the ways in which their own data management tactics are creating unnecessary cost. The drive for cost reduction, coupled with the pressures of e-discovery and regulatory actions, have raised awareness of the vast amounts of digital information that companies hold. Many of the vendors in the e-discovery space come from an information management background. The archiving and content management vendors, along with the information access vendors, are positioned to help their clients with technology to support better information governance. Many IT organizations have used the e-discovery driver to raise awareness with upper management that the digital landfill currently under their control must be dealt with to reduce the associated costs and risks. This is corroborated by Fulbright s sixth annual Litigation Trends survey, in which lawyers said that increasing scrutiny of legal costs had caused them to rethink both discovery and information management issues, with about one in seven saying they were using other methods to decrease the cost of e-discovery. Interestingly, a very common and, we think, ultimately futile approach to this has been to block access to social networking sites. As the number of companies that find it difficult or impossible to keep the content from social media sites out of the courtroom, we expect more will have active retention and usage policies that will again rely on good governance methods to work. When enterprises have dealt with their most urgent e-discovery issues, they are turning their attention to the larger subject of information governance. The next focus of end-user organizations will be using technology, people and process to manage legacy information, as well as to control more effectively the creation of data and content on a go-forward basis. The market for information governance products will overtake and subsume most of the vendors in the e-discovery market within the next five years, although a much smaller stand-alone market of pure-play vendors will remain. Enterprises are continuing to acquire e-discovery tools tactically but are increasingly guided by a strategic framework. Those vendors that have capabilities across the discovery spectrum (from identification through production) will be best positioned to take leadership of the e-discovery market. E-discovery projects are being seen in the context of an overall information governance or enterprise information management strategy. Achieving full proactive control of all data which is the ultimate answer to legal challenges will take at least five years, given the scale of the problem. Gartner encourages clients to view e-discovery solutions in this way, as reflected in the EDRM itself, which starts the discovery process with the task of information management. For most companies, full control over all the data they hold is several years away. However, e-discovery can serve as a driver to jump-start a program that will eventually reach every part of the enterprise and that will have quantifiable business benefits. Evidence is growing that corporations are trying to reign in legal spending at the source by adopting new strategies to deal with regulation. Initially, this will mean an increase in law firm work, but the ultimate goal will be to reduce overall legal spending by making

9 sure regimes are in place to manage all information, particularly legal and regulatory information, in a more systematic way (see Note 5). Against this background of increasing enterprise interest in information governance, success will be more elusive for new players, as user behavior changes subtly. E-discovery requirements have proved to be a powerful factor in forcing companies to think about the way they manage electronic information. As the scope of the legacy information management problem became clearer, IT executives, lawyers and corporate officers became aware of the vast amounts of money they spend on keeping data that is not in any way useful from a current business perspective. The recognition that information governance (including RM, archiving, content management, storage management and other technologies) must become an area of focus to control cost and risk is changing the market for e-discovery software. User wants and needs are beginning to coalesce around these components, but most organizations are too immature in their information management and governance practices to take advantage of them. Rule and policy development are prerequisites for making information governance work, and human resources must be dedicated to formulating and implementing policies. The vendor s governance platform components will be ready before companies are ready to take advantage of them. More Granular Market Coverage Gartner is moving to segment the e-discovery market into three distinct elements. The first is e-discovery software that speaks to the products behind the firewall products, which are covered in this report. Gartner has published two previous MarketScopes on this segment. The second segment of the e-discovery market on which we are focusing is hosted/software-as-a-service (SaaS) solution providers. These are the vendors that provide primarily processing, review and analysis via either a hosted platform or a SaaS model. Finally, the third segment we will be exploring is e-discovery professional service providers. These are primarily consulting companies that help the enterprise by providing the needed expertise and staffing to meet e-discovery needs. They often leverage e-discovery software, as well as hosted/saas, as part of their service delivery model. Inclusion and Exclusion Criteria To be included in this MarketScope, a vendor must meet the following criteria: Have a software product that can be licensed for implementation and use inside a company s firewall or by a third-party service provider. Cover at least three of the functional areas of the EDRM. Have e-discovery-related product and maintenance revenue of at least $15 million. Added Vendors We added EMC, CT Summation (Wolters Kluwer) and Concordance (LexisNexis) to this year s MarketScope. EMC s acquisition of Kazeon means that the two are now evaluated together. Dropped Vendors We dropped Nuix from this year s MarketScope as it did not meet the revenue criterion. We dropped i365 as the company has effectively exited the market. Rating for Overall Market/Market Segment Overall Market The necessity to react effectively to requests for information and subpoenas is forcing this market to grow swiftly. Users must navigate a confusing collection of vendors with conflicting ambitions, but the criticality of represented functionality will attract significant spending. In addition, large vendors have entered the market either organically or through acquisition. Clients have reported that they have saved money on storage, legal discovery services and spending on outside law firms by purchasing e-discovery software this year. The Positive rating is also based on the many vendors that have entered the market in the past three years, either with new functionality or by relabeling or finding new uses for existing products. Our own numbers, based on vendor surveys, indicate that vendor revenue is growing by 35% a year. The reasoning behind the rating being Positive and not the highest rating, Strong Positive, is the sensitivity of the market to external conditions, namely judicial scrutiny. We have also seen companies and law firms changing their tactics and the overall volume of litigation decreasing because of the excessively high cost of e-discovery. More cases are settled out of court and more are using alternative dispute resolution. The number of vendors involved and the remaining uncertainty over which way companies will choose to manage their data in the long term prevents us from rating this market as Strong Positive. Vendor Product/Service Analysis AccessData Founded in 1987, AccessData is a privately held company that has been addressing the e-discovery market since 2003, with a workforce of 170. Its software focuses on the identification, preservation, collection and processing phases of the EDRM. The AccessData product is well known to law enforcement officials and courts as a forensic data collection tool. AccessData can collect from a range of data sources, including desktops. Its search methodology supports multiple relevancy models and multiple file-culling methods and concepts. AccessData is able to do identification and collection on the basis of its distributed technology, which allows IT administration to place hidden agents on individual workstations. A high percentage of its customers are using these capabilities in support of multiple types of investigation (inappropriate activity, remote intrusion, e-discovery), and it would be valid to characterize them as general-purpose discovery and 9

10 10 Table 1. Evaluation Criteria Evaluation Criteria Overall Viability (Business Unit, Financial, Strategy, Organization) Customer Experience Market Understanding Sales Execution/Pricing Offering (Product) Strategy Product/Service Sales Strategy Comment Viability includes an assessment of the overall organization s financial health, the financial and practical success of the business unit, and the likelihood that the individual business unit will continue investing in the product, will continue offering the product, and will advance the state of the art within the organization s portfolio of products. In the e-discovery market, quality of partnerships is vital in overall viability. Relationships, products and services/programs that enable clients to be successful with the products evaluated. Specifically, this includes the ways customers receive technical support or account support. This can also include ancillary tools, customer support programs (and the quality thereof), availability of user groups, service-level agreements and so on. Ability of the technology provider to understand both the legal professional s and the IT department s needs and to translate these needs into products. Vendors that show the highest degree of vision listen and understand buyers wants and needs, and can shape or enhance those wants with their added vision. Market understanding in the e-discovery market includes thought leadership activities, such as participation in The Sedona Conference or the Electronic Discovery Reference Model group. Because of the strong tie that vendors must necessarily have with the legal community, we see such memberships and participation in forums that include both IT and legal professionals as vital to understanding present conditions and future direction. The vendor s capabilities in all sales and presales activities and the structure that supports them. This includes deal management, pricing and negotiation, presales support and the overall effectiveness of the sales channel. The industry has several pricing models that should be reflected here. Straightforward enterprise licenses and named user licenses are still important, but pay per use is a model that suits the e-discovery industry particularly well. The vendor s approach to product development and delivery that emphasizes differentiation, functionality, methodology and feature sets as they map to current and future requirements. In the case of the e-discovery market, adherence to the EDRM has been important, but as it is evolving, we expect vendors to be able to anticipate features and feature sets that do not necessarily reflect the standard model as it is now. Core goods and services offered by the vendor that compete in/serve the defined market. These include current product/service capabilities, quality, feature sets and skills, whether offered natively or through OEM agreements/partnerships as defined in the market definition and detailed in the subcriteria. Partnering for the right combination of features is especially important in the e-discovery market. The strategy for selling products that uses the appropriate network of direct and indirect sales, marketing, service and communication affiliates that extend the scope and depth of market reach, skills, expertise, technologies, services and the customer base. The e-discovery market has many channels that can be exploited. Vendors must have their resources aligned with the best channels and exploit as many of them as are viable, given resource constraints. Weighting High High High Standard Standard Standard Standard Source: Gartner