HaystackID at ILTACON: A Quick Look at eDiscovery Industry Kinetics

Editor’s Note: HaystackID recently had an opportunity to attend and participate in the annual ILTACON 2019 event held from August 18-22, in Orlando, Florida. As part of our participation, HaystackID had an occasion to share on the topic of eDiscovery business trends as part of the first Litigation Support Day hosted by ILTA and led by David Hasman of Bricker & Eckler, David Horrigan of Relativity, and Philip Weldon of Fried Frank. Provided below is a short overview of the HaystackID presentation on industry trends as part of the Litigation Support Day State of the Union discussion.

A Quick Look at Industry Kinetics: Four Areas of Interest

A community quarry of content for mining, exploring, and using with existing resources to paint a picture of understanding in the areas of market size, investment activity, business confidence, and pricing expectations, the following four resources shared by HaystackID may be useful in considering the past, current, and future market kinetics of the business of eDiscovery.

Four eDiscovery Areas of Interest for Data and Legal Discovery Professionals

+ eDiscovery Market Size (Planning)
+ Mergers, Acquisitions, and Investments (Tracking)
+ eDiscovery Business Confidence (Projecting)
+ Cost of eDiscovery (Pricing)

An explanation with examples of each of these resources is provided below for your consideration.

Resource: eDiscovery Market Size Mashups

+ Purpose: Simple and Accessible Source for Market Size Information
+ Use: Planning for Industry Needs
+ Current Kinetics: Double-Digit Growth
+ Resource Listing: https://complexd.blog/market-size-mashups

The annual market size mashup from ComplexDiscovery was initiated in 2012 and originated out of a desire to reconcile published forecasts and data points for market size and industry growth. The mashup is simply an aggregation of published industry data points from research firms, industry commentators, and eDiscovery providers, modeled and presented to highlight market size and growth information. One goal of the mashup exercise was and continues to be the preparing and sharing of market size and growth information in a format that can be used in planning and presentations by those who may not have the funds to purchase costly research reports and subscriptions.

Today the mashup model contains cumulative data points from more than 40 published reports and references to market size and growth since 2012. The mashup has grown from the presentation of single chart sharing software and service information in 2012 to an expanded overview of the market that includes information on:

+ Combined eDiscovery Software and Services Market
+ eDiscovery Software Market
+ eDiscovery Services Market
+ eDiscovery Market Overview by Geography
+ eDiscovery Market Overview by Government/Non-Government Markets
+ eDiscovery Market Overview by Task
+ eDiscovery Market by Direct Deliverer Approach

Additionally, based on market sizing and segmentation information, providers of eDiscovery software and services can get a reasonable idea of how to answer the oft-asked question, “What share of the market do you have?” if they understand their revenue numbers and apply it to their specific segment in the eDiscovery ecosystem.

Examples of market size mashup information are provided in the highlighted charts on the overall growth of the market, both past and projected (Chart 1), as well as the eDiscovery market segmented by the general tasks of collection, processing, and review (Chart 2).

Chart 1: eDiscovery Market Mashup (Past and Projected)

eDiscovery Market Sizing_ Past and Projected – 2012-2018

From this macro look at past eDiscovery market size from to 2012 through 2018, and projected market size for 2019 through 2023, we strong and consistent double-digit growth rates for the market as a whole as well as for both services and software segments.

In looking through the lens of the past, we observe the following market size kinetics.

+ The combined eDiscovery software and services market spend grew from $4.73B in 2012 to $10.11B in 2018. This represented a 13.5% Compound Annual Growth Rate (CAGR) over the six-year period.
+ eDiscovery software market spend grew from $1.42B in 2012 to $3.02B in 2018. This represented a 13.4% Compound Annual Growth Rate (CAGR) over the six-year period.
+ eDiscovery services market spend grew from $3.31B in 2012 to $7.09B in 2018. This represented a 13.54% Compound Annual Growth Rate (CAGR) over the six-year period.

In looking into the future, we see an aggregate estimation of the following market size trajectories.

+ The combined eDiscovery software and services market spend is estimated at approximately $10.11B in 2018 and estimated to grow at a Compound Annual Growth Rate (CAGR) of approximately 13.09% to $18.7B in 2023.
+ eDiscovery software market spend is estimated at approximately $3.02B in 2018 (29.88% of the total market) and estimated to grow at a Compound Annual Growth Rate (CAGR) of approximately 13.23% to $5.62B in 2023 (30.03% of the total market).
+ eDiscovery services market spend is estimated at approximately $7.09B in 2018 (70.12% of the total market) and estimated to grow at a Compound Annual Growth Rate (CAGR) of approximately 13.03% to $13.08B (69.97% of the total market) in 2023.

Chart 2: eDiscovery Market By Task (2018-2023)

eDiscovery Market By Task (2018-2023)

From this mashup of market size by task over time, one can consider the following estimations that may be helpful in planning.

+ Spending on review-related software and services is estimated to constitute approximately 70% of worldwide eDiscovery software and services spending in 2018, with that number decreasing to approximately 65% by 2023. While the percentage of spend is decreasing over time, the actual dollar spend is estimated to increase based on overall software and services market growth, growing from $7.08B in 2018 to $12.15B by 2023.
+ Spending on processing-related software and services is estimated to constitute approximately 19% ($1.92B) of worldwide eDiscovery software and services spending in 2018, with that number remaining steady at 19% ($3.55B) through 2023
+ Spending on collection-related software and services is estimated to constitute approximately 11% ($1.11B) of worldwide eDiscovery software and services spending in 2018, with that number increasing to about 16% ($2.99B) by 2023.

As can be seen from these charts, the overall growth of the industry continues to be double-digit in nature. This growth, both in size and trajectory, presents a solid investment opportunity for investors and a consistent and robust growth rate for those creating or consuming eDiscovery offerings.

Any market forecast runs the risk of imperfect projections based on incomplete information and market kinetics, but the Market Size Mashup may be helpful as one of the many data points you consider as you seek to understand market size and growth.

Resource: Mergers, Acquisitions, and Investments (M&A+I) Tracking

+ Purpose: General Database of Industry Investment Activities
+ Use: Understanding Investment Patterns and Considering Past Investments
+ Current Kinetics: Strong Activity
+ Resource Listing: https://complexd.blog/eDiscovery-investing

The aggregated listing of eDiscovery-centric mergers maintained by ComplexDiscovery was developed to help track and understand investments and investment patterns related to the companies involved in the delivery of eDiscovery software and services to individuals and organizations in the data and legal discovery ecosystem.

Modeled after shortlists of investment information from industry commentators, the database was initially published on ComplexDiscovery.com in the 2010 time-frame and currently highlights almost 400 investment events beginning in November of 2001 through today. Based on publicly highlighted investment information that has been researched by or provided to ComplexDiscovery, the listing is not perfect in its completeness, yet it is complete enough to help to identify investments and investment patterns.

Information shared in the database listing includes the date of the event, parties involved, and the amount of the investment event if known.

As one of the goals of the database is to help business and eDiscovery professionals identify investment patterns, three examples of how the database helps in this area can be seen by the ongoing tracking of investments by year (Chart 3) and by month (Chart 4 and Chart 5)

Chart 3: eDiscovery Mergers, Acquisitions, and Investments Tracking By Year (2001 – 2019)

Merger, Acquisition, or Investment Events vs. Year

As of August 3, 2019, there had been 33 merger, acquisition, or investment events in the area of eDiscovery, a pace that would make it one of the most active years since 2001 even if no more events were reported in the second half of the year. This point certainly highlights that business confidence and market conditions both appear to be favorable for investment events. Drivers fueling investment in eDiscovery, based on observations of the market and conversations with commentators and value creators include:

+ Continued consolidation of eDiscovery product and service providers is being driven by a combination of the need for accelerated revenue growth, availability of distressed assets, and the access to investment money.
+ Increased focus on internationalization of business is being driven by the need to access new markets and revenue streams as well as the need to serve underserved markets.
+ Expanded focus on innovation is being driven by the commercialization of emerging technologies (e.g., artificial intelligence) and the increasing maturity of advanced technologies (e.g., predictive coding).

Simply stated, today it appears that the motivation is there for investments, the market is there for investments, and the money is there for investments.

Chart 4: eDiscovery Mergers, Acquisitions, and Investments Tracking By Month (2001 – 2019)

Merger, Acquisition, or Investment Events vs. Month

Chart 5: eDiscovery Mergers, Acquisitions, and Investments Tracking By Month (2019)

2019 Merger, Acquisition, or Investment Events vs. Month

In looking beyond annual investment trends, the database also provides data points for understanding investment events by month. At this point in the history of events in the database, January and June appear to be the most active months for the actual number of investments.

As with other research on ComplexDiscovery, this information is provided to help guide you as you mine the information you may need for your specific needs, whether those needs be research-related for understanding past events or funding-related to determine investment pulse rates.

Resource: eDiscovery Business Confidence Surveys

+ Purpose; Understand the Subjective Business Confidence of eDiscovery Ecosystem Professionals
+ Use: Understanding Business Performance Perceptions and Future Challenges
+ Current Kinetics: Stable Confidence Based on Climate, Revenue, and Profit Expectations
+ Resource Listing: https://complexd.blog/business-surveys

The quarterly eDiscovery business confidence survey from ComplexDiscovery was developed to help provide a systematic and consistent mechanism to harvest and report on the personal business confidence levels of individuals working in the eDiscovery ecosystem.

Modeled after out-of-industry business survey examples, the eDiscovery Business Confidence Survey consists of nine core multiple-choice questions designed to gauge confidence around the business climate, revenue, profits, and challenges. Additionally, there are three optional questions related to the business operational issues of Days Sales Outstanding, Monthly Recurring Revenue, and Customer Revenue Distribution.

Initiated in February of 2016, the survey has been conducted for fifteen consecutive quarters with the latest survey just being completed in late July 2019. Since its inception, more than 1,621 individual responses have been received from legal, business, and technology professionals in the eDiscovery arena, and the latest survey in the summer of 2019 has 173 respondents.

One of the primary goals of the business confidence survey is to arm eDiscovery creators, consumers, and commentators with normalized information that may help them better understand economic trajectories and marketplace challenges that may impact their business. One example of this information is the reporting of respondent identification of the issue they feel most will impact their business during the next six months (Chart 6).

Chart 6: Issues Impacting Business Performance (Summer 2019)

2 – Issues Impacting eDiscovery Business Performance

Results from the summer 2019 survey highlights that 27.2% of respondents view budgetary constraints as potentially having the most significant business impact on their business in the next six months.

Additionally, when we look at issue-reporting for all fifteen surveys, we can see trend information for all issues. Also, we see the fact that budgetary constraints have been a primary concern for respondents for eight of the fifteen surveys (Chart 7).

Chart 7: Issues Impacting Business Performance (February 2016 – July 2019)

5 – Issues Impacting eDiscovery Business Performance

While the non-scientific results of these subjective surveys are not comprehensive, they may provide you with data points that, when used with other information and your industry expertise, may help you plan, project, and present on the business of eDiscovery.

Resource: Cost of Discovery Semi-Annual Surveys

+ Purpose: Present Baseline Information on Price Bands for a Market Basket of eDiscovery Offerings
+ Use: Competitive Understanding of Industry Pricing for Use in Establishing and Adjusting Pricing and Purchasing Expectations
+ Current Kinetics: Commoditization Compression (Lower Average Costs) and Premium Pricing Opportunities (Value Driven Price Premiums)
+ Resource Listing: https://complexd.blog/pricing-survey

The semi-annual eDiscovery pricing survey from ComplexDiscovery was designed to provide general insight into eDiscovery pricing as shared by individuals working in the eDiscovery ecosystem.

The survey was developed out of a desire to understand acceptable pricing bands for twelve specific offerings across three core areas of eDiscovery. Those areas being collections, processing, and review. It was modeled after the eDiscovery Business Confidence survey in that it was not designed to boil-the-ocean and comprehend all pricing models and metrics, but was developed to provide a basic understanding of price ranges so providers and purchasers could establish pricing and purchase offerings with additional objective data points to inform their decisions.

Initiated in December 2018, the survey has been conducted twice, with the latest survey being completed in June 2019.

Three examples of survey information harvested from participating industry professionals include responses regarding the per-hour cost for a collection by a forensic examiner, the per GB cost to process ESI based on volume at ingestion, and the breakout of survey respondents by primary function.

Chart 8: Collection Pricing – Per Hour Cost for a Collection by a Forensic Examiner

Collection Pricing_ Per Hour Cost for a Collection by a Forensic Examiner

Here a quick graphical depiction of data harvested in the first two pricing surveys regarding the question of pricing per hour for a collection by a forensic examiner. As with most questions in the surveys, there are approximately four answers available, three answers with price band information and one for the account for respondents who may not have an answer. In these surveys, it is readily apparent that the sweet spot for this offering is between $250 and $350 per hour. The data also notes that approximately 7-9% of respondents appear to be open to paying more than $350 per hour for this service. This information may be useful for both providers setting prices and purchasers procuring services.

Chart 9: Processing Pricing – Per GB Cost at Ingestion to Process ESI

Processing Pricing_ Per GB Cost to Process ESI Based on Volume at Ingestion

Additionally, with this chart on processing, one can see that almost one-third of respondents believe the per GB pricing to process ESI at ingestion is under $25. Understanding this fact may be important if you are purchasing services and want to ensure you are getting the lowest price possible for what you might consider a commoditized offering. Also, if you are pricing processing as a provider and have a process, integration, or support that commands a premium, you have data that shows that almost 15% of responders believe pricing for this service to be higher than $75. A data point that may help if you want to set pricing at the upper end of the pricing continuum for this service.

Chart 10: Pricing Survey Respondents by Role (June 2019)

Survey Respondents by Primary Function

Last, but not least, this final chart provides and graphical breakout of survey responders by role. As seen in the data, more than two-thirds of the 81 survey respondents self-identified with the litigations support function in the latest (June 2019) survey. This information is especially relevant if you are wondering about the perspective of respondents and how that perspective may impact responses.

While there are many potential research references in the area of eDiscovery pricing, including your own experience as the number one source, hopefully, this information helps you by providing additional data points for pricing consideration. Data points that may help inform decisions for your specific needs.

Post Script: Data Points for eDiscovery

From ACEDS, ACC and  ILTA to Chambers, ClariLegal, and CLOC, there are many excellent resources for considering the business of eDiscovery. Analyst firms, associations, companies, and consortiums are chock full of industry data and details that may be helpful for building a comprehensive understanding of the business of eDiscovery. And hopefully, the four resources noted in this post and that share information on market size, investments, business confidence, and pricing considerations are additional data points that may be useful to you as you mine resources for meaningful data and market kinetics to inform your eDiscovery efforts.

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