E-Discovery is growing. If you had any doubt about it, a quick look at this year’s Magic Quadrant for e-Discovery, would indicate just how tight competition is getting in the market with six companies in the Leaders quadrant and another four jostling to bust in from the Challengers Quadrant. But like all IT areas that have a high content element, the market is shifting.

Today we will look at that market and what exactly is happening, while we’ll take a look at the companies that made it into the Leaders quadrant a bit later in the week.

However, while criteria to be fulfilled to be included in the Leaders quadrant are stiff, to say the least, even to get in the Magic Quadrant at all this year is a notable achievement for those companies playing in the space.

As usual -- and we need to make the point here -- Gartner points out that any company looking to invest in e-Discovery software should look at all the companies included in the Quadrant in the first place and not just those in the Leaders quadrant, as all those listed substantial offerings.

Keeping that in mind, let’s take a look at the criteria needed for inclusion in the Quadrant. To be included, a vendor must:

  • Sell enterprise software licenses, a software appliance or SaaS conforming to Gartner's definition of SaaS
  • Address at least two of three broad functional areas, relating to the EDRM
  • Generate at least US$ 20 million in revenue per year from the sale of e-discovery software
  • Own the intellectual property and copyright to the software
  • Have at least 50 customers in production

What is EDRM?

We also need to take a look at EDRM, or the Electronic Discovery Reference Model, a framework against which all e-Discovery software should be measured. There are four groups of buyers that this concerns:

  1.  Those who wish to make the initial phases of e-Discovery in-house; in this case, IT managers tend to be the decisionmakers.
  2. Those who want to take control of the e-Discovery process and cost of document review; in this case, legal staff tends to be the decisionmakers
  3. Those that wish to consolidate the functionality across identification, collection, and preservation, with review and analysis software
  4. Those focused on information governance or information management who already own archiving or content management systems

Evaluation Criteria

Over the course of the last year, Gartner says, there has been an increase in the demand for end-to-end discovery functionality and Gartner has listed a number of criteria that customers should use when evaluating vendors. They include:

Ability to Execute

  • Product/Service: Vendors that offer litigation hold, collection and processing on one hand, or search, categorization and tagging capabilities
  • Overall Viability: An assessment of the overall organization's financial health and the likelihood that the business unit will continue to invest in the product
  • Sales Execution/Pricing: Capabilities in all sales and presales activities with transparent, predictable and flexible pricing
  • Market Responsiveness and Track Record: The ability to respond to changing business conditions and to realize success as opportunities develop
  • Customer Experience: Relationships, products and services or programs that enable clients to use the products they buy -- specifically, implementation experience and the ways customers receive technical support

Completeness of Vision

  • Market Understanding: A vendor’s ability to analyze the market and develop products that take market changes into account
  • Marketing Strategy: Clear and obvious both internally and through its public-facing activities such as websites and self-advertising
  • Sales Strategy: Clear and concise that uses a network of direct and indirect sales and marketing affiliates
  • Offering (Product) Strategy: According to Gartner, there were two major trends this year: Clients were looking for broader functionality across the EDRM, and machine-assisted review

Market Context

So what exactly is happening in the market this year? E-discovery is operating in a market that is well established and where more firms are searching for review software. It is not limited to legal firms, but is also used by judges and regulators, including government officials.

Corporations are all in the crosshairs over regulatory issues and are developing business processes to manage these things, as well as buying software that will support those processes.

There have been a number of disruptions to the e-Discovery market over the past five years. In the past, it was characterized by many small providers, and a handful of large ones, mostly employed indirectly by law firms to help them with the process.

The result is that specialization, custom services and manual processes were the order of the day. Because law firms had little incentive to control costs, Gartner says, and every incentive to reduce risk, the amount of money that was spent on these services was considered immaterial to the overall cost of a case.

Market Characteristics

The market is now characterized by high growth, increasing maturity and inevitable consolidation. There are new players entering to capitalize on the high growth area, while existing vendors are adding new functionality.

Big vendors -- such as HP, Symantec, IBM and EMC -- have made acquisitions in this space and Gartner expects that other big players will do the same, or build offerings of their own within the next 12 to 24 months.

Legal review tools with the capacity to perform the review and analysis and production functions carried out by lawyers and paralegals will be the most sought-after functionality that larger companies will be looking for in the next round of acquisitions.

Evolution of the Market So Far

It is within this context that the e-Discovery market has to be seen. Vendors have to respond to radically different buyer requirements as the market evolves.

Users are looking for end-to-end functionality, including review and analysis capabilities, even if the users are not actually using them. Those providing review and analysis have to provide more sophisticated and verifiable machine-learning techniques to analyze code and group documents and to pull relevant details for relevant silos for a given case.

There is also, of course, pressure to reduce costs while at the same time ensuring that no potential evidence in a given court case is missed.

However, while the technology involved for these kind of reviews has be around in the world of semantic analysis and machine learning for many years, in this space they are being applied to processes previously thought to be amenable only to human knowledge and effort.

As legal professionals see the value and understand the working of these techniques, they will become more accepted, and in five years they will be part of the standard operating procedure.

Market Evolution

The result is a market that is growing rapidly. Outside of North America, revenues for vendors in the space rose from 7% to 15% in the most recent survey period (2009 to 2010).

Historically, these revenues came from a market that was specialized, catering only to the needs of the legal profession usually associated with large organizations that were direct purchases of the products and services of these vendors. Decisions were typically based on risk reduction or convenience, rather than cost-effectiveness.

That has changed, and now, there is a greater focus on information in electronic form and functionality needed to manage that. This has also been severely affected by the explosion of data across the business and consumer worlds.

This year, Gartner says, will be marked by a consolidation in functionality to deal with information that runs across a spectrum that includes identification, preservation, collection, ECA or early case assessment, processing, review, analysis and production of data.

Future Market

The market will contain software vendors that deal with e-Discovery only as product groups or divisions in large well-known IT providers.

Traditional hosted review and analysis and service providers still command a large share of the total available business, though that part of the spectrum is consolidating and maturing.

While the e-Discovery software market this year was worth US$ 1 billion, it is growing and Gartner expects it to grow by 16% per year until 2015.

Vendor revenue has focused on the U.S., which accounted for 85% of market revenue in 2010. Growing awareness of e-Discovery issues in Europe, for both common-law and non-common-law jurisdictions, will result in expanding growth outside North America through 2012.

The entire e-Discovery industry is founded on a pile of redundant, outdated and trivial data. During the past 10 to 15 years, corporations and individuals have allowed this data to accumulate for the simple reason that it was easy.

Enterprises haven’t been able to solve this using electronic archiving, or enterprise content management. However, with e-Discovery, it is possible to at least identify information while at the same time pushing companies to rethink their information management policies.