Sunday, August 23, 2009

E-discovery industry seeing slower growth, more mergers

Below are a few interesting comments from a recent e-discovery article in the ABA Journal, which mentioned the following companies: SPI Global Solu­tions, Onsite3, Integreon, Discover-e Legal, D4, Ivize, TechLaw Solutions and Kroll Ontrack.

From the article: A funny thing happened on the way to amending the federal Rules of Civil Procedure in 2006: That watershed event triggered a surge of investment in e-discovery software and services, fueling a mini tech bubble. The number of players exploded from a few dozen in 2000 to about 600 these days.

“It was almost like a gold rush,” says John Bace, research vice president of Gartner Inc. in Stamford, Conn. “People saw e-discovery as a quick and easy way to make money.”...

Commercial spending in this young niche is expected to increase this year by 20 percent to $4.05 billion, according to consultant George J. Socha Jr., who co-founded the Electronic Discovery Reference Model, an industry consortium that sets guidelines and standards.

But growth has slowed sharply from annual rates of more than 40 percent just a few years ago, according to Socha’s surveys. And it’s getting much harder to compete profitably in an industry that is coming of age during the worst economic downturn in decades. For one thing, clients no longer are willing to write open-ended checks for services that easily can exceed $1.75 million for an average case....

Gartner estimates that by the end of this year, one in four software vendors will be acquired, merge or exit the e-discovery business. Socha, founder of St. Paul, Minn.-based Socha Consulting, sees even more shrinkage over time; he estimates consolidation will reduce the number of service and software providers by about two-thirds to as few as 200. There will always be room for smaller service players, he says, but “the market truly cannot support this many vendors in the long haul.”...

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