e-discovery 2.0

Yesterday, George Socha and Tom Gelbmann published summary results for their 2008 EDD survey. George and Tom gathered self-reported data from 85 e-discovery service providers and 40 e-discovery software companies. To help vendors resist the temptation to “exaggerate” their accomplishments, they then cross-referenced the responses against independent surveys submitted by 29 law firms and 19 corporations, and applied a healthy dose of their own good judgment. The outcome, which they will publish in-full next month, is a great snapshot of the industry, and probably the most objective ranking of e-discovery vendors that you can find.

By comparing this year’s results to the 2007 survey, you get a sense for how much has changed in the e-discovery world over the past 12 months:

Top E-Discovery Software Companies

Note: arrows show change to rankings from last year’s Socha-Gelbmann Survey

Autonomy and Clearwell move up to the Top 5, overtaking Attenex and CT Summation which slip back to the second tier. There are also 3 new names ranked 6 through 10 (Epiq, iConect and Symantec) who displace Cataphora, Doculex, ISYS, and Oracle, none of whom even make it into the top 15. In other words, 70% of the rankings have changed since last year.

If a litigation support manager were to focus only on the Top 5 in making her e-discovery software decision, she would have a choice of some very different solutions. Autonomy positions itself as a high-end (expensive) platform for corporations, while Lexis offers a comprehensive toolset for law firms. Guidance and Clearwell are complementary in that both provide best-of-breed solutions for parts of the EDRM model: Guidance is the leader in collection and preservation, while Clearwell is the leader in processing, analysis and review. Finally, FTI takes a services-based approach which centers around RingTail, its hosted review application.

Looking lower down the list, there were some other interesting results, primarily around which companies were NOT ranked. Kazeon made it into the third tier (ranked 11-15) whereas StoredIQ, its main competitor, did not. Nor did Recommind break into the rankings, despite making a major push into e-discovery from knowledge management over the past year. But the most striking absentees are PSS Systems and Exterro, which have pioneered litigation hold management for Fortune 100 companies. I can only guess that they cover too much of niche market to warrant inclusion in an industry-wide report.

Top E-Discovery Service Providers

In contrast to the world of software, e-discovery services saw much less movement in this year’s rankings:

Note: arrows show change to rankings from last year’s Socha-Gelbmann Survey

There was only one change to the top 5: Fios moved up, displacing Guidance which plummeted 10-20 places down to a 16-25 ranking. In addition, there were two new players in the top 10, Epiq and Huron, who edged out Electronic Evidence Discovery and Ernst & Young.

Conclusion

Changes to the software rankings reflect broader changes in the e-discovery market. As e-discovery has moved in-house, corporations have become a major driver of purchase decisions that were previously left to law firms. Many software companies, such as Attenex, have struggled to make this transition, while others, such as Clearwell, have capitalized on it. There has been no such change in the service provider world and, as a result, the rankings are relatively stable.

It will be interesting to see what happens next year. Every other software space is dominated by a small number of players, like Oracle for databases or VMWare for virtualization. If the same is true for e-discovery, then we can expect many fewer changes to the software rankings in future surveys as the leaders pull away from the pack.

Last month, Gartner updated its Magic Quadrant for Email Active Archiving. I have spoken to the analysts (Carolyn DiCenzo and Ken Chin) many times, and have found them to be keen observers of the archiving market. So, it’s interesting to read what they’ve concluded from all their customer interviews, and track what’s changed in the past 12-24 months. Comparing this year’s report to those from 2007 and 2006, I was struck by 3 observations, leading to 1 simple conclusion.

Observation #1: The Status Quo Is Alive And Well
Despite the thousands of hours that I’m sure vendors have spent trying to influence Gartner, about 80% of vendors in the report have seen no meaningful change in their rankings since last year. Most notably, Symantec is still the only company in the “Leaders” quadrant, while Autonomy/ZANTAZ remains rooted in the “Visionary” quadrant where it has been stuck for the past 2 years. Unlike Forrester, Gartner does not believe that Autonomy’s acquisition of ZANTAZ has made a shred of difference to ZANTAZ’s “ability to execute”, which is the main criterion by which it trails Symantec.

Observation #2: To Move Up, You Have To Differentiate
Only two vendors have significantly improved their positions over the past 2 years. One is Mimosa, which has separated from the pack by moving up from “Niche Player” to “Visionary”, primarily because it is “easy to deploy and manage” and offers “near continuous data protection and recovery features”. The other is CommVault, which has overtaken 8 other vendors. Gartner attributes CommVault’s rise to its new release which “supports the archiving of SharePoint and files, and dramatically improves search, single instance store, and ease of use”. In both cases, vendors are only able to improve their ranking by differentiating their products and offering something new.

Observation #3: E-Discovery Is A New Way To Differentiate
Each year, Gartner emphasizes that e-discovery functionality is becoming increasingly important to archive purchase decisions. In 2006, it advised vendors to “integrate with tools to manage the discovery process”. In 2007, it added that vendors must “offer more than just search and packaging, but also provide tools for review and case management.” This year, Gartner expanded its comments by also saying:

“Discovery tools are fast becoming a requirement to play in the enterprise part of the market. Robust search, review and export features are not only required but are the focus for most scalability concerns… many archiving vendors are partnering with e-discovery vendors to provide multiple options.”

To reinforce the point, Gartner moves EMC down from “Challenger” (top left) to “Niche Player” (bottom left), and cites the fact that EMC has “no e-discovery beyond search” as a major factor in its decision.

Conclusion
As the archiving market matures, it’s becoming increasingly hard for vendors to improve their rankings. Symantec is the runaway leader and the only way for someone to catch them is to find new ways to differentiate. Mimosa and CommVault are making progress because that’s exactly what they have done, but everyone else is either stuck or, in EMC’s case, slipping backwards. As those vendors consider how to move up and to the right, they should take a close look at e-discovery as an area of growing importance where meaningful differentiation is possible.

Working my way through a backlog of articles and reports this week, I came across Forrester’s Archiving Wave Report for Q1 2008, which was published last month. I spoke to Barry Murphy, the Forrester analyst who wrote the report, around the time of its publication and it’s clear he views e-discovery as a major driver of archiving sales. It was, therefore, no surprise that Forrester’s evaluation criteria heavily weighted e-discovery. To quote the report: “We focused on value-add functionality like records and retention management and eDiscovery support…vendors need to offer real solutions for eDiscovery” (p.4).

The report’s most striking conclusion is that ZANTAZ is rated ahead of Symantec. Every previous report from Gartner and Forrester has identified Symantec as the market leader, so this is potentially a significant shift. Forrester’s primary criticism of Symantec is that it has “product gaps”, more specifically “a reliance on the end-of-lifed Alta Vista search engine (a major issue, given the importance of search to eDiscovery).” (p.9) By contrast, Forrester writes that ZANTAZ offers: “an EAS product with strong search, analytics,…and advanced eDiscovery capabilities – the value-add features customers are demanding.” (p.8)

It’s worth taking a moment to understand Forrester’s criticism of Symantec in more detail. Companies buy archives for 2 reasons: mailbox management and e-discovery. For mailbox management, search is becoming less important since most users will rely on Windows search in Vista or Google desktop. Rather than provide their own search functionality, archives will instead just integrate with Microsoft and/or Google.

But the reverse is true for e-discovery, where search has become increasingly important. The growing volume of litigation, regulatory inquiries, and corporate investigations requires companies to continually comb through their archives in a highly iterative process that often involves IT and legal. Forrester’s analysis shows that – for this purpose – Symantec’s functionality is insufficient.

There’s no doubt Enterprise Vault is a great product. It has long been a market leader, and generates a huge amount of revenue for Symantec. But archiving is an intensely competitive market. So, if Symantec does not improve its search/indexing capabilities for e-discovery, it leaves itself vulnerable to others who will. To me, that’s the most important point that Forrester is making in its report.

UPDATE: Since writing this post, I have received additional information suggesting that this deal was NOT for Zantaz’s Desktop Legal Hold product, as previously reported. Please see comments section for full details.

I must confess, I was skeptical when ZANTAZ announced its new desktop legal hold solution without a single reference customer. But events have proved me wrong:

On January 3^rd, Autonomy (ZANTAZ’s parent company) let slip in a UK publication that that “an unnamed major international bank” had purchased ZANTAZ’s “compliance and regulatory solutions” for an eye-popping $70 million. Later reports confirmed the number, and provided more detail: Citigroup will pay ZANTAZ $70 million over 4 years for Desktop Legal Hold.

Citigroup is an existing ZANTAZ customer with a lot of data in Digital Safe. My guess is that the deal covered much more than just Desktop Legal Hold, and that many of the scheduled payments are tied to performance milestones. But regardless, this is a spectacular transaction (perhaps the largest ever e-discovery software deal?) and I offer the ZANTAZ team my hearty congratulations.

Beyond being good news for ZANTAZ, the deal has broader significance in two regards:

1. It confirms that the sub-prime mortgage crisis is driving demand for e-discovery software. That syncs with my own experience with several of our financial services customers;
   
2. It may spur other archiving vendors to add desktop legal hold solutions to their product portfolios, so that they are not at a competitive disadvantage to ZANTAZ.

This deal will also accelerate Autonomy’s increasing focus on e-discovery. In its core market of enterprise search, Autonomy is caught between a “rock” (Google) and a hard place (Microsoft, which announced the acquisition of Autonomy’s larger competitor, FAST). Moving towards e-discovery is the obvious way Autonomy can avoid getting crushed by the giants. I expect more news about Aungate is coming soon.

First ZANTAZ, then Stratify, and now MetaLINCS – all within 5 months. The e-discovery space is consolidating fast!

On December 6, Seagate announced its acquisition of MetaLINCS. Financial terms were not disclosed, but my sources tell me that the price is $80 million. Given that MetaLINCS is a 50 person company with fewer than 25 customers , this is a fantastic outcome and I congratulate the MetaLINCS team. My educated guess is that in 2007 MetaLINCS will earn $5 million to $10 million in bookings, making this a healthy multiple of 8-16X. Contrast that to the 5X revenue paid by Iron Mountain for Stratify, and MetaLINCS shareholders clearly got a great deal.

That still leaves the question of why Seagate, a non-entity in e-discovery, would want to pay such a rich price. The answer, according to Seagate, is its desire to grow beyond manufacturing hard drives by having its services group provide a broad range of “solutions”, including archiving, back-up, recovery, and e-discovery. EVault, acquired last year for $185 million, is the backup and recovery part of that equation; MetaLINCS is the e-discovery component; and, say the analysts, don’t be surprised if an archiving acquisition is next.

Does Seagate’s entry into the e-discovery market make any sense? I don’t think so, and here’s why: there is a mismatch between Seagate/MetaLINCS and its target market. Seagate’s services offering will appeal most to mid-market companies which often outsource archiving, backup, and recovery. Seagate admitted as much when it announced the EVault deal. But the mid-market will be the last place to adopt e-discovery software like MetaLINCS; it is the Global 2000 who will move first, as they are the most sophisticated and in the greatest pain. For the limited amount of mid-market e-discovery business that is out there, Seagate/MetaLINCS will compete with every other service provider, from Kroll to Stratify to the hundreds of mom-and-pop shops across the country.

Net net: this acquisition is great for MetaLINCS, is small enough to be immaterial for Seagate, and will likely have no impact on the e-discovery market which will be won and lost in Global 2000 companies that are not interested in a Seagate/MetaLINCS service offering.

First ZANTAZ, then Stratify, and now MetaLINCS. It makes you wonder who will be next.