Gartner Predicts eDiscovery Market at $1.5 Billion by 2013

Gartner announced their inaugural “magic quadrant” for the E-Discovery (eDiscovery) software market on May 13, 2011 and predicted that this market would reach $1.5 Billion in revenue by 2013.

Having lobbied and pleaded my case with Gartner many times over the course of my career in enterprise software, I am very well aware of the politics and other factors that influence the final results of where a vendor ends up on the “magic quadrant”. And, I believe that Gartner does enable or enforces enough integrity into the process to render the results at least marginally interesting and a factor for enterprise buyers to consider. Having said this, I would have to admit that the inaugural '”magic quadrant” for E-Discovery Software paints a fairly accurate picture of the players in this space (with a few exceptions).

Gartner analysts John Bace and Debra Logan identify five leaders in eDiscovery including; (1) Autonomy; (2) Clearwell Systems; (3) FTI Technology; (4) Guidance Software; and, (5) kCura.

I would assume that Autonomy made the list because of its size of installed based, amount of data managed, revenues, etc. And, although it is not clear if Gartner was aware of the pending acquisition, Autonomy’s purchase of Iron Mountain does provide them with an even wider platform. However, if were a buyer in 2011, I would be cautious about Autonomy. They are very expensive, complex, proprietary, have a reputation for less than stellar service and I have never gotten great reviews from any of their clients. The relationship that they have with their client base reminds me a lot of Oracle from the 1990’s when clients would complain about how bad Oracle was as they were signing the purchase order to buy 50 more enterprise licenses. The point being, Autonomy (just like Oracle) has a corner on the enterprise market for clients that have lots of data and need a big legacy system to manage it all. The trade off is that it will not be leading edge or pretty. But, it will get the job done.

Clearwell is Clearwell and probably deserves to be somewhere in the mix just based on market share. They have undoubtedly done a great job literally creating the Early Case Assessment (ECA) market, the demand within the Early Case Assessment (ECA) market and then stepping up to fulfill that requirement. There are much better ECA tools on the market. But, as Clearwell and many other tools vendors have proven, you don’t have to have the best technology to capture a market. As I have indicated in past posts, Clearwell’s marketing success over the past 3 years will be studied at the Harvard School of Business. Let’s just hope that Symantec can add a little technology to mix and give their platform some legs to go along with their market share.

I don’t really have any comments on FTI Technology beyond the fact that they are a subsidiary of global consulting company with 3,400 employees and a large client base that is using FTI software because it is what the FTI consultants tell them to use. As such, FTI as a software player in its current state will linger within the industry for years to come as their client base struggles to defy the FTI consultants and move to a different more competitive platform. As a side note it has always been interesting to watch FTI balance the use of their internal technology with the wishes of their clients. If they hadn’t paid so much money for what the technology that they have, I would suspect that it would make much more business sense for them to go completely technology agnostic. But then the amortization on the investment that they have made would never get completed.

I also don’t really have any comments on Guidance as they will continue to own a decent share of the computer forensics and associated security software market and therefore will continue to be a member of the magic quadrant in someway shape of form. I will predict that the need for computer forensics software is changing and therefore there is an opportunity for some up and commers to steal market share from Guidance.

The last player on this list is kCura and I have to admit that I like Relativity and I am at least intrigued with their mini app store. However, I have found their channel plan to be highly draconian and their enterprise sales plan to be in conflict with their service provider channel. Further, I would suspect that kCura is a takeover target.

Gartner analysts John Bace and Debra Logan also called out challengers Symantec, EMC, IBM, and Nuix. Given the fact that Clearwell is already a leader, Symantec will move into that quadrant automatically. So, we will be left with EMC, IBM and Nuix. This is a really interesting and diverse group. I am not sure that EMC knows that they want to be when they grow up. IBM, as evidenced by its acquisition of PSS Systems, could obviously buy its way into the lead in the eDiscovery market. However, I believe that they understand that eDiscovery is actually just a subset of the overall Information Management and Information Governance market and therefore have their sights set on something much bigger.
The real interesting player in this list is super speedy Nuix. And although I have a bias as I like the Nuix technology and their management team, I truly believe that we are going to see some big moves from Nuix over the next few months and years.

The other players in the report that I like are CaseCentral and Exterro. CaseCentral is a pioneer in understanding and implementing true multi-tenant technology within the enterprise eDiscovery space and has also been expanding its reach back into the ECA and analytics space with connectors into EnterpriseVault from Symantec. Look for CaseCentral to have a major impact as the market moves to Information Governance and eDiscovery in the cloud. As another side note, it will be interesting to see how Symantec handles legacy relationships such as CaseCentral now that they own Clearwell. Maybe CaseCentral is next.

Exterro is the real wildcard in the bunch. They have absolutely outstanding technology with a suite that can take you from data mapping to legal hold to workflow management Unfortunately, they have a flawed channel strategy and they are somewhat difficult to work with. I predict that they will be acquired in 2011 or early 2012 and become a cornerstone component of a much bigger solution.

The player that Gartner contends they are tracking but was missing from the “magic quadrant” was StoreIQ. As a component player in enterprise eDiscovery and probably more likely in enterprise Information Governance, StoredIQ has some really interesting technology. However, they seem to be having some internal struggles in regards to who they are and how they are going to position and sell their IP. I look for StoredIQ to be acquired in 2011 or early 2012.

The one player that was not even mentioned was Digital Reef. They have a very interesting and fairly comprehensive SaaS-based platform. With new executive management to help with the next phase of their growth, look for Digital Reef to make some noise in the market in 2011 and beyond.

Labels: Autonomy, CaseCentral, Early Case Assessment, ECA, eDiscovery, Exterro, Gartner, IBM, kCura, Nuix

posted by Charles Skamser @ 1:52 PM 2 Comments

Will Kroll Ontrack Survive or Open the Market to Newer, Better and Less Expensive Solutions?

Earlier this week, Marsh & McLennan (M&M) announced the sale of Kroll, its computer forensics division which last year generated $678 million in revenue. Kroll is being acquired by Altegrity, an investigative services company which is owned by Providence Equity. Financed by Apollo Investment Services and Goldman Sachs, the acquisition price is $1.13 billion.

The shear size of the acquisition is news in and of itself as it lends credence to the potential of the eDiscovery, Governance, Risk and Compliance (GRC) and associated computer forensic markets. However, I am more interested in what it means to the technology side of the industry and how it will effect buying behavior within the Global 2000.

In a June 8th, 2010 blog post titled, “What’s Next for Kroll Ontrack,” Aafre Hilay from Clearwell explores whether Kroll should fix or sell Ontrack. And, more importantly, describes how early technology players in any industry normally ends up being a burden to their owners and eventually fade into the sunset. Thereby, enabling the next generation of technology platform to emerge and takeover the market.

“Just as Yahoo was an internet pioneer in the 1990s, Kroll Ontrack was the pioneer of electronic discovery services. Like all pioneers, as the first to market, Kroll had to build everything itself. So Kroll Ontrack invested not only in recruiting and training its staff of skilled consultants, the company also developed its own suite of e-discovery tools and software. It offered this integrated package of services and software to the market and, justifiably, charged a price premium. But as the industry matured, it disaggregated with more savvy customers and new companies focused on specific parts of the value chain. Customers became better educated and more confident making decisions, diminishing the value of Kroll’s “we-are-the-safe-choice” value proposition. These customers today have many more options for e-discovery than was the case in years gone by, primarily because of a generation of e-discovery software companies, such as Clearwell, Guidance, Exterro, and kCura/Relativity, which offer capabilities like collection, ECA (Early Case Assessment), litigation hold management, and linear review. These have been widely adopted by Kroll Ontrack’s competitors, negating Kroll’s technological advantage. Even worse, because Kroll Ontrack’s competitors do not need to invest in R&D, they have a substantially lower cost structure. As a result, they have undercut Kroll Ontrack on price, which has halted its growth and squeezed its margins,” states Mr. Hilay.

I believe, as I stated in a recent blog post titled, The Era of the Megalith in College Football and eDiscovery, “…with today’s agile development methodologies and rapidly evolving open source technology stacks, it is becoming more and more difficult for the Megalith development teams to compete long term. And at some point, your code base becomes so large and integrated in such strange ways that no one actually even knows how it works. I guess at that point you sell your maintenance stream to CA or IBM and go home.”

I suspect that Kroll Ontrack and the other early entrants into this market are at that point where the Clearwells and KCuras and Exterros of the world just have too much of an advantage and therefore my answer to Mr. Hilay’s question is that Altegrity needs to sell Ontrack before it drags them under.

The full text of Mr. Hilay's post is as follows:

Yesterday, Marsh & McLennan (M&M) announced the sale of Kroll, its investigative services division which last year generated $678 million in revenue. Kroll is being acquired by Altegrity, another investigative services company which is owned by Providence Equity. The acquisition price is $1.13 billion, below the $1.3 billion M&M was rumored to be asking, and the deal is financed by Apollo Investment Services and Goldman Sachs.

There are many aspects to this transaction, but I want to focus on just one: what does this mean for Kroll Ontrack, Kroll’s largest division with $250 million in revenue and a staggering 1,500 employees, making it by far the world’s largest e-discovery service provider?

To answer this question, I will first outline the strategic challenge facing Kroll Ontrack, before outlining two alternative strategies its new owners may adopt for addressing it.

Strategic Challenge: Kroll Ontrack Is The “Yahoo! Of E-Discovery”
Just as Yahoo was an internet pioneer in the 1990s, Kroll Ontrack was the pioneer of electronic discovery services. Like all pioneers, as the first to market, Kroll had to build everything itself. So Kroll Ontrack invested not only in recruiting and training its staff of skilled consultants, the company also developed its own suite of e-discovery tools and software. It offered this integrated package of services and software to the market and, justifiably, charged a price premium.

But as the industry matured, it disaggregated with more savvy customers and new companies focused on specific parts of the value chain. Customers became better educated and more confident making decisions, diminishing the value of Kroll’s “we-are-the-safe-choice” value proposition. These customers today have many more options for e-discovery than was the case in years gone by, primarily because of a generation of e-discovery software companies, such as Clearwell, Guidance, Exterro, and kCura/Relativity, which offer capabilities like collection, ECA (Early Case Assessment), litigation hold management, and linear review. These have been widely adopted by Kroll Ontrack’s competitors, negating Kroll’s technological advantage. Even worse, because Kroll Ontrack’s competitors do not need to invest in R&D, they have a substantially lower cost structure. As a result, they have undercut Kroll Ontrack on price, which has halted its growth and squeezed its margins.

In a directly analogous way, Yahoo! has seen its broad internet service to consumers eroded by a host of more focused competitors such as Google, Facebook, and Skype. Consumers today are much more familiar with the internet, and feel comfortable making separate choices for search, social networking, and messaging, without the need for an umbrella brand. That has left Yahoo! without a reason for being: even today, its CEO struggles to answer the fundamental question “what is Yahoo!?”

Solution: Sell It Or Fix It
As Kroll Ontrack’s new owner, Altegrity has a simple choice. It could sell Kroll Ontrack, making the strategic challenge someone else’s problem; or Altegrity could fix it, by adopting a fundamentally different strategy.

Let’s consider each in turn:

Sell It: Most sensible people would find it funny to think about selling something right after you bought it. But in this case, it could make a lot of sense. Altegrity is a leading provider of investigative services, not e-discovery, making the “non-Ontrack” part of Kroll’s business a much better fit. So why not sell Kroll Ontrack, pay down debt, and focus on the services business which it understands? This would be especially attractive if, as Vivian Tero at IDC suggests, there are willing buyers such as ECM or storage software companies which like Kroll Ontrack but do not want the services business.

Fix It: Mike Cherkasky, Altegrity’s CEO, is a former head of Kroll, and so is perhaps uniquely well placed to bring about a change in direction. To do so, he must decide what Kroll Ontrack wants to be. If its goal is to be the leading e-discovery service provider, then it should kill its internal software development efforts and focus on providing customers the absolute best service using industry leading tools. If it wants to be an e-discovery software company, which would be a much harder transition, then it needs to exit the services business and make its technology available every litigation support company.

Either way, it will take time and a lot of painful decisions for Kroll Ontrack to recover its momentum. But if any encouragement is needed, the Altegrity and the Kroll Ontrack teams need only look at what’s happening to Fios, another of the industry’s early pioneers. So far, Fios has refused to decide what it wants to be, abandoning its internal review platform for Relativity but keeping its proprietary processing software. The result? It’s had three different CEOs in the past 12 months, and competitors continue to steal market share.

Labels: Altegrity, Clearwell, Early Case Assessment, eDiscovery, Exterro, kCura, Kroll

posted by Charles Skamser @ 3:49 PM 0 Comments

The Era of the Megalith in College Football and eDiscovery

As a fanatic Boise State Football fan, I have had enough on my plate the past couple of days trying to sort out which of the new megalithic conferences that my beloved Boise State Football team is going to end up in. Looks like the new PAC 16 will take what they want from the Big 12, the Big 10 will expand and then the rest of the conferences will get the leftovers.

Now, with the announcement of the merger between CT Summation and AccessData (http://www.prnewswire.com/news-releases/accessdata-corporation-and-ct-summation-announce-merger-95979904.html), it looks like we are going to have to start shorting out the creation of Megaliths in eDiscovery.

As a long time proponent of single source solutions, I like the concept of what the combination of CT Summation and AccessData can bring to the table.

As the leader in in-house eDiscovery collection, processing and analysis, AccessData brings to the merger an unsurpassed technology portfolio, designed to enable the world's largest companies to take control of eDiscovery and dramatically reduce costs. Its AccessData eDiscovery software is currently the most comprehensive eDiscovery solution on the market, enabling organizations to address litigation hold, automated collection, processing, and analysis prior to attorney review.

CT Summation, the premier provider of litigation workflow and eDiscovery solutions to law firms and corporate legal departments, brings to the deal a comprehensive suite of software products that are the gold standard throughout the legal community. CT Summation's iBlaze, Enterprise, WebBlaze, CaseVault, CaseVantage and Discovery Cracker products have received more than 45 legal industry technology and "Reader's Choice" awards since 1997. CT Summation is part of Wolters Kluwer Corporate Legal Services, which operates under the CT brand. Wolters Kluwer will remain as a strategic investor in the new AccessData Group, LLC, with a minority stake in the company.

By combining these complementary workflow solutions, AccessData will be able to deliver the first, true end-to-end eDiscovery software solution for corporations and law firms that supports the litigation process from litigation hold through trial.

However, just like the thought of a PAC 16 super conference, is combining CT Summation and AccessData just too overwhelming and too much? I suspect that that answer is both yes and no depending upon who you ask. For me, the thought of a super conference would be fine as long as Boise State was one of the teams. I am not sure how that relates to eDiscovery and therefore I am going to drop the analogy at this point.

Over the past 5 years, Autonomy has had somewhat of a lock on single source solutions in the eDiscovery space (no disrespect meant to the other players trying to do this). And, they (Autonomy), overall, provides a pretty good solution. However, they do not provide the best solution at every step along the EDRM. Therefore, some users would prefer to have the option to choose their own “best-in-class” components and integrate them together. And, over the past couple of years, some very good independent and individual component technologies are emerged such as Clearwell and Relativity. Neither of these vendors address the entire EDRM. However, they both do an excellent job at their piece and both seem to be trying to expand their capabilities to support more of the EDRM. However, at this point, the integration of these best-in-class players is still the big trick. Therefore, the value of an Autonomy or now a CT Summation / AccessData (are they going to call it AccessData?) is the fact that it is all integrated together, there is a common workflow of shorts and it comes from one vendor (i.e. you only have one phone call to make when something doesn’t work). So, the enterprise has to decide if they want the single-source Megalith solution or if the would prefer to chose individual best-in-class components and then integrate them together. Obviously, there is some big money chasing the Megalith path.

On another note and actually the topic of a future post is the concept of an open API (that’s always a matter of perspective), plug-and-play workflow management platform that would enable end-users to choose the best-in-class route and magically integrate them all together into a very productive eDiscovery / GRC workflow. Exterro has just such a solution and I believe that combined with the right best-in-class components will make a very compelling argument against the Megalith. As indicated, I plan to cover the workflow platform in great detail over the next couple of weeks. However, to provide some insight into my thinking, with the right workflow management platform, best-in-class solutions provided a tremendous amount of long term flexibility for users and place a tremendous burden on the Megalithic providers to keep pace with the steady stream of innovation that is inevitable in any market. This is not a new phenomenon.

But, with today’s agile development methodologies and rapidly evolving open source technology stacks, it is becoming more and more difficult for the Megalith development teams to compete long term. And at some point, your code base becomes so large and integrated in such strange ways that no one actually even knows how it works. I guess at that point you sell your maintenance stream to CA or IBM and go home.

So, in summary, given the ongoing the economic condition throughout the world and the buying shifts that are occurring in the user base, there just isn’t enough room in the vendor community for as many player and therefore there is going to be consolidation through mergers and acquisitions. Whether or not this leaves the market with a few Megaliths (Super Conferences) to choose from is anyone’s guess. But, just like the shack up that is occurring in college football, this is all very exciting to watch.

Labels: AccessData, Autonomy, Clearwell, CT Summation, ESI, Exterro, IBM, kCura, Kroll, Relativity

posted by Charles Skamser @ 4:57 PM 1 Comments