KLDiscovery Inc.’s announcement of a roughly 18% drop in revenue for Q2 2020 is actually less than I expected. They also managed to cut operating expenses by 15.8% (which translates to a loss of people and office space). There are few publicly owned eDiscovery corporations. The majority privately owned companies tend to conceal their financial health unless they are actively soliciting a round of investment or a purchase. The eDiscovery market is hurting. While some expect a litigation rebound after the economy stabilizes, I believe that we may see a transformation in the legal services markets instead.
Christopher Weiler, CEO of KLDisovery Inc.:
“Our revenue during the second quarter was adversely affected by weak global economic conditions from COVID-19, the severe 33% annualized decline in the U.S. GDP quarter and the reality that the U.S litigation process and court system were slowed down substantially and have been operating at a significantly reduced capacity. The decreased litigation activity we are experiencing today however, does not mean these cases have disappeared, they are likely delayed and will be pushed out to the future. During the last recession, our Company prospered and was awarded some of the largest and most noteworthy matters borne from the economic crisis. I believe that once global restrictions are eased and businesses work towards resuming normal operations, we will benefit from this pent-up demand.”
Mr. Weiler is bullish on the rebound harking back to the waves of litigation after the 2008 recession. I recall supporting corporate clients through massive layoffs and asset fire sales in that 2008-2009 crash. Legal and HR were relatively immune to the budget knife. Everyone expected heavy litigation from all the broken contracts and economic chaos. The corporate response to the pandemic recession feels very different. Most of my current/former clients have successfully put the vast majority of their matters and retained firms/providers on hold. I am seeing essential legal/HR management personnel take early retirement, furloughs or being laid off. My GCs/AGCs are analyzing their matter spend like never before. I am getting questions like, “How could our internal team support more of the discovery?”
What they are really looking for are legal service models that are predictable, efficient and defensible. A recent EY survey on adoption of alternative legal service providers (ALSPs) shows the market broken into three roughly equal adoption groups (pioneers/explorers/observers). My take away is that there are many structured aspects of legal services ripe for ALSP managed service solutions (contracts, legal entity, compliance, due diligence, etc.) while the more varied regulatory and litigation disputes require more complex solution packages.
I believe that we cannot just ‘go back to the old normal’ after demonstrating how efficient remote work practices are. A recent ALA poll showed that 74% of respondents either agree or strongly agree that COVID-19 has made their staff more willing to change their working practices. So smart ALSPs should be using this down time to reinvent their offerings and consumption models to partner with law firms and corporations as explored by Dan Packel’s Law.com article. It is time to stop greedily clinging to the over simplified $/GB volume pricing and look at value based models that meet legal demands while minimizing volume, cost and time. Corporate discovery should not be a never-ending series of ad hoc fire drills. It should be a defined, quantified business process. That legal business process has many different approaches. One model has the internal team managing overall risk/cost decisions over firms/ASLPs running cases. Other models include complete in-sourced ALSPs or having a designated ‘discovery firm’.
My main point is that I do not believe that this is just a pause before returning to discovery as usual. I believe that this pause have given GCs, partners and providers a chance to re-evaluate the old ‘throw the custodian data over the firewall’ models. I am excited about these discussions and the chance to break up old tech/firm/provider models that have been coasting on momentum because no one wanted to rock the boat. Others have pointed at PC/TAR as the seed of eDiscovery 2.0 lifecycles. I believe that solutions that disincentivize profits from reviewers or data volume charges will have a greater impact on the eDiscovery lifecycle.
Greg Buckles wants your feedback, questions or project inquiries at Greg@eDJGroupInc.com. Contact him directly for a free 15 minute ‘Good Karma’ call. He solves problems and creates eDiscovery solutions for enterprise and law firm clients.
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