Migrated from eDJGroupInc.com. Author: Barry Murphy. Published: 2010-05-04 16:25:29Format, images and links may no longer function correctly. There is a definite sense of excitement in the eDiscovery market.  Corporations are beginning to deploy tools for in-house collection and preservation and early case assessment.  Vendors are seeing revenue increases and strong growth numbers.  M & A activity is on the rise, witnessed by Iron Mountain’s acquisition of Mimosa and Doar’s acquisition of Inference Data.  It’s easy to get caught up in the excitement and think we’re on the cusp of solving the eDiscovery problem.  But, now is also a good time to make sure that due diligence is served when implementing processes and tools to address eDiscovery.

The reason diligence is necessary now more than ever is that market heat leads to what can sometimes be a lack of customer-centricity on the part of solution providers.  Too often, the market heat gets providers chasing revenue at any cost instead of doing what’s best for customers in the long term.  For example, there are many EDD processing companies that are trying to become software companies.  These folks know the legal market (both general counsels and law firms), have experienced project managers, and know the ins and outs of the tools in the market.  What they don’t have is experience developing enterprise software.

Then, there are the software companies.  These folks know how to invest in R & D for enterprise software development, but they don’t have the sales relationships with the legal community, don’t offer the project management expertise, and often don’t have experience with the idiosyncrasies of eDiscovery like cracking open forensic images and providing optical character recognition (OCR) for image files.  Of course, I’m generalizing here – some vendors are laser focused on eDiscovery and can offer full functionality, but in general, most have at least some gaps.

In a perfect world, software providers and EDD processing houses could combine to offer both the software and process/project expertise that organizations need.  But, we are in an imperfect world where venture capital investors want a return sooner than later and over-capitalized vendors can’t figure out how to put themselves together for a 1 + 1 = 3 scenario.  Again, this is a generalization – some vendors have gotten together in just the way it should theoretically work.  And, time will tell if that model will be successful (I think it will, and the model will become more common as success stories emerge).

For the short-term, though, we’ll continue to see EDD service providers trying to become software companies (because a software company multiple is greater than a service company multiple and because EDD processing is being cannibalized by in-house software and EDD processing prices are coming down).  We’ll see software companies look at EDD service providers as either customers or resellers and not as strategic assets that could aid a product management group.  What this means for buyers in the market is that they will need to be extremely careful – and have to rely on good logic.  For example, I would not advise an enterprise to buy software from a services company that invests less than 1% of revenue into R & D.  Just as I would not recommend that an enterprise solely rely on immature software to solve all eDiscovery problems.  Rather, I would advice the enterprise to deploy best-of-breed tools that address their major pains and that provide ROI in the near-term and to rely on third-party expertise with real experience in the legal market.  Remember that vendors have their own agendas; it’s the buyers’ job to consider why a vendor is pushing a given solution and then decide whether to trust the vendor’s story or not.

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