e-discovery 2.0

As a long-time reader of The Economist, I was excited to find that this week’s edition writes at length about the exponential growth in electronically stored information (ESI), and how people are using technology to manage it.  I believe this is one of the most significant “mega-trends” impacting our economy, and I was thrilled to see it recognized by a mainstream publication. But when I read the 14-page special report, I was disappointed to find that its analysis of the legal and regulatory implications of “the data deluge” is really weak.

The survey does a good job of teeing up the issue:

The world contains an unimaginably vast amount of digital information which is getting ever vaster ever more rapidly. This makes it possible to do many things that previously could not be done: spot business trends, prevent diseases, combat crime and so on. Managed well, the data can be used to unlock new sources of economic value, provide fresh insights into science and hold governments to account.

It goes on to talk about how companies like Walmart, which has 2.5 petabytes of point-of-sale transaction data, is using business intelligence software to analyze the 1 million transactions it does every hour. By doing so, Walmart is able to improve the efficiency of its supply chain and the effectiveness of its marketing. The article also describes how companies like Amazon and Google use web analytics software on click stream data to improve their services.

What’s missing is an equally intelligent analysis of the legal and regulatory implications of all this data. The move from paper to ESI (email and files) has created a user-generated, written record of everything that happens in a company. That’s incredibly helpful when, after the fact, questions or disputes arise. Rather than relying on incomplete recollections, courts and regulators can now consult a written record – one where every document is time-stamped and very often attached to a person’s name via email. That enables judges and regulators to get better information which, in turn, leads to better decisions. It’s hard to quantify the value of that, but there’s no doubt it’s substantial.

There is, however, a catch. Because the volume of ESI is so great, it’s really expensive to gather, sift through, and then produce information. Add the requirement that the process needs to be defensible (i.e., easily explained in court), and the whole thing gets really expensive really fast. Hence the need for electronic discovery software: it’s the only cost-effective way for companies to manage their ESI from a legal and regulatory perspective.

That’s why I believe e-discovery software will be as big a category as web analytics software or business intelligence software – it’s a different side to the same coin. Or, more specifically, a different dimension to managing digital information stores which, as The Economist points out, are growing tenfold every five years.

Update: Nick Patience at The 451 Group has also posted on this topic, at almost exactly the same time as me.

If you have been to LegalTech before, you know that – by the end of the day – you could use a nice stiff drink to recover. So why not do it with some company? We (Aaref, Dean, Kurt, and Will) will be at the Bridges Bar at the Hilton at 7pm, and we are happy to buy drinks for the first 50 E-Discovery 2.0 readers who join us (we will have a big E-Discovery 2.0 sign on our table, so feel free to just stop by and introduce yourself). It’s a great way to meet us, suggest ideas for what we should cover on the blog, and get warmed up before going to the B-Discovery event later that evening.

Come early though. We mentioned the idea to Brandon, who runs the E-Discovery 2.0 group on LinkedIn, and he invited his group to arrive shortly after, so the seats (and the drinks!) may go fast.

It’s a new year in legal technology, and the visions of sugarplums dancing in our heads quickly give way to visions of LegalTech 2009. After all, who can help but dream about another opportunity to brave the icy streets of New York City in February? Fond memories of attempting to wolf down a stale croissant and cold cup of coffee while jostling for an uptown cab outside the New York Hilton can set even the most jaded litigation support manager’s heart aflutter.

The weather and the Manhattan traffic may remain the same, but, as we’re all painfully aware, this year’s show takes place in the context of a dramatic global recession that is having a huge impact on the legal industry’s use of technology, particularly electronic discovery. It’s in challenging times that innovation often thrives the most, so this year’s LegalTech may actually yield a surprising number of new ideas and technologies.

Innovation aside, this year’s LegalTech will likely have a bit of a different “look and feel” from last year:

Some things, of course, never change. Fortunately, the team at Incisive Media has been working overtime to put together a stellar lineup of practitioners, legal experts, and judges to provide insight into some of the key issues of legal technology. While electronic discovery is top-of-mind for many, there’s a lot of more than that on tap. Key sessions include:

• Patrick Oot, Director of Electronic Discovery and senior litigation Counsel at Verizon will lead the first-ever LegalTech Town Hall meeting, to be featured on YouTube. The Town Hall will be an interactive discussion where participants will be able to submit questions in real-time to a panel of experts for immediate feedback and insight on the topics that are of top concern.
• John W. Woods, a partner at Hunton and Williams, will deliver a keynote on “How eDiscovery is Changing the Relationship Between Law Firms and their Corporate Clients”. Clearly there’s a sea change going on here, which seems to be being accelerating by the economy, and it will be very interesting to hear what John has to say.
• Finally, LegalTech would not be complete without a contribution from a leading light of the bench. And this year, none other than United States Magistrate Judge John M. Facciola of Peskoff v. Faber and United States v. O’Keefe will be presiding. Ralph Losey said he’s “just about my favorite judge of all time” and it’s sure to be a fantastic session to get up to speed on the cutting edge of electronic discovery law.

The fantastic speaker lineup, of course, just scratches the surface. LegalTech is also an incredible networking opportunity to meet with fellow practitioners and vendors. However, it can be a little overwhelming, particularly to first-time attendees. So, we thought we’d close with a video that Monica Bay put together last year that provides a quick “how-to” guide for making the most of your time at LegalTech.

As a final note, I’ll be attending the E-Discovery 2.0 LinkedIn Happy Hour before B-Discovery’s LegalTech event.  It’s at the Hilton’s Bridges Bar from 8:00 – 9:00pm on Monday February 2^nd.  Come by and say hello.  If you are not a member of the E-Discovery 2.0 LinkedIn group, sign up here.  See you at the show!

I have written before about the irony of technology companies failing to use technology to improve their own businesses. As with any rule, there is an exception – and in e-discovery, that exception is Cisco.

This will not be a surprise to anyone familiar with Cisco, since the company has a reputation for innovation that extends well beyond networking. In the 1990s, it was quick to embrace the internet, becoming a poster child for how the web can help streamline a company’s operations. Its M&A group has probably done more to power M&A in the tech sector than anyone else, since it was Cisco which disproved the old adage that technology acquisitions do not work.

So it is with e-discovery in general, and E-Discovery 2.0 in particular. The team at Cisco – Neal, Pallab, Mark, Joel and others – are among the most thoughtful, sophisticated corporate legal departments that you will find. They support the large team of inside/outside counsels who represent the interests of Cisco’s global business, and they do it in a way that saves the company money. I have seen them do more with less than companies a fraction of their size. Neal has been talking about the phenomenon that is E-Discovery 2.0 long before me; in fact, he’s one of the people who have educated me on the topic.

Companies like Cisco, Charles Schwab, Qwest, and Wells Fargo, are “canaries in the coalmine”. That’s why, when one of them says something, people listen.

We love investing in technologies and business models that are able to shrink existing markets. If your company can take $5 of revenue from a competitor for every $1 you earn – let’s talk! – First Round Capital

At first glance, this statement may not make much sense, but I think it is actually quite profound. The idea becomes clearer when you think of it from the perspective of a customer. To paraphrase: if you can save a customer $5 by charging them $1, you have a great business. Yes, you will shrink the market, but you will blow your competition out of the water. Consider some examples:

• A small business hungry for leads pays about $1.40 for each call (or unqualified lead) it gets from placing an advertisement in the Yellow Pages, and it has to pay for the ad up front. Compare that to an average cost of 40c per click (or unqualified lead) on Google AdWords – and the 40c is only paid if someone clicks;
• When I took a 2 day trip to Guyana in March, it cost my wife 87c a minute to call my hotel using AT&T. Compare that to 28.6c a minute she could pay for the exact same call using Jajah;
• It must cost over $50 (I’m guessing) to place a personal ad in a newspaper. Compare that to a zero cost for the same ad on Craig’s List. And based on my experience, Craig’s List is more effective (I know someone who met their fiancée on Craig’s List, but have yet to meet anyone for whom a newspaper worked out);
• Many companies doing e-discovery gather data based on custodians, date ranges, and keywords and send it out to service providers like Applied Discovery or Kroll at $2,000 per GB – and then wait weeks for the results. Compare that to paying $200 per GB for a (E-Discovery 2.0) product that enables you to analyze the data in-house – and gives you the results in hours.

All this begs an obvious question: how can someone offer customers the same (or, in many cases, more) value at a fraction of the cost of existing players? That’s where new technology or business models come in. Google and Craig’s List do not spend money on printing and distributing huge volumes of paper; Jajah avoids connection fees and other costs by leveraging VoIP; and, E-Discovery 2.0 products leverage the latest innovations in search, open source, web and storage technologies.

It is ironic that the technology industry is so obsessed by growth, given that its greatest achievement is often shrinking a market.

The other day, I came across the fascinating statistic that over 50% of products returned every year to stores across America have absolutely nothing wrong with them. Apparently, consumers used them for an average of 20 minutes and then gave up, because they were too complicated.

At this point, most customers of traditional enterprise software could be forgiven for thinking: “I wish I could do that.” Enterprise applications are notoriously feature-laden, complicated to use, and difficult to install. They make their users feel stupid, by presenting them with complex pictures that look like amoeba or toolbars with 150 different options. Why does enterprise software seek to punish its customers in this way?

Partly, because customers ask for it. Whether they are buying a dishwasher or an accounting application, people habitually over-estimate their ability to figure out how a complicated product works and, as a result, pay more for features that they never use. Partly, it’s because enterprise software is designed by engineers who think everyone is as technically proficient as they are, and by marketing people who view every additional feature as a new selling point.

By contrast, Web 2.0 applications such as FaceBook, Flickr, StumbleUpon, or Meebo are incredibly easy use. Even an idiot who has never seen these applications before can use them without an instruction manual or a training course. You could say that’s because they are trivially simple applications. But I think it’s primarily because, if they were not so easy to use, people would simply click away and try something else – i.e., they would die.

That to me is the real lesson that Web 2.0 apps can teach enterprise software: make something that is easy to use, easy for someone to install, and easy for them to evaluate. Get people addicted to your application because it’s so good (the average FaceBook user spends 4+ hours a day on the site). No doubt, this is harder to do with enterprise applications because they are inherently more complex. But figure out a way to hide the complexity, packaging all the functionality users need into a design that’s easy to use. This is a key characteristic of e-discovery software applications; it’s the genius of salesforce.com’s CRM application and Apple’s iPod; and, it needs to be a core skill of any company creating enterprise applications today.

In a previous post, I wrote about the forces transforming e-discovery, a phenomenon that has received increasing attention from the press, most recently in this week’s Economist magazine. While everyone agrees that something big has changed, and (generally speaking) on the reasons why, people struggle to put their finger on exactly what e-discovery has become.

That’s why I think the concept of “E-Discovery 2.0” is so helpful. Analogous to Web 2.0, E-Discovery 2.0 is a set of new processes, technologies, and services that enable companies to manage huge volumes of data, lower costs, and meet tight deadlines.

New Processes

When e-discovery meant handing over a few boxes of paper, companies did not need much of a process. But in today’s world, where it involves terabytes of data, teams of reviewers, and precious little time, it is a very different story. To cope with the growing volume and complexity of e-discovery issues, companies have had no choice but to adopt new processes. These include:

• Collect and Preserve: Most companies have now established procedures so that, when the need arises, they can collect all data relevant to a case and ensure that it cannot be changed or deleted.
• Analyze Up Front: When presented with more work than can be done, a company’s only option is to work smarter, not harder. That means analyzing the collected data up front, to cull it down to only those emails and documents directly relevant to the case at hand.
• Collaborate Efficiently: E-Discovery has become a team sport. And whenever you have a team, you need a playbook, or a process, to ensure work is not repeated and that everyone is marching towards the same goal.

New Technologies

If technology created this problem, by making electronic communication so pervasive and voluminous, then it can also solve it. In recent years, several new technologies have arisen that enable companies to store and sift through their data to fulfill e-discovery obligations. The most significant of these trends include:

• From tape to disk: As the cost of disk storage has continued to decline, more and more companies are abandoning tapes and instead keeping their data online. Email archiving software optimizes for storage efficiency, allowing companies to keep hundreds of terabytes of data readily available for e-discovery.
• From search to analysis: Basic keyword search has evolved into sophisticated analysis technology that mines email meta-data for relevance, links messages together into discussion threads, and groups them by topics. These analysis applications allow users to sift through millions of messages in minutes, to rapidly identify, tag, and export relevant data.
• From closed systems to open standards: Until recently, technology providers made no effort to integrate their applications, leaving customers to fend for themselves. But that has started to change. Symantec Enterprise Vault and HP RISS now have open APIs, creating pressure on others to follow suit. George Socha’s Electronic Discovery Reference Model (EDRM), a standards body, has received widespread support, accelerating progress towards creation of an open e-discovery platform.

To anyone working in litigation support, legal, or information security, all this is quite unremarkable. Of course they use technology to address e-discovery. Obviously, there has to be a process. From the company’s perspective, e-discovery has become no different to HR or finance – it is a core competency, part of doing business.

And that, perhaps, is the most remarkable thing about E-Discovery 2.0 – in only a few short years, it has become so widespread and deeply entrenched within the enterprise, that people barely notice it.

The other day, Michael Clark of EDDix sent me a fascinating academic paper (thanks, Michael!) about “information inflation” at its impact on the legal system. I had never really thought of it this way, but there have really only been 3 significant events in the evolution of information:

1. Writing (c. 5,000 years ago): Pre-historic man started to etch his markings on clay tablets, stone, wax, papyrus, bark, cloth, wood, paper, cave walls and anything else that came to hand.
2. Printing (c. 1450): Gutenberg’s movable type printing press enabled mass production of information, contributing to (among other things) the Renaissance and the Scientific Revolution.
3. Digitization (c. late 20th Century): The personal computer, wide area networks, internet, email, have all led to a massive explosion of information in the past 50 years. As the article points out, “close to 100 billion emails are sent daily…In a small business, whereas formerly there was usually 1 four-drawer file cabinet full of paper records, now there is the equivalent of 2,000 four-drawer file cabinets full of such records, all contained in a cubic foot or so in the form of electronically stored information.”

How can the legal profession cope, given that a lawyer’s job is often to synthesize this mind-boggling amount of data? Fortunately, the authors have a solution:

“A family of computer technology employing new types of search methods and techniques beyond use of mere keywords should now be considered for use in litigation….Litigators can no longer depend on manual review alone. It is too time-consuming and expensive – with cost often exceeding the amounts in dispute.”

To illustrate its point, the paper tells the story of the White House and the problem of a billion emails. During the Clinton administration, the White House agreed to a form of electronic record keeping called ARMS (Automated Records Management System). At the end of each administration, these records are handed over to the National Archives and Records Administration (NARA). The table below shows the number of stored emails NARA has, or expects to receive at the end of each administration.

Now assume that, like previous administrations, the Next President’s administration is subject to a lawsuit that requires e-discovery. The paper calculates:

“Without employing any automated computer process to generate potentially responsive documents, the review effort for this litigation would take 100 people, working 10 hours a day, 7 days a week, 52 weeks a year, over 54 years to complete. And the cost of such a review, at an assumed billing rate of $100/hour, would be $2 billion. Even, however, if present day search methods are used to initially reduce the email universe to 1% of its size (i.e., 10 million documents out of 1 billion), the case would still cost $20 million for a first pass review conducted by 100 people over 28 weeks, without accounting for any additional privilege review.”

This is a great example of why companies and government agencies are adopting e-discovery 2.0 technologies that go far beyond keyword search. In the face of information inflation, what choice do they have?

If there’s one idea that has captivated Silicon Valley in the past 3 years, it is Web 2.0. People may debate its meaning and definition, but the gist of it is clear: a handful of powerful forces have coalesced to make the internet of today fundamentally different to what it was 5 years ago. Opinions vary on which of these forces is most important: the growth of broadband to the home; open source, ajax and other technologies which lower the cost and increase the functionality of web applications; the power of community in a world where more people are on the web. Whichever you choose, there is no doubt that collectively these forces have had a huge impact, powering the growth of now-household names such as Google, MySpace, and YouTube.

I believe that an analogous set of changes is transforming the way companies do e-discovery. Ten years ago, e-discovery was an after-thought – a necessary, but incidental, part of corporate legal expenses. Today, it is a huge line-item in the legal budget, a headache for corporate IT, and the foundation upon which many cases are built.

E-discovery 1.0 was an ad hoc activity; e-discovery 2.0 is a core business process. E-discovery 1.0 was barely noticed; e-discovery 2.0 is driving the news cycle, affecting everyone from Intel to the US Attorney General. In the legal world, e-discovery 2.0 has had every bit as big an impact on enterprises as Web 2.0 has had on the dating lives of teenagers.

What happened? A series of fundamental changes have made e-discovery far more important, expensive, and complex than it was in the 1990s. Chief among these changes are:

1. Email, Not Voicemail: In the past 10 years, companies have switched from voicemail to email as the primary way they communicate. This has created a written record where none previously existed. Just as oral histories eventually die out, every voicemail eventually gets deleted; but emails and the written word live forever. Whatsmore, the convenience and time-efficiency of email makes it addictive, with the result that every meaningful conversation is captured, time-stamped, and attached to a person’s name. Given that many legal cases turn on intent, and proving who knew what when, this makes email a virtual treasure trove for anyone building a case.

2. Electronic Files, Not Paper: Electronic files are fundamentally different to paper documents: they reproduce like rabbits and are far cheaper to store. For example, one laptop is the equivalent of 2,000 boxes of paper; one server corresponds to 8,000-40,000 boxes of paper. The number of servers and laptops holding vast quantities of email is only increasing as the cost of hard disk storage falls, down from $2.04 per GB in 2004 to $0.77 per GB in 2006. Net net: going electronic has vastly increased the amount of data that must be analyzed as part of the discovery process.

3. Sooner, Not Later: Recent changes to the FRCP guidelines have moved e-discovery up in the process, forcing companies to have an e-discovery plan within 99 days of a suit being filed. Since disputes rarely settle that quickly, that means enterprises must now incur the expense of e-discovery on every case, not just the small number that actually make it to court. The result is a massive increase in e-discovery expenses and workload.

Anecdotal evidence of e-discovery 2.0 is everywhere. A few years back, no one would have guessed that every major analyst firm would have people dedicated to tracking e-discovery. Nor would you have expected to find a litigation support manager at every major enterprise.

So what exactly is e-discovery 2.0? Well, I will talk about that in a future post.