Gartner recently released its 2012 Magic Quadrant for E-Discovery Software, which is its annual report analyzing the state of the electronic discovery industry. Many vendors in the Magic Quadrant (MQ) may initially focus on their position and the juxtaposition of their competitive neighbors along the Visionary – Execution axis. While a very useful exercise, there are also a number of additional nuggets in the MQ, particularly regarding Gartner’s overview of the market, anticipated rates of consolidation and future market direction.
For those of us who’ve been around the eDiscovery industry since its infancy, it’s gratifying to see the electronic discovery industry mature. As Gartner concludes, the promise of this industry isn’t off in the future, it’s now:
“E-discovery is now a well-established fact in the legal and judicial worlds. … The growth of the e-discovery market is thus inevitable, as is the acceptance of technological assistance, even in professions with long-standing paper traditions.”
The past wasn’t always so rosy, particularly when the market was dominated by hundreds of service providers that seemed to hold on by maintaining a few key relationships, combined with relatively high margins.
“The market was once characterized by many small providers and some large ones, mostly employed indirectly by law firms, rather than directly by corporations. … Purchasing decisions frequently reflected long-standing trusted relationships, which meant that even a small book of business was profitable to providers and the effects of customary market forces were muted. Providers were able to subsist on one or two large law firms or corporate clients.”
The Magic Quadrant correctly notes that these “salad days” just weren’t feasible long term. Gartner sees the pace of consolidation heating up even further, with some players striking it rich and some going home empty handed.
“We expect that 2012 and 2013 will see many of these providers cease to exist as independent entities for one reason or another — by means of merger or acquisition, or business failure. This is a market in which differentiation is difficult and technology competence, business model rejuvenation or size are now required for survival. … The e-discovery software market is in a phase of high growth, increasing maturity and inevitable consolidation.”
Navigating these treacherous waters isn’t easy for eDiscovery providers, nor is it simple for customers to make purchasing decisions if they’re correctly concerned that the solution they buy today won’t be around tomorrow. Yet, despite the prognostication of an inevitable shakeout (Gartner forecasts that the market will shrink 25% in the raw number of firms claiming eDiscovery products/services) they are still very bullish about the sector.
“Gartner estimates that the enterprise e-discovery software market came to $1 billion in total software vendor revenue in 2010. The five-year CAGR to 2015 is approximately 16%.”
This certainly means there’s a window of opportunity for certain players – particularly those who help larger players fill out their EDRM suite of offerings, since the best of breed era is quickly going by the wayside. Gartner notes that end-to-end functionality is now table stakes in the eDiscovery space.
“We have seen a large upsurge in user requests for full-spectrum EDRM functionality. Whether that functionality will be used initially, or at all, remains an open question. Corporate buyers do seem minded to future-proof their investments in this way, by anticipating what they may wish to do with the software and the vendor in the future.”
Not surprisingly, it’s this “full-spectrum” functionality that most closely aligns with marrying the reactive, right side of the EDRM with the proactive, left side. In concert, this yin and yang is referred to as information governance, and it’s this notion that’s increasingly driving buying behaviors.
“It is clear from our inquiry service that the desire to bring e-discovery under control by bringing data under control with retention management is a strategy that both legal and IT departments pursue in order to control cost and reduce risks. Sometimes the archiving solution precedes the e-discovery solution, and sometimes it follows it, but Gartner clients that feel the most comfortable with their e-discovery processes and most in control of their data are those that have put archiving systems in place …”
As Gartner looks out five years, the analyst firm anticipates more progress on the information governance front, because the “entire e-discovery industry is founded on a pile of largely redundant, outdated and trivial data.” At some point this digital landfill is going to burst and organizations are finally realizing that if they don’t act now, it may be too late.
“During the past 10 to 15 years, corporations and individuals have allowed this data to accumulate for the simple reason that it was easy — if not necessarily inexpensive — to do so. … E-discovery has proved to be a huge motivation for companies to rethink their information management policies. The problem of determining what is relevant from a mass of information will not be solved quickly, but with a clear business driver (e-discovery) and an undeniable return on investment (deleting data that is no longer required for legal or business purposes can save millions of dollars in storage costs) there is hope for the future.”
The Gartner Magic Quadrant for E-Discovery Software is insightful for a number of reasons, not the least of which is how it portrays the developing maturity of the electronic discovery space. In just a few short years, the niche has sprouted wings, raced to $1B and is seeing massive consolidation. As we enter the next phase of maturation, we’ll likely see the sector morph into a larger, information governance play, given customers’ “full-spectrum” functionality requirements and the presence of larger, mainstream software companies. Next on the horizon is the subsuming of eDiscovery into both the bigger information governance umbrella, as well as other larger adjacent plays like “enterprise information archiving, enterprise content management, enterprise search and content analytics.” The rapid maturation of the eDiscovery industry will inevitably result in growing pains for vendors and practitioners alike, but in the end we’ll all benefit.
About the Magic Quadrant
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