Legacy eDiscovery Pricing Model is Dead

The King is dead. Long live the King (French: Le Roi est mort, vive le Roi!) is a traditional proclamation made following the accession of a new monarch in various countries, such as the United Kingdom.

The original phrase was translated from the French Le Roi est mort. Vive le Roi!, which was first declared upon the coronation of Charles VII following the death of his father Charles VI in 1422. In France, the declaration was traditionally made by the Duc d'Uzès, a senior Peer of France, as soon as the coffin containing the remains of the previous king descended into the vault of Saint Denis Basilica. The phrase arose from the law of le mort saisit le vif—that the transfer of sovereignty occurs instantaneously upon the moment of death of the previous monarch. "The King is dead" is the announcement of a monarch who has just died. "Long live the King!" refers to the heir who immediately succeeds to a throne upon the death of the preceding monarch.

The Legacy eDiscovery Pricing Model is Dead. Long Live the New eDiscovery Pricing Model (Legal Market Translation: end users are tired of paying way too much for eDiscovery) is a proclamation that we have been hearing for several years now. And, one that I have talked about on this Blog at some length.

2011 Could be the Year of Change? Given all of this, I believe, along with several others in the industry, that 2011 will be the year that sees an industry wide transition from per Gigabyte pricing based upon the amount of unprocessed raw Electronically Stored Information (ESI) to a more value based and more easily forecasted model. There are already some smaller regional litigation service providers that are offering flat fees for what amounts to Early Case Assessment (ECA), additional processing (if required to unpack data) and document review. However, it appears that most of the larger providers are still firmly entrenched in the legacy models.

The Cloud Will Effect Pricing 2011 is also the year of the eDiscovery moving to the Cloud with infrastructure-as-a-Service (IaaS), Software-as-a-Service (SaaS) and Platforms-as-a-Service (PaaS along with the other XXX-as-a-Service (XaaS) that will emerge (at least as a new acronym). And, this move will also have a dramatic effect on pricing. One of the value propositions for Cloud Computing is that there is NO UPFRONT COSTS FOR INFRASTRUCTURE and users only have to pay for what they use. In practice in the eDiscovery market when you start to examine private corporate clouds vs. true public clouds and what “users” will have to purchase / license, the full financial benefits of Cloud computing may not emerge immediately. However, I fully expect and would be very comfortable predicting that in the not too distant future in the eDiscovery market that there will be no upfront costs and pricing will in fact be based upon the value to the end user. The journey to that point, however, will be interesting and probably a bit bumpy.

Business Value-as-a-Service There is also a very new trend emerging that I call Business Value-as-a-Service (please not that this is my term and therefore you may not find it with Google Search or Bing) in which a large IT provider can offer to support an entire business line (e.g. corporate legal) with a all-you-can-eat comprehensive package of technology, consulting, services, training, etc. all for a flat monthly fee. The concept and the value proposition is to provide corporations with a predictable and repeatable cost structure. In some respects it is just a variation on a managed services approach. However, I think that the advent of virtualization and Cloud computing provide the added flexibility to be able to offer a truly comprehensive service for a flat fee.

2011 Theoretical Example So, what might a disruptive new pricing structure look like in 2011? One that would cause the market to chant, “Long Live the New King!”. Let’s assume that MegaCorp (my theoretical multinational conglomerate) has historically processed 25 terabytes of data with third party service providers and is looking to bring all of that in-house. Based on $500 per GB for processing (please note that this is just for example) , a 50% culling reduction, $25 per month per GB for review for 6 months and $5 per GB for Storage for another 6 months without review, the annual cost for eDiscovery for MeagCorp using the outsourcing model is about $15.5M.

If they decided to bring this in-house under a traditional model, the cost of the hardware and software would be about $5M in year one (1) with another $2M for annually for internal HR costs plus another $1.5M for Maintenance. Running these cost out over 3 years would be $11M (please note that this get really complicated when you start to factor in hardware obsolescence and upgrades, etc.). There is already a significant savings just bringing eDiscovery in house. However, what if pricing were calculated as a flat monthly fee with a five year buy in and some unlimited amount of usage?

What if we took the model and ran it out for 7 years, assumed that new hardware would have to be purchased/upgrades at least 2 times, HR expenses would remain somewhat constant and set a monthly fee of $350,000 for the full 7 years (please note that there is some amount of cost of money factored in)?

MegaCorp would have a predictable cost model, the vendor would have a build in predictable annuity and a new disruptive pricing model would be born. Please don’t read too much into my Theoretical Example as it is just “an example”.

Beyond 2011
Looking beyond pricing in 2011, I beleive that someday we will see self provisioned eDiscovery processing in the clouds with the user only paying for exactly what they use. True value based pricing. But then again, that is like science fiction in today's market.

Conclusion Everyone in the industry (with the lone exception of the service providers) have come to the conclusion that it is time for a new eDiscovery pricing model. And, I think that the market is wide open for new, innovative and disruptive alternatives. Should be an interesting year for all parties involved.

Labels: Cloud Computing, Early Case Assessment, ECA, eDiscovery, Electronic Data Discovery, IaaS, PaaS, Pay-for-use, Pricing, Saas

posted by Charles Skamser @ 4:19 PM 1 Comments

Building ROI for an eDiscovery Cloud Computing Model

Cloud Computing is an important step in the evolution of Enterprise Information Technology Systems.  And, without a doubt represents that next big paradigm shift in eDiscovery Information Technology. 

As such, I plan to dedicate my blog for the remainder of the year to investigating and reporting on Enterprise eDiscovery in the Cloud.  As an adjunct to this blog, I have also started a LinkedIn Group called “Enterprise eDiscovery in the Cloud”.  Click Here to join this LinkedIn Group.

As a place to start the discussion, I want to present and then begin to analyze an absolutely outstanding whitepaper titled, “ Building Return on Investment from Cloud Computing”, by Mark Skilton, Director, Capgemini and other members of the Cloud Business Artifacts Project, that I found on the OpenGroup Website.

Cloud Computing is not a sliver bullet; is not going to be easy or inexpensive to implement; and, may not necessarily be the correct infrastructure and/or application delivery mechanism for either vendors or end-users within the eDiscovery market.  However, done properly with an appropriate amount of planning and with the support of the “right” partners.  I predict that Cloud Computing will be the “next big thing” and will propel eDiscovery technology capabilities to a level not readily available today.
The full text of the whitepaper by Mark Skilton and other members of the Cloud Business Artifacts Project is as follows;

Introduction

Cloud Computing has been described as a technological change brought about by the convergence of a number of new and existing technologies.
The promise of Cloud Computing is primarily the following key technical characteristics (see Above the Clouds [4]):

• The ability to create the illusion of infinite capacity; the performance is the same if scaled for one, to a hundred, or a thousand users with consistent service-level characteristics.
• Abstraction of the infrastructure so applications are not locked into devices or locations.
• Pay-as-you-go usage of the IT service; you only pay for what you use and with no or minimal up-front investment costs. You typically just use the service through a connection and device.
• The service is on-demand; able to scale up and scale down with near instant availability. Typically, no forward planning forecast is required.
• Access to applications and information from any access point.

But this is only half the story. These technical characteristics can also be found in non-disruptive technology solutions. The rate of change and magnitude of cost reduction and specific technical performance impact of Cloud Computing are not just incremental, but can give a five to ten times order of magnitude improvement.

The Capacity-Utilization Curve

The famous graph used by Amazon Web Services illustrating the capacity versus utilization curve has become an icon in Cloud Computing. The model illustrates the central idea around Cloud-based services enabled through an on-demand business provisioning model to meet actual usage.


The Capacity versus Utilization Curve
Why this matters to business is that one of the core precepts of Cloud Computing is to avoid the cost impact of over-provisioning and under-provisioning. This is in addition to the opportunity for cost, revenue, and margin advantages of business services enabled by rapid deployment of Cloud services with low entry cost, and the potential to enter and exploit new markets.
We contend that in years from now, when Cloud Computing is seen in a historical context, the capacity versus utilization curve will be seen as an iconic model that had the same effect as previous well known business models.


Iconic Business Models
Examples of these include:

• The Moore’s Law model that establishes the concept of exponential growth in computational power but has subsequently been seen in other technology areas, including storage and network
• The technology hype cycle that established the emergence of innovation lifecycles, and is developed in publications by Charles H. Fine [2] and Clayton M. Christensen [3]
• The Boston Consulting Group Growth-Share Matrix that can be used to show how key industrial markets and products and services undergo transitions as the maturity lifecycles emerge, grow, and recede

But what does this potential icon mean for business? Matching capacity and actual utilization on demand improves operational efficiency, but is that all there is to it? Capacity and utilization are Key Performance Indicators (KPIs). They measure how much or how little something is being used. But is this aligned and being used to generate Return on Investment (ROI)?

Race to the Bottom versus Quality of Service (QoS)

The positioning of Cloud Computing, while initially seen as a disruptive technology influence on both buyer and seller prospects, is now evolving into a trade-off between low-cost arbitrage and added value Quality of Service (QoS).


Race to the Bottom
The terms “race to the bottom” or similarly the “prisoner’s dilemma” refer to the competing drive between participants in a market driven by the need to make the greatest cost savings. The term is often seen in a negative context, as the lower costs and margins are seen as a detriment to the participants. Massively scalable services from Cloud Computing providers have the effect of driving down costs and prices, as the dynamics of competition are shifted by the presence of potentially rapid cost reductions and huge data center investments.
The counter-balance to this is the Quality of Service (QoS), and the associated Cost of that Service (CoS) that characterizes the value of the cost per unit of performance provisioned (see the discussion on the Financial Value Perspective of Moving from CAPEX to OPEX and Pay-as-you-go).
The differentiator of Cloud Computing is not just the utility infrastructure computing services, but includes all the higher-level services that enhance and build business service value. We see this as the influence and scope of the movement from IT-centric to business-centric services across a wider services continuum, with utility services for infrastructure at one end, and with business-centric software and business processes delivered as a service from the Cloud at the other.
In addition, the need to provide adequate security should be considered. People are willing to pay a little more for a service if they are assured that there will be good security measures in placed.
This issue is highlighted in this White Paper as it has a direct bearing on the Cloud Computing ROI debate and how it is measured:

• Pricing and costing of Cloud services
• Funding approaches to Cloud services
• Return on Investment (ROI)
• Key Performance Indicators (KPIs)
• Total cost of ownership (TCO)
• Risk management
• Decisions and choices evaluation processes for Cloud services

The discussion of the market dynamics of Cloud Computing is not developed further in this White Paper, but is a recommended area of research going forward as more products and services become Cloud-enabled.

Traditional IT Compared to Cloud Computing

The iconic capacity versus utilization curve of Figure 1 provides a yardstick of current thinking in Cloud Computing provisioning. It is shown here for increasing demand, but the same model can be applied to both growth and decline of capacity demand in a periodic pattern typical of many businesses.
The following shows some of the characteristics of traditional IT compared to Cloud-Computing.
Traditional IT

• Hardware is hosted on the premises of the organization and/or manage hosted.
• Hardware and software is provisioned for peak demand.
• Service management monitoring is used to generate forecasts of demand usage and current SLA performance.
• Chargebacks and compensations are used to adjust usage and payments.
• Under-provisioning and over-provisioning of capacity can result from unforeseen demand changes.
• Business invests in ownership of assets that can be enhanced and extended through IT programs and development.
• Changes to IT involve migration and divestment/investment issues and programs.

Cloud Computing

• Hardware and/or software is hosted off-premise (public or hybrid) or on-premise as a private Cloud service.
• Services are provisioned and used based on actual demand, providing this elasticity as a managed service.
• Services are typically focused on short-term “burst” demand to gain cost savings over provisioning and owning the assets.
• Statistical automated scaling is used to optimize the shared virtual assets.
• Risk is transferred from the buyer to the seller/provider of the Cloud service.
• Cloud sellers and providers seek to grow amortized economies of scale through increasing the numbers of users of the shared resources.
• The IT infrastructure and operation is masked from the service user. Cloud is more than just SaaS.

New Technology Adoption Lessons from Other Industries

Understanding the characteristics of Cloud Computing can be assisted by observations from other industries that are in the process of transformation. Lessons from alternative power sources such as solar energy and wind power contain examples of issues that resonate with familiarity in the Cloud Computing context.
When comparing Cloud Computing to solar and wind energy there are similar adoption issues:

• Potential unlimited energy resource
• Challenges to distributing efficiently
• Demonstrating its value over traditional/other alternatives

Solar Energy and Wind Power
Just taking a look at the solar energy and wind power characteristics:

• Global current human demand in 2009 is 16 terawatts; this is predicted to rise to 20 terawatts by 2020 (refer to Wikipedia: World Energy Resources and Consumption).
• Sunshine on earth area 120,000 terawatts (174 petawatts – 30% reflected back); that is, 60,000 times more than demand (refer to Wikipedia: Solar Energy).
• 100 square miles of solar farms with today’s technology could collect enough power for the whole of the USA (refer to US Department of Energy on solar energy).
• Germany is a leader in solar power – a country with average to poor locality for sunshine but demonstrating leadership (refer to Wikipedia: Solar Energy).
• 10/15 solar farms can generate 1.3 Gigwatts = medium size coal power station (refer to Wikipedia: Solar Farm).
• California law states 20% power from renewables by 2010 (refer to the California Energy Commission on renewable energy programs).
• President Barack Obama Federal Renewables Policy requires 25% from renewables by 2025 (refer to the US Environmental Policy).
• 25% of UK electrical power could be sourced from 6000 220m tall wind turbines positioned 100 miles off-shore in the North Sea (refer to the UK Government Carbon Trust).

New Technology Adoption from a Buyer’s and Seller’s Perspective

Examining the issues of effective wind power or solar energy compared to contemporary energy sources draws parallels with the challenges we also see in defining new technology adoption.
Sellers of resources and services characteristically focus on their operation and technical development, and how they can enable effective business models for existing and potential new customers and markets.
Buyers are typically not concerned about how the sources of energy, resources, or services were generated and delivered. They seek to understand whether their businesses can be supported by the products or services, and whether these can be reliable and cost-effective. Buyers want to know the choices on offer and how they may be able to enhance or swap resources and services for improved business performance.
The following shows some of the concerns of buyers and sellers of new technology.
Buyers

• Don’t care where the service comes from or what medium was used to generate it.
• Does the service address the business requirement?
• Is the QoS reliable?
• What are the switching costs from one energy provider to another?
• Is the service cost effective?
• There are advocates and dissenters.
• Can I use the service when and where I need it?

Sellers

• Efficiencies of production compared to existing alternatives.
• Storage of the service and use in service to meet on–demand needs at point of use.
• The cost of (architecture) to deploy and distribute the service.
• Purchasing incentives and direct governance investment.
• There are advocates and dissenters.
• Location, security, and access?

In Cloud Computing the common themes in engaging sellers and buyers in the new technology provisioning model includes three key questions:

• How does Cloud Computing compare to traditional IT? This principally relates to the comparison of service-level performance and license costs.
• What can I not put in the Cloud? Answers typically include UNIX systems, mainframes, and very high I/O applications, but pretty much anything can be co-located or hosted in an elastic virtual container environment. Beyond the technical definitions there are the business processes and provisioning models that set Cloud Computing apart from its predecessors of utility computing and virtualization.
• How does Cloud Computing impact revenue and budget lines? This issue involves the cost/performance enabled by virtualization and economies of scale, and the lowered need for up-front investment. Movement of revenue to Cloud providers may need to be balanced by sale of added-value services.

Above and Beyond the Clouds

There are many definitions and viewpoints provided by the sellers of what is now termed “Cloud Computing”. Much of the vocabulary used is defined from the perspective of IT performance and capacity, and the impact of cost savings of asset ownership and variable seller service costs. Yet all these have direct cost-benefit impact on the business consumers of the end services and how they compete and deliver products and services in their industry.
Many business IT departments have addressed emerging trends through actions to drive cost reduction and leverage IT service providers’ adoption of Cloud style services. Many industry organizations and leading IT suppliers of software, hardware, and services, seeking to address their customer needs, have vigorously evaluated and followed a Cloud-style strategy. The challenges and issues are in the transition from the current traditional IT to the new potential capabilities of Cloud Computing. They must be expressed in a language that business end users can understand, and relate to investment, cost improvements, or business performance.
Closer to home in understanding the issues of Cloud Computing, we can draw upon the University of California, Berkeley RAD Lab. White Paper Above the Clouds [4]. This highly informative paper identifies the technical issues for Cloud adoption, and its potential for business benefits and technical challenges. The paper also sheds light on the value that these technical scenarios can provide to business:

• Avoid missed business opportunities from under-provisioning and over-provisioning (Page 1)
• Responsive Service to variable demand (Page 2)
• Pursue emergent and explorative new business market opportunities hitherto unforecast or predicted (Page 2)
• Perform cost associative tasks fast and lower cost (Page 2)
• Decouple utility services and brokering from business front end (the “fab-less” chip foundries example) (Page 3)
• Make more money from amortizing economies of scale (Page 4)
• Leverage existing investments through hybrid means (Page 4)
• “Anywhere” services, “border-less” delivery (Page 4)

This interpretation of the Above the Clouds White Paper in a business-issue context illustrates some interesting aspects of Cloud Computing potential.
The decoupling of resources and provisioning (what can be termed “back end”) from the “front end” business use through intermediation follows much the same argument as Why Buy the Cow [5] from Ivar Subrah on how on-demand powers the economy and The Big Switch [6] by Nicolas Carr that takes the analogy even further with distributed industrial IT services.
The business of IT becomes that of leveraging the products and services through competing platforms and channels to defend, attack, and build customers and market share (see the discussion on the Importance of a Business Perspective of the Cloud).
However, a secondary issue from this, described as a “race to the bottom” by many industry observers, arises where commodity charging lowers the cost, removing margin benefits. The counter-balance to this is the Cost of Service (CoS) and Quality of Service (QoS) charges and added value on top of the products and services. We explore this in the next section.
Even after the passing of time from the date of publication of Above the Clouds [4], the technical challenges are still evident, but they are becoming less so with the evolution Cloud services and technology.
The Above the Clouds paper famously asserts that Private Cloud is not Cloud Computing (Page1) as it is not open to the general public, which is part of the original definition. This illustrates that definitions of Cloud are still evolving, and perhaps the definition commonly assumed in the marketplace today does not necessarily require openness, though it still retains the central concepts of elastic capacity and provisioning.

Building Return on Investment from the Cloud

The central theme of this White Paper is how to go beyond the initial capacity and utilization benefits described in Cloud Computing.
The view of capacity and utilization is a technology provider/seller viewpoint which is essentially based on key performance indicators (KPIs) rather than business benefit metrics.

• IT capacity, as measured by storage, CPU cycles, network bandwidth, or workload memory capacity is an indicator of performance.
• IT utilization, as measured by uptime availability and volume of usage is an indicator of activity and usability.

But effective cost/performance ratios and levels of usage activity do not necessarily imply proportional business benefits. They are just indicators of business activity that are not in themselves more valuable than lower operating cost. There are, however, business metrics that translate the indicators of the capacity-utilization curve to direct and indirect benefits to the business, as illustrated in Figure 5.


Business Metrics Derived From Capacity/Utilization
These metrics are described in the following sections.

Speed of Cost Reduction – Cost of Adoption/De-Adoption

The introduction of Cloud Computing as an option transforms cost of ownership and changes the dynamics of the provisioning cycle in a number of fundamental ways.
The speed and rate of change of cost reduction can be much faster using Cloud Computing than traditional investment and divestment of IT assets. In Cloud Computing the buyer can move from a CAPEX to an OPEX model through purchasing the use of the service rather than having to own and manage the assets of that service. This responsibility is transferred to the service provider.


Speed of Cost Reduction, Cost of Change
The use of Cloud Computing to the user also potentially means a movement to a pay-as-you-go style billing model which can have different tariffs and contractual obligations compared to traditional IT ownership. These can include minimum usage periods and flexible pricing per usage profiling (see the discussion on the Financial Value Perspective of Moving from CAPEX to OPEX and Pay-as-you-go).
The key issue is the ability to adopt and remove the service either at the point of use (to scale up and down) or to make choices to use new services or change service provider.
Migration between Cloud services is still a challenge. There are portability and interoperability issues.. And hosting corporate and personal data and knowledge on the Cloud can make customers of Cloud services dependent on the providers.
There is a trade-off between the benefits of speed, cost, and Quality of Service (QoS) from a particular Cloud service provider and their ecosystem of services versus the flexibility and choice of alternative services and Cloud solutions.
The cost of change in an ROI business case is less in Cloud Computing as the choice of selected Cloud services is more stable and more cost-effective than traditional ownership.

Optimizing Ownership Use

The use of IT has become an enduring feature in all organizations today. The investment in data, knowledge, and infrastructure assets and software code now represent many lifeblood operations for businesses.
But many of the issues of cost of ownership are often decoupled from choices made during selection of new IT, and the impact on the long-term running and maintaining of these IT services and subsequent business usage is not properly considered:

• Technology design choices and purchasing are often done by strategic or tactical contractual purchasing based on project requirements, with little consideration for optimizing running and maintainance over the whole system lifecycle, but
• The cost of maintenance and modifications often represent a significant part of the asset lifecycle beyond initial provisioning.

The ability to “design and provision for run”, so that the choices of IT procurement are aligned with the best options and performance for long-term operation, has long been an ideal goal of business and IT. But, while technical trends such as OO, SOA, and Web 2.0 have brought functional improvements, the improvements in runtime infrastructure support have always been illusive.
A key aspect of moving to Cloud Computing is the ability to select hardware, software, and services from defined design configurations to run in production. Cloud Computing in effect seeks to bridge the design-time and run-time divide and optimize service performance. Patches and upgrades or new technology are in theory invisible to the end user of the service as they are included as part of the automatic asset management features.


Optimizing Ownership Use
Cloud Computing can help an enterprise achieve the goal of a more cost-effective asset–management lifecycle process for the IT portfolio, to optimize both design and run-time performance.
While the capacity-utilization curve can reflect overall usage, this can be broken down to identify which assets need to be supported in this way and to rationalize, consolidate, and optimize the assets that need to perform for business goals.
The key benefits to Cloud Computing ROI from a business case perspective are in the optimization of the total asset portfolio.

Rapid Provisioning

Elastic provisioning to scale up and down to actual demand creates a new way for enterprises to scale their IT to enable business to expand.
The provisioning time compression from a week to hours, for example, demonstrated by Cloud Computing sellers/providers is a means to rapid provisioning that is not just about saving time but is also defining a new business operating model.
Organizations can review and develop business plans and then deploy infrastructure and services in a more rapid and proactive way.
Customization and development, testing, and support can also been seen in a new light with the provision of IT services in a dynamic fashion targeted at business needs.
Buyers and sellers can view rapid provisioning as a marketplace of services. Sellers can offer rapid provisioning services that sustain buyer needs for existing IT services, offer choices for innovation, and enable rapid introduction of new technology.


Optimizing Time to Deliver/Execution
The impact of rapid provisioning on ROI business cases can be profound. Examples in the government/federal sector as well as financial services and consumer goods are already evident and pointing the way to the emergence of online Cloud-based marketplaces as de facto standards for current and future trading between suppliers and buyers of services.

Increase Margin (Make More Money)

One of the core precepts of Cloud Computing is to avoid over-provisioning and under-provisioning. This is in addition to the opportunity for cost, revenue, and margin advantages of business services enabled by rapid deployment of Cloud services with low entry cost, and the potential to enter and exploit new markets.
What makes Cloud Computing exciting is that the potential for business is not just the incremental change improvement but the disruptive transformational effect Cloud Computing can have from the possibilities of new business operating models.
Cloud Computing enables business to pursue new and existing markets by rapid entry and exit of the products and services. It enables enterprises to “land and expand” in markets with an infrastructure and service capacity that can grow with the business.


Optimizing Margin
Cloud Computing removes the need for additional infrastructure to test and enter markets for business (a key benefit feature particularly for small to medium size organizations).
Cloud Computing has an impact on the margin through cost reduction and through economies of scale to make more use of the same resources.
The impact on a ROI business case is that an enterprise can make more money or better use of existing investments through Cloud Computing.
There are many cases of companies large and small that can enter and develop service offerings through a “long tail” (refer to the publication by Chris Anderson [7]) approach enabled by Cloud Computing infrastructure. Existing and new markets can be attacked and entered through speculative and well-timed interventions to exploit and grow business performance.

Dynamic Usage – Elastic Provisioning and Service Management

The focus on capacity and utilization can be taken further through arrangements with Cloud Computing service providers/sellers that enable dynamic usage provisioning.
Traditional licensing associated with ownership, number of users, support, and maintenance costs and services are being challenged by the pay-as-you-go model found in on-demand Cloud Computing.
Cloud Computing is more than restructuring software and hardware and support licenses into a kind of periodic rented or lease license. It is targeting the end usage of the services at the point of real business need of the number and scope of users of the IT service (see the discussion on the Importance of a Business Perspective of the Cloud).
With either fixed usages volumes or variable functional usage, new innovative consumption models enabled by Cloud Computing allow businesses to consider using IT in a flexible and agile way.
This can range from the “freemium”, “contractless” service that you use or pay by credit card and advertizing revenues or specific pre-allocated bands of services and software functionality over a defined period of use (see the discussion on the Financial Value Perspective of Moving from CAPEX to OPEX and Pay-as-you-go).


Elastic Provisioning
Cloud Computing can change the ownership process from buyer to seller in the sense that IT becomes a commodity purchase, and buyers focus on outcome-based performance and choices.
The impact of dynamic provisioning on the Cloud Computing ROI business case is that the façade of service management becomes more “digital”. With the emergence of Internet services, it is now commonplace in residential markets for services and products to be viewed and provisioned online.
This expectation is now translated via Cloud Computing into the business world, where online service catalogs, self service, and automated services are increasingly part of the consumer experience.

Risk and Compliance Improvement

The green sustainability issue is equally valid in Cloud Computing and seen by a number of industry observers as an argument that moving into a Cloud environment will help organizations improve their carbon footprint.
This perhaps shifts the problem to the Cloud service providers as their industry potentially becomes a huge sink for electrical emissions from massive scale computing data center services.
It is expected that this challenge will be met as technological and design improvements address the energy consumption growth patterns. The benefit to the economic and emission footprint from the use of shared services is expected to have an improved impact compared to leverage of existing assets.


Green Costs of Cloud – Sustainability
A secondary effect, however, is the growth of more Cloud service users as the Cloud Computing paradigm takes off. As the cost and emission footprint per Cloud service falls, more services per cost can be consumed. As more advanced services emerge (the term “multiplicity” – see [8] – is now starting to emerge as large workload and cost-sensitive processing is moved to the Cloud and multiple processing made possible) then so can “usage creep” occur as the consumption rates further increase the usage of Cloud Computing services.
The alignment of compliance is a wider issue that includes green and legislative issues facing organizations and specific industry sector policies.
The impact on the ROI business case from using Cloud Computing services is directly relevant to sovereignty, security, and management of services risk containment. Cloud Computing domains cut across these complex issues and are directly affected by decision processes to adoption off-premise services.

 

Discussion: Financial Value Perspective of Moving from CAPEX to OPEX and Pay-as-you-go

Software as a Service (SaaS), utility computing, and Cloud Computing are recent themes in IT that seek to change the provisioning and utilization of IT.
Key to this is the change in cash flow and cost of capital investment.

Cash Flow

Moving to a pay-as-you-go model means the cashflow of your business is changing. Sources of revenue and outgoing cash expenditure are on a usage basis based on a unit such as time, volume, or component. Cash flow – Cash Flow after Taxes – is a financial measure of a business ability to generate cash flow through its operations. Moving from a CAPEX to an OPEX model develops the use of operational expenses rather than capital assets and the treatment of operating statements rather than balance sheet management. Cash flow describes revenue, cash, and working capital changes that flow within part of the operating expenses liquidity and available usage of funds. Adopting the Cloud Computing paradigm seeks to make more money (increase revenues) while driving capital costs down through greater efficiencies of working capital and OPEX changes. Calculations of Net Present Value (NPV) of investments often need to consider the discounted cash flows of the cost of capital (WACC) to assess the value of the investment return. Cloud Computing seeks to minimize or zero upfront investment and to drive improved asset usage ratios, Average Revenue Per Unit, Average Margin Per User, and cost of asset recovery.

Cost of Capital

Moving from CAPEX to OPEX is a change in the basis of capital investment usage as upfront and ongoing costs are changed by the Cloud Computing business model. The focus is on the ability to maximize the leverage of that capital to acquire IT and business services while minimizing the risk to the business in capital used for initial investment and ongoing maintenance charges. While moving away from investments in long-term assets may be seen as context of Cloud Computing, this implies a move towards long-term OPEX-style service where QoS and costs are still equally relevant regardless of asset ownership. The common factor is the business performance and SLA requirements.
A company with a high cost of capital (WACC) and which would benefit from bringing in their tax shield (high CFAT), is a candidate for shifting CAPEX to OPEX – but other aspects of the business context may contradict that candidacy such as availability of appropriate solutions and security constraints on using shared services. If CAPEX to OPEX is desired, then the company should be considering and evaluating outsourcing solutions, including public Cloud solutions, hybrid Cloud, and Private Cloud solutions.
Cash flow can be an important indicator if CAPEX to OPEX is the focus. Pay-as-you-go can be seen as easier on cash flow than pay-upfront. But both cash flow considerations may not necessarily exist in the same business scenario. For example, a business may want to improve cash flow through moving to a direct usage model but still retain investment in CAPEX for differentiated private business processes.

OPEX

Using an OPEX model can potentially remove and release capital that would otherwise be used for initial investment and ownership of IT assets. Alternatively, investment in a Cloud Computing platform may require capital investment and changes to the payment and funding of the service as it is amortized over a wider shared service model for economies of scale.
The cost of capital from sources of equity and cost of debt point of view can change for private and public/federal industries that have stock market/shareholders or government sources of funding.
If the overall goal is to maximize the use of capital by best use of the debt and equity funds, in Cloud Computing the use of OPEX moves the funding towards optimizing capital investment leverage and risk management of those sources of funds.

Pay-as-you-go and Pay-by-the-drink

There are other ways of getting the equivalent to pay-as-you-go besides outsourcing/public Cloud. Financing and leasing are both forms of pay-as-you-go, as is a monthly software “rental fee” – or any other form of software licensing which shifts payments into the future. A close cousin to “pay-as-you-go” is “pay-by-the-drink” – usage-based billing. This type of billing can be construed to help with cash flow, but arguably, usage-based billing is only beneficial (to the subscriber) if bill amounts are predictable and controllable. If not, then neither the subscriber or the provider can budget effectively, and consequently the subscriber pays a premium for bursting capacity, and/or the provider (and thus the subscriber) oversubscribes the resources and runs the risk of a capacity shortage (“brownout”).
If the billing basis is not tied to business activity or business outcome metrics, then most commercial utility service buyers typically opt for a monthly or annual baseline fixed rate. In other words, of the billing is tied to metrics which the business can predict and control (business metrics) then the preference is for usage-based billing: but if the billing is based on IT infrastructure and/or application metrics which the business cannot readily correlate to the business activity enabled, then fixed rate billing is preferred. Likewise, residential buyers of utility services such as cell phone service are being offered fixed rate monthly billing to ease budgeting.
The following section examines some of the metrics and performance indicators that drive business towards the Cloud Computing value model.

Cloud Computing Key Performance Indicators and Metrics

Cloud Computing introduces an expanded context for service-oriented business and IT.
Developing ROI models that show how Cloud Computing adoption can benefit both business and IT consumers and providers involves examining the key technology features and business operating model changes.
This section gives an overview of ROI models to support Cloud Computing assessments and business cases in two aspects:

• Key Performance Indicator ratios that target Cloud Computing adoption, comparing specific metrics of traditional IT with Cloud Computing solutions. These have been classified as cost, time, quality, and profitability indicators relating to Cloud Computing characteristics.
• Key Return on Investment savings models that demonstrate cost, time, quality, compliance, revenue, and profitability improvement by comparing traditional IT with Cloud Computing solutions.

The overview of Cloud Computing ROI models considers both indicators and ROI viewpoints.
Figure 12 shows an overview of Cloud Computing ROI models and KPIs.

Cloud Computing ROI Models and KPIs

Cloud ROI Cost Indicator Ratios

Figure 13 shows the cost indicator ratios, and outline explanations are given below.

 
Cloud Computing ROI Models – Cost Indicator Ratios
Availability versus recovery SLA:

• Indicator of availability performance compared to current service levels

Workload – predictable costs:

• Indicator of CAPEX cost on-premise ownership versus Cloud

Workload – variable costs:

• Indicator of OPEX cost for on-premise ownership versus Cloud; indicator of burst cost

CAPEX versus OPEX costs:

• Indicator of on-premise physical asset TCO versus Cloud TCO

Workload versus utilization %:

• Indicator of cost-effective Cloud workload utilization

Workload type allocations:

• Workload size versus memory/processor distribution; indicator of % IT asset workloads using Cloud

Instance to asset ratio:

• Indicator of % and cost of rationalization/consolidation of IT assets; degree of complexity reduction

Ecosystem – optionality:

• Indicator of number of commodity assets, APIs, catalog items, self service

Cloud ROI Time Indicator Ratios

Figure 14 shows the time indicator ratios, and outline explanations are given below.

Cloud Computing ROI Models – Time Indicator Ratios
Timeliness:

• The degree of service responsiveness
• An indicator of the type of service choice determination

Throughput:

• The latency of transactions
• The volume per unit of time throughput
• An indicator of the workload efficiency

Periodicity:

• The frequency of demand and supply activity
• The amplitude of the demand and supply activity

Temporal:

• The event frequency to real-time action and outcome result

Cloud ROI Quality Indicator Ratios

Figure 15 shows the quality indicator ratios, and outline explanations are given below.

Cloud ROI Quality Indicator Ratios
Experiential:

• The quality of perceived user experience
• The quality of User Interface (UI) design and interaction – ease-of-use

SLAresponse error rate:

• Frequency of defective responses

Intelligent automation:

• The level of automation response (agent)

Cloud ROI Profitability Indicator Ratios

Figure 16 shows the profitability indicator ratios, and outline explanations are given below.

Cloud ROI Profitability Indicator Ratios
Revenue efficiencies:

• Ability to generate margin increase/budget efficiency per margin
• Rate of annuity revenue

Market disruption rate:

• Rate of revenue growth
• Rate of new market acquisition

Cloud ROI Savings Models

Figure 17 shows the savings models, and outline explanations are given below.
 
Cloud Computing ROI Savings Models
Speed of time reduction:

• Compression of time reduction by Cloud adoption
• Rate of change of TCO reduction by Cloud adoption

Optimizing time to deliver/execution:

• Increase in provisioning speed
• Speed of multi-sourcing

Speed of cost reduction:

• Compression of cost reduction by Cloud adoption
• Rate of change of TCO reduction by Cloud adoption

Optimizing cost of capacity:

• Aligning cost with usage, CAPEX to OPEX utilization pay-as-you-go savings from Cloud adoption
• Elastic scaling cost improvements

Optimizing ownership use:

• Portfolio TCO , license cost reduction from Cloud adoption
• Open Source adoption
• SOA re-use adoption

Green costs of Cloud:

• Green sustainability

Optimizing time to deliver/execution:

• Increase in provisioning speed
• Reduced supplycchain costs
• Speed of multi-sourcing
• Flexibility/choice

Optimizing margin:

• Increase in revenue/profit margin from Cloud adoption

Discussion: The Importance of a Business Perspective of the Cloud

From a business perspective, the way an organization operates differentiating business processes and their Quality of Service (QoS) is key to business operating success. Identifying competitive business processes as well as standard commodity operations will improve the focus of innovative market growth and cost of service optimization activities made possible by business models based on Cloud Computing opportunities.
Just focusing on infrastructure improvements may result in cost rationalization but may miss the impact and value of applications and business processes to the end customer. QoS is an essential ingredient in evaluating the business effectiveness. The elements of QoS are made up of infrastructure, resources, activities, and services spanning the whole lifecycle of business.

Amortization of Economies of Scale

In Cloud Computing the operating challenges experienced from one customer can be proactively fixed for all the other customers of the Cloud service by using a shared platform. Amortization of problems is just one example of how a Cloud solution can achieve more favorable QoS levels. So, value can be leveraged from amortizing economic economies of scale across the collective membership potential of a service ecosystem created by the Cloud.

Business Portfolio Focus

Just looking at Cloud Computing from a technical infrastructure point of view is potentially missing the wider picture of the impact of technology on the business.
Overall, what matters is defining the value to business. Value can be defined in many ways. It does not just mean the financial values of Total Cost of Ownership (TCO) and Return on Investment (ROI), but can also mean customer value, seller provider value, broker value, market brand value, corporate value, as well as technical value of the investment.
Your business is a portfolio of business processes. Using portfolio management techniques, group your business processes into three domains where the processes in each domain have common IT enablement solution selection criteria (for example, differentiating based on IT, differentiating not based on IT, and not differentiating), and apply the solution selection criteria.
The business perspective also includes consideration of whether using Cloud services can help facilitate interactions with business partners or partner organizations – for example, by using SOA or EDI through the Cloud – and whether using Cloud services may endanger any existing interactions, where suppliers of data impose particular conditions for handling confidential data.
The work of the Cloud Business Artifacts (CBA) Project in The Open Group Cloud Computing Work Group is seeking to identify the key Cloud buyer questions and in a language business can understand and use to target solutions to meet real business requirements.

Conclusion

Cloud Computing is an important stage in the development of IT systems, comparable with the emergence of the mainframe, the minicomputer, the microprocessor, and the Internet.
Cloud Computing can provide many advantages over conventional approaches to IT provisioning, which can translate into significant improvements in ROI. But what makes it particularly exciting is that its potential effect on business is not just incremental improvement, but disruptive transformation through new operating models.
This White Paper provides an analysis of how to build and measure ROI that will help businesses to reap the benefits of Cloud Computing, and take advantage of its potential for incremental improvement and disruptive transformation of business processes.
Our understanding of Cloud Computing is currently at an early stage. This is an initial analysis. ROI models will evolve as the technology matures. This evolution will be reflected, and key indicator ratios will be described in more detail, in future deliverables of The Open Group Cloud Computing Work Group and its Cloud Business Artifacts and Cloud Business Use-Cases projects.

Labels: Best Practices, Cloud Computing, eDiscovery, Electronic Data Discovery, Electronically Stored Information, Saas, Software-as-a-Service

posted by Charles Skamser @ 11:53 AM 1 Comments

eDiscovery Solutions Group Announces Comprehensive Support Services for Equivio Near-Duplicates and Email Threads Technology

I am pleased to announce that our international consortium of eDiscovery Providers has formed a partnership with Equivio. I met the management team from Equivio several years ago and have been very impressed with their technology and success in the US markets.

With our commitment to support a variety of review platforms such as Concordance, Summation, Ringtail, iConect, Relativity, CaseCentral and CaseLogistix coupled with our experience and expertise in de-duping, near de-duping and email thread management, we expect Equivio and its technology to be a great addition to our consortium.

The Full Text of the Press Release is as follows:

Eagle, Idaho (PRWEB) June 9, 2009 – eDiscovery Solutions Group announced today that it has entered in to a partnership with Equivio to provide comprehensive consulting, training and systems integration support for Equivio’s near-duplicates and email threads technology.

Equivio’s grouping, analysis and management of near-duplicates and email threads enable litigation knowledge workers to easily identify and skip redundant data and focus exclusively on the unique information in each document. Equivio reduces the risk of missing key information, ensures a consistent approach across the entire data set, enhances review productivity and reduces the amount of time required for litigation knowledge workers to meet tight deadlines.

Under the terms of the partnership, eDiscovery Solutions Group professionals and certified consortium members will be available to assist Equivio clients with comprehensive eDiscovery consulting, document review best practices and end-user training for leading industry document management platforms such as Concordance, Summation, Ringtail, iConect, Relativity, CaseCentral and CaseLogistix. In addition, eDiscovery Solutions Group technologists and certified consortium members will be available to assist software vendors with integrating Equivio into commercial product lines and end users with integrating Equivio into internal legacy systems.

eDiscovery Solutions Group will also begin selling Equivio as a component of its eDiscovery services, consulting and technology offering designed to support the entire eDiscovery lifecycle for the legal departments of corporations, the IT departments of corporations that need to support eDiscovery requirements, and litigation-centric law firms.
“In today's complex corporate reality of managing ever increasing volumes of Electronically Stored Information (ESI) and changing eDiscovery demands, the cost of document review is the single most expensive component of the eDiscovery lifecycle,” states Charles Skamser, Founder, President and CEO of eDiscovery Solutions Group. “We believe that Equivio near–duplicates and email threads technology can have a profound effect on increasing the productivity of litigation knowledge workers, reducing the amount of ESI that has to be reviewed downstream and thereby reducing the overall cost of the entire eDiscovery lifecycle,” continues Mr. Skamser.

eDiscovery Solutions Group offers a broad array of eDiscovery consulting, services and technology along with project management to support the entire eDiscovery lifecycle. Following the eDiscovery processing parameters of the Electronic Discovery Reference Model (EDRM), eDiscovery Solutions Group has developed an eDiscovery best practices framework that includes consulting, collection, analysis, processing, production, review and presentation.

Within this framework, the eDiscovery Solutions Group can deliver data retention policy, development, data archiving, eSecurity, eCompliance, eDiscovery readiness, strategic planning, implementation support, paper and ESI collection, investigations, expert testimony, data recovery, computer forensics, early case assessment, data analysis, data redundancy management, conceptual search, de-dupe, near de-dupe, scanning, copying, coding, language translation, EDD, TIFF conversion, hosting, on-site, on-shore and off-shore review, legal process outsourcing (LPO), courtroom graphics and presentations, tool training, systems integration and custom solutions.
“As our installed base continues to grow, we are very pleased to have eDiscovery Solutions Group as a partner to assist with providing review consulting, training end-users and providing systems integration for our clients,“ stated Amir Milo, CEO of Equivio. “eDiscovery Solutions Group staff of experienced eDiscovery professionals, along with their network of consortium members, will be a welcome addition to the Equivio community.”

About Equivio
Equivio enables the management of data redundancy in content-centric business processes. Equivio's technology zooms in on unique data, allowing you to read less, think more, win big™. With products for grouping near-duplicates, capturing email threads and comparing documents, Equivio powers a broad range of business applications, including e-discovery, records management, email archiving, data retention and intelligence. To learn more about winning with Equivio, email info@equivio.com or visit http://www.equivio.com/.

About eDiscovery Solutions Group
eDiscovery Solutions Group is an international consortium of leading independent eDiscovery consultants, eDiscovery consulting firms, regional litigation service providers and best-in-class eDiscovery technology companies that have come together to provide all of the services, consulting and technology necessary to support the entire eDiscovery lifecycle for the legal departments of corporations, the IT departments of corporations that need to support eDiscovery requirements and litigation centric law firms. For more information about eDiscovery Solutions Group, please visit: http://www.ediscoverysolutionsgroup.com/.

eDiscovery Solutions Group Business Networking Links
Follow the eDiscovery Solutions Group on Twitter.
Join the eDiscovery Solutions Group on Linkedin.
Join the eDiscovery Solutions Group on Facebook.
Follow the eDiscovery Solutions Group Blog.

Contact:
Director of Marketing
eDiscovery Solutions Group
PO Box 2299
Eagle, Idaho 83616
Main: 208-387-7883
email: sales@ediscoverysolutionsgroup.com
Web: http://www.ediscoverysolutionsgroup.com/

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Labels: CaseCentral, CaseLogistix, Concordance, Early Case Assessment, ECA, Electronic Data Discovery, Equivio, iConect, Online Review Tools, Relativity, Ringtail, Summation

posted by Charles Skamser @ 9:28 AM 0 Comments

The Global Financial Crisis of 2008 Will Provide a Windfall to eDiscovery Market

With the global financial crisis of 2008 in full swing, I predict that eDiscovery providers worldwide will see a windfall for years to come.    The very nature of the financial industry will provide billions of pages of paper and exabytes of electronically stored information (ESI) stored all over the world for eDiscovery professionals to uncover, extract, process, analyze and prepare for pre-trial conferences, trials and the inevitable litany of appeals.  With most law firms ill-equipped to deal with the new world of eDiscovery, they will have to rely on the new breed of eDiscovery consultants, technology vendors and electronic data discovery processing professionals to even get an initial understanding of the data involved in any of these matters.

Further, after all of the dust begins to settle, the global financial crisis of 2008 will fuel demand for the next generation of integrated eDiscovery/eCompliance/eGoverance technology to ensure more rigorous and meaningful oversight.  This is, without a doubt, the paradigm shift that we have all been waiting for in the eDiscovery market.

Following are a couple of examples of the legal action that is already underway:

Fannie May and Freddie Mac Bailout
Plaintiffs’ firm Coughlin Stoia Geller Rudman & Robbins hasn’t wasted any time taking action in the wake of the Fannie and Freddie bailout.

Partners Samuel Rudman and David Rosenfeld filed a securities class action in the U.S. District Court in the Southern District of New York yesterday on behalf of those who held publicly traded securities of Fannie Mae between November 16, 2007 and last Friday, before the federal government took over the company.

Defendants in the suit are Stephen Ashley, chairman of Fannie’s board; Daniel Mudd, Fannie’s president and chief executive officer; Stephen Swad, Fannie’s ex-chief financial officer; and Robert Levin, formerly the company’s executive vice president and chief business officer.

The complaint alleges that Fannie’s publicly disclosed financial results misrepresented the financial health of the company, and that the defendants either made false statements or failed to disclose the truth to investors. As a result, says the complaint, the defendants’ “fraudulent scheme” was successful in deceiving the public, artificially inflating the prices of publicly traded Fannie Mae stock, and causing class members to buy Fannie stock at those inflated prices.

Class Action Lawsuit Filed against the Primary Fund by Stull, Stull & Brody
NEW YORK, Sep 23, 2008 (BUSINESS WIRE) -- Notice is hereby given that a class action amended complaint (the "Complaint") was filed September 19, 2008 in the U.S. District Court for the Southern District of New York by the law firm of Stull, Stull & Brody and its co-counsel, on behalf of plaintiff and a proposed class of purchasers of shares of The Reserve Fund's Primary Fund (NASDAQ: RFIXX) (the "Fund") during the period September 28, 2007 through September 16, 2008, inclusive (the "Class Period").
The Complaint alleges that the Fund and the Fund's underwriter, investment adviser, officers and trustees and the other related Defendants, violated Sections 11, 12 and 15 of the Securities Act of 1933 by making false and misleading statements and omissions concerning the lack of true diversification of the Fund's assets, safety of principal, access to liquidity and exposure to at least face value debt of $785 million of the now defunct Lehman Brothers Holdings, Inc., that the Fund's risk profile was not only "marginally higher" than cash, the high vulnerability of the money market fund to suddenly drop below $1 per share to as low as $.95 per share, and the fact that the net asset value of the money market fund ("ANAV") was speculative and inflated. Thus, the Fund's Registration Statement and Prospectus issued September 28, 2007, pursuant to which members of the proposed class purchased or acquired shares of the Fund during the Class Period, was materially false and misleading.
Plaintiff seeks to recover damages on his own behalf and on behalf of the Class and is represented by the law firm of Stull, Stull & Brody and its co-counsel Kantrowitz, Goldhamer & Graifman, P.C., firms with significant experience successfully prosecuting complex securities fraud class actions on behalf of defrauded investors.

Labels: 2008 Financial Crisis, eCompliance, EDD, eDiscovery, eDiscovery Windfall, eGoverance, Electronic Data Discovery, ESI

posted by Charles Skamser @ 9:00 AM 0 Comments

The Cost of eDiscovery

As we approach the two(2) year anniversary of the December 2006 changes to the Federal Rules of Civil Procedure (FRCP), it has been interesting and somewhat educational to follow the tremendous confusion and the dramatic changes in the cost of processing Electronically Stored Information (ESI). As I have been claiming, the changes to the FRCP and the subsequent requirements to utilize new technology to meet these changes, is a classical example of a market paradigm shift causing chaos and therefore the opportunity for the free market system to run wild. And, as George Socha and Tom Gelbmann report in the 2008 Socha-Gelbmann Survey, commercial expenditures on Electronic Data Discovery (EDD) topped $2.7 billion in 2007 , up 43 percent from 2006, and that they predict that they will grow by 21 percent, 20 percent and 15 percent in 2008, 2009 and 2010 which equates to a $4.5 billion market at the end of 2010. As a point of comparison, Gartner Says "Worldwide IT Spending On Pace to Surpass $3.4 Trillion in 2008".

Standard EDD Fees
In a traditional electronic data discovery (EDD) project, costs break down along the following lines: (1) The cost of collecting data; (2) the cost of processing data from its native format into a format that can be loaded into an electronic document review system, and: (3) the cost of reviewing the data. Please note that according to the Fourth Annual Fulbright Litigation Trends Survey, document review accounted for 30 to 50 percent of all litigation costs. So, the current trend is to reduce the amount of data that has to be reviewed and to also reduce the actual review costs.

Manual Data Collection and Computer Forensics: The cost of manually collecting data and performing computer forensics is billed at an hourly rate plus expenses. In 2007, rates ranges from $350 - $750 per hour and have dropped to $250-$500 per hour or even lower depending upon the complexity of the project.

EDD Processing: EDD Processing or what is more commonly known as electronic data discovery (EDD) includes loading the data onto an EDD platform, extracting and "flattening" attachments and embedded files, converting the data to a readable format, reducing the volume of the data by culling it down based upon key word filters, de-duping and then creating a load file to enable the data to be loaded into an electronic review software. In 2007 EED processing costs were $1,500 - $2,000 per Gigabyte (GB) and have dropped to less than $1,500 per GB depending upon whether or not the clients request key word filtering, de-duplication or other specialized processing. In addition, in the last six (6) months, some service providers and vendors are charging less than $1,000 per GB for what they are calling "quick peek" EDD processing which is nothing more than flattening and converting the Electronically Stored Information (ESI) into a format that can be read by one of the electronic document review platforms.

Manual Document Review: Document Review is the "time honored" ritual of paying a lawyer or paralegal and hourly rate to literally review every document associated with a matter to determine pertinence, privilege and responsiveness. In 2007, if done manually in the United States by a licensed lawyer, hourly rates for review ranged from $250-$500 per hour or higher. However, in response to the markets demand to reduce the cost of review, many of the larger US based law firms are setting up off-shore operations in India and Malaysia to take advantage of the lower cost of labor and there are also now several third party off-shore document review organizations that are putting downward pressure on hourly fees with rates as low at $35 per hour. In addition, there are now several software solutions that contend that they can supplement human document review to even further reduce the costs.

Recently, several service providers, law firms and other interested third parties have introduced the concept of per-unit pricing for document review as opposed to the conventionally accepted billable hour. So, as with any market going through a paradigm shift, creative people will step in to fill a demand or void. Brett Burney does an excellent job of outlining some of the current trends in reducing the cost of document review in a June 23, 2008 article on the Law.com site, titled "Subdue the Costs of Document Review".

Document Review Platforms: There are several very poplar legacy client/server document review platforms such as Concordance and Summation and several newer Online Review Tools (ORT) such as iConect, RingTail, ImageDepot and Lexbe. The costs to host data on these platforms runs about $50 per Gigabyte (GB) with $100 - $200 per GB setup and load fees. However, several of the new Software-as-a-Service (SaaS) based ORT's such as ImageDepot, have recently run promotions to offer hosting and review of unlimited amounts of data for $1 per month for 5 months with a twelve (12) month commitment.

In keeping with the standard dynamics of new technology being introduced into a market in a paradigm shift, these newer ORTs are using SaaS technology that is very scalable and very inexpensive to run and can actually make an acceptable margin at these lower prices. It will be interesting to watch how the legacy vendors respond. The new lower price points will force them to either develop their own SaaS based tools, acquire one of the newer SaaS based tools or go out of business.

Solutions that Reduce the Amount of ESI
As stated, the easiest way to reduce the overall cost of EDD is to reduce the amount of data as early in the process as possible. Not surprisingly, several advanced technology vendors have emerged to fill this demand, including Clearwell Systems and Kazeon.

Clearwell Systems: Clearwell System's E-Discovery Platform, for instance, is an appliance-based system that identifies duplicate email and document attachments. It filters email according to domain, sender and receiver to further winnow the amount of data that needs to be reviewed. Beyond that, it handles reporting and hosting (in your client's data center, of course) and offers privacy controls.
Standard pricing for Clearwell Intelligence Platform is $65,000 per 100 GB of managed data. Compared with processing fees of about $1,500 per gigabyte of data, Clearwell Intelligence Platform costs clients about $650 per gigabyte to reduce the data required for review. By reducing the amount of data to be reviewed (which, again, is more expensive per gigabyte than the processing work), companies can realize significant savings -- a minimum of $200,000 per 100 GB, assuming 1% is actually reviewed.

Kazeon: Kazeon contends that they revolutionizes the way companies perform eDiscovery by using the Kazeon Information Access Platform software to intelligently discover, search & index, classify and act on electronically stored information. Kazeon provides a full spectrum of proactive and reactive eDiscovery solutions in response to litigation, information security and privacy, corporate investigations, regulatory compliance and storage consolidation requirements. The Kazeon Information Server software automates eDiscovery functions from identification, collection through processing, preservation, analysis and review for corporations, service providers, and law firms. Through the development of unique search & indexing, analysis and workflow automation technology, Kazeon has been recognized by various industry forums, including Gartner's eDiscovery MarketScope and the recent Socha-Gelbmann eDiscovery Survey 2008 where Kazeon was recognized as a Top 5 eDiscovery Software Provider. Kazeon has established partnerships with leading companies, including Fujitsu, Siemens, Google, Network Appliance, Oracle and Symantec.

Kazeon's Claim of $4.30 per GB Processing Costs Stirs Up the Industry
On May 6, 2008, in a press releases announcing that Attenex and Kazeon have formed an eDiscovery Alliance, the real news was buried in the boilerplate as Kazeon contended that they could process a Gigabyte (GB) of data for $4.30. This was actually not new news as they had previously contended in a press release titled "ESG Lab Finds Kazeon’s Information Server Delivers Fast and Cost Effective Information Access" this same financial offering in a slightly less alarming way by stating that the ESG Lab verified impressive price/performance with a single Kazeon Information Server appliance able to index 2,500 documents per dollar and a cost as low as $4,300 dollars per terabyte (which is approximately $4.19 per gigabyte).
However, even in the face of the overwhelming Blog posting response from the industry about this claim being completely misleading, Kazeon has not removed the claim from subsequent press releases and in fact has embraced the claim as the center piece of their marketing message. The best and most thoughtful response came from a posting on the eDiscovery 2.0 Blog by Kurt Leafstrand on May 6th, 2008 titled "eDiscovery Processing: You Get What You Pay For". Given the fact that the eDiscovery 2.0 Blog is written and sponsored by Clearwell Systems, a another player in the eDiscovery space, it may be a bit biased. However, Kurt did a great job of listing the various critical and required processing components that need to be considered when comparing the overall cost of Electronic Data Discovery (EDD).

Example of the Cost of an EDD Project (Using Standard Technology)
Given all of the above as a general foundation for the fees associated with an EDD project, following is an example project:
Parameters and Assumptions

1. Two (2) US based corporations
2. Two (2) Sites for ESI Collections
3. Approximately two (2) terabytes (TB) of data (all native ESI)
4. 2X expansion of ESI during the initial flattening and extraction of attachments and embedded data
5. 50% reduction during initial processing with key word filtering and de-duplication
6. Document Review required at multiple locations
7. Time from matter filing date to completion is estimated to be 3 years.
8. Onshore legal review at 300 pages per hour

Collection Costs
Collection of the data along with computer forensics work, travel expense, storage hardware and hourly rates is as follows;
Collection Fees = 10 hours x $300/hour = $3,000
Storage Hardware = $2,000
Travel Costs = $2,500
Computer Forensic Fees = 10 hours x $300/hour = $3,000

Total Collection Costs = $10,500

Initial Processing Costs (Flattening, Culling, De-duping)
4 TB of Data x $1,000/ GB = $4M (Reduced back down to 2 TB)

Hosting and Review Technology Costs
36 months of Hosting for 2 TB at $50/GB/Month = $3,600,000

Document Review
2 TB of data at 75,000 pages per GB = 150M pages
150M pages at 300 pages / hour = 500,000 hours at $150 / hour = $75M

Total Cost of Project
Collection = $10,500
Processing = $4M
Hosting = $3.6M
Review = $75M

Total Cost = $82,610,500

Alternative Approach
Obviously, $82M is cost prohibitive. So, where can we save from money? Following is an alternative approach:
Changed Assumptions

1. Use of new front-end processing technology
2. 90% reduction in data during culling and de-dupe
3. Use of off-shore review

Alternative Collection / Processing Costs
Although it may not be completely realistic, lets assume that both sites had technology to automatically gather, filter and de-dupe the data (e.g. Clearwell, Kazeon). And, there was no computer forensic work required. Therefore, the cost of processing 4 TB of data using the Kazeon model would be 4 TB x $4,300 / TB = $8,600 (reduction of data to 400 GB)

Alternative Hosing and Review Technology Costs
36 months of Hosting for 400 GB at $50/GB/Month = $720,000

Document Review
400 GB of data at 75,000 pages per GB = 30M pages
30M pages at 300 pages / hour = 100,000 hours at $40 / hour = $4M

Total Cost of Project
Collection / Processing = $8,600
Hosting = $720,000
Review = $4M

Total Cost = $4,728,600

Conclusion
ESI reduction through culling and de-dupe is essential to reduce the amount of data that has to be hosted and reviewed along with reducing the cost of actual document review is the key to reducing the overall cost of EDD processing.

Labels: Clearwell, Consulting Fees, EDD, eDiscovery, Electronic Data Discovery, FRCP, Kazeon, Pricing, Socha-Gelbmann Electronic Discovery Survey

posted by Charles Skamser @ 10:49 AM 2 Comments

eDiscovery Confounds Companies and Their Lawyers

As an excellent adjunct to my Blog entries over the past several weeks regarding how corporate council within the Global 5000 and their associated outside council are dealing with the eDiscovery Paradigm Shift, Neil Roiter, Senior Technology Editor at SearchSecurity.com recently wrote a great aritlce titled "E-discovery still confounds companies and their lawyers".

Mr. Roiter does an excellent job of describing some of the more pressing issues facing the enterprise and their legal professional both inside and out with quotes from John Benson, an electronic discovery consultant for Kansas City law firm Stinson Morrison Hecker LLP.

I was particularly amused by a quote from John Benson where he state that "The world left the legal profession in the dust years ago," Benson told a Black Hat audience Wednesday. "Attorneys are just coming to the realization that people have computers and have important information on them. I spend a good deal of time dragging attorneys kicking and screaming into the 20th century."

I believe that this comment was definitely representative of the industry in 2006 and 2007. And, it may still be true for a certain portion of the industry that is probably going to have a hard time being successful with the eDiscovery Paradigm Shift. However, I have seen the legal profession take a much more aggressive embrace of technology over the past 18 months.

Mr. Benson also points out that the major cost of eDiscovery is with the review process and that this piece could cost upward of $1,000 per GB. Again, I believe that this was true in 2007 and and even early in 2008. However, with the mass roll out of email archiving technologies such as Kazeon, culling technology from the major EDD players, de-duping technology such as Equivio and the move to less expensive offshore review from organizations such as Integreon, the over all cost of review is beginning to fall. In addition, the legal market is becoming more aware of what eDiscovery should cost and processing best practices and as a result I am also staring to see "Quick Peek" EDD for an initial processing run on native files going for as little as $250-$300 per GB.

Benson also does an excellent job pointing out that eDiscovery security is an issue that the enterprise needs to be concerned with. Becoming known in the industry as "Chain of Custody", there are now several vendors that offer this as part of their overall offering such as "FirstLink" from Trial Solutions or as a stand-alone solution from organizations such as PSS Systems.

In summary, I think that Neil and John have pointed out some very important issues that are facing the legal community in regards to the eDiscovery Paradigm Shift. I just think that they are about 18 months behind in their view of where the industry, or at least the innovators and early adaptors actually are today.

The full article by Mr. Roiter is as follows:

E-discovery is incredibly expensive, time-consuming and fraught with error. If you botch it, your company may lose its case in court and be sanctioned with heavy fines for failing to produce all the required information. And your lawyers can get hauled before the bar association for ethical breaches if their client (that's you) fails to meet its legal obligations.

Federal Rules of Civil Procedure (FRCP) were amended in 2006 to clarify the requirements for e-discovery, said John Benson, an electronic discovery consultant for Kansas City law firm Stinson Morrison Hecker LLP, but the issues around e-discovery should have been resolved a long time ago, he said.

While companies have routinely been creating, distributing, storing, duplicating and re-duplicating information electronically for years, when it comes to e-discovery, most corporations, and what's more troubling, their lawyers, still don't get it.

"The world left the legal profession in the dust years ago," Benson told a Black Hat audience Wednesday. "Attorneys are just coming to the realization that people have computers and have important information on them. I spend a good deal of time dragging attorneys kicking and screaming into the 20th century."

Legal discovery is not a cookie-cutter process. Each corporate environment and case is different. E-discovery is expensive and will likely remain expensive. What's more, the e-discovery process itself is fraught with security issues; but companies can do a lot to minimize costs, strengthen their hand in court, and avoid sanctions while securing information. IT plays a critical role.
Companies and their lawyers typically overreact, attempting to preserve everything, for example, in backup tapes. This just adds to expenses -- IT folks reuse backup tapes for a reason -- and make it harder to sift through terabytes of information.

The greatest cost comes during the review process. Even with new search technologies, information still has to be eye-balled to ensure it's what you're looking for. And there's a lot of it. Mass storage is cheap, and employees can spread information among themselves and scatter it on servers, laptops, PDAs and smartphones, removable storage devices and home computers. Restoring data from backups and imaging files, and cleaning up metadata and OCR to produce documents in their final form for lawyers is costly.

Anticipate that the e-discovery process will cost about $1,000 per gigabyte. This is a fact of life, but you can control the cost, Benson said, by taking steps to identify data, lowering the volume to make it easy to secure and review when you need it, and centralizing storage.

Benson recommends fully documented and well enforced policies and procedures for handling and backing up data. There should be an established litigation response plan, including a formal litigation response team prepared to move into action as soon as the company sniffs the possibility of litigation.

That last point is important. Sometimes a company doesn't see a suit coming until it is served. But there's often much more lead time. You can anticipate possible litigation when there's a data breach or employee termination, for example. The sooner you move the better -- you have to take steps to preserve what's likely to be applicable data immediately. Your at the point when the lawyers, IT managers and other groups who might be involved need to decide what needs to be preserved -- from backup tapes to, possibly, an image of an employee's hard drive -- to avoid tampering.

"This is the most critical time to avoid sanctions and to avoid getting in trouble down the road with counsel and courts around preservation of data," Benson said.

Anticipation is key, he said. FRCP rules require the two sides in litigation to meet and discuss issues surrounding producing electronic information within 99 days of the start of litigation. That's not much time.

Be aware of e-discovery security issues, Benson warned. You're giving your data over to third parties -- your e-discovery processing vendor, your law firm, your opponent's law firm and its processing vendor. They all may be hacker targets, and it's a good bet security's not high on their priorities. There are a lot of new e-discovery vendors out there, Benson warned, vet both them carefully and take steps to make sure your law firm has solid data security policies and practices.
There's good news ahead, though, as technology gets better, and, we hope, companies get more savvy about dealing with electronic data.

"Technology will, over time, change the way legal system works," Benson said. "But that will only happen if there is good, meaningful communication between legal and IT communities. Through that communication, we'll drive the cost of litigation down. That's not necessarily a good thing for law firms, but it's certainly a good thing for corporations."

Labels: EDD, eDiscovery, Electronic Data Discovery, Federal Rules of Civil Procedure, FRCP

posted by Charles Skamser @ 9:04 AM 1 Comments