Ride the Lightning
Cybersecurity and Future of Law Practice Blog
by Sharon D. Nelson Esq., President of Sensei Enterprises, Inc.
THE EDD GOLD RUSH IS OVER
September 3, 2009
“Greed is good.” No one could intone those words with the sincerity of Michael Douglas playing “Gordon Gekko” in the movie Wall Street.
Indeed, Wall Street continues to operate on that premise with distressing results for all of us.
But the economic downturn has been a wake-up call for the EDD industry. Litigation budgets have been slashed. Corporations are choosing not to file suits, to settle those already in the courts and turning to arbitration when new conflicts arise. Not completely of course, but everyone has felt the tightening of litigation wallets.
There are still plenty of EDD vendors, but some of the old faces are gone. Companies have folded, companies have merged or been acquired. In general, the end of 2008 and the beginning of 2009 was not kind to e-discovery vendors. There has been some rebound, but the days of having clients cheerfully pay 500% of value are over.
Clients are cost-conscious – and they’re shopping. George Socha of Socha Consulting, long a professional surveyor of the EDD space, reports that EDD spending will increase this year by 20% to $4.05 billion. But his surveys also indicate that growth has slowed from previous annual rates of more than 40%. Margins have started to decrease.
Gartner has estimated that, by the end of this year, one in four software vendors will be acquired, merge or exit the e-discovery business. Socha agrees and thinks that consolidation will reduce the number of service and software providers by about two-thirds to as few as 200.
I agree with his statement that “the market truly cannot support this many vendors in the long haul.” I am also happy to agree with his statement that there will always be room for smaller service players, as Sensei Enterprises is one of them.
Is the damage worse than portrayed? I’m inclined to think so. My friends in “big EDD” report closed offices and reductions in force. In the smaller firms, and some of the larger ones, almost everyone had to tap their credit lines several times. Even those that have survived have a hell of a hole to backfill.
Law firms and corporations continue to try to bring EDD and computer forensics in-house. Some portion of this is sensible and some portion is doomed to failure. Self-interest in the results will be a constant problem. The competence of their in-house specialists will also be challenged – and many are not up to the challenge.
For the short term, I expect a lot of upheaval in the e-discovery space. Just like lawyers, some of what we do will be commoditized. Our prices will have to be more competitive and we’ll have to get rid of inefficiencies. We should never have had a blank check – and now we don’t. Those who are both good – and honest – will probably emerge from the economic darkness if they are not too heavily in debt.
All gold rushes end. The e-discovery gold rush is now history, and unlikely to be repeated. Those who have the “greed is good” mentality are, as my now-grown children used to say “outta here.”
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