The Project Counsel Group
29 January 2017 (New York, New York) – So today we saw the kick off of Legalweek, and its flagship Legaltech conference (LegalTech actually starting tomorrow and running until early afternoon on Thursday).
As Nicole Black explained in a recent Above the Law post, it was only last year that ALM changed the name to Legalweek, and also expanded the focus of the conference to include more than just legal tech. Last year, there a number of folks a bit lost in the change (“the change in focus was intriguing in theory, but somewhat confusing in practice”). Folks I spoke with today are still seeking clarity but seem a little less confused. Vendors are praying for a larger “buying-or-at-least-seriously-intersted” crowd this year than they experienced last year (the hallways were a bit thin in 2017) so we’ll see.
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At Legaltech, visit them at Booth #530
And speaking of cash … those e-discovery mavens over at Logikcull certainly got the ball rolling today with an announcement they raised another sack of cash, $25 million in a Series B round, and they did it in just 17 days. The money comes from the venture juggernaut New Enterprise Associates (NEA), and the Logikcull folks are correct when they say it is one the oldest, largest, and most respected venture capital firms in the world. NEA led the round, with participation from previous investors OpenView Venture Partners and Storm Ventures. You can read the press release by clicking here.
I have written about NEA before. They have invested in some of the biggest tech firms around … Salesforce, TiVo, WebMD, WorkDay, etc. I met with them at the Mobile World Congress in Barcelona. They have significant stakes in the major mobile payment companies. Oh. And they were one of the first investors in a computer company called Apple. Last year they closed on their 16th fund … at a whopping $3 billion, the largest venture capital fund ever.
That NEA had their eye on the e-discovery market is no secret, especially cloud technology. And the fact that Logikcull started as an e-discovery cloud company probably made their decision easier (their research team, I must note, is unsurpassed).
THE CLOUD IS BIGLY
To me, the cloud is really the “BIGLY” issue in e-discovery these days. Cloud has become so important to the e-discovery business world that almost every vendor seems to be clamoring to build something organically, or seeking to acquire or partner with cloud vendors. As Alex Woodie, my buddy at Datanami, told me years ago: “Listen, when terminology from the IT department breaks through into the mainstream culture, you know you’re onto something really hot”.
The argument is compelling and the venture capital markets certainly see it. Cloud technology has became our focus over the last three years and we have immersed ourselves in all manner of cloud characteristics (storage, broad network access, resource pooling, rapid elasticity, etc.) and the infrastructure behind the cloud (data centres, IT environments, virtualization, etc.).
And now it is critical. It’s why cyber security experts who have examined the e-discovery process say the most secure e-discovery or legal intelligence platforms are the ones that eliminate the risk inherent to discovery by providing one central hub where all data is securely hosted and all channels in and out of the database are secure. When data is in the platform, it must be encrypted at rest. And when it is shared with opposing parties, it should be shared through encrypted channels – ideally a secure, permissions-based link whereby requesting parties can access that data remotely and instantly.
That is why the cloud offers that security. So long as it is in the architecture. I met with Anthony Pittman of FireEye shortly before heading off to Legaltech, and he told me you need to have in the architecture what he calls “a closed-loop hub.” This means that all data resides in one central repository, where all channels into and out of the platform are encrypted (i.e. when data is in motion) and all data inside the platform is encrypted at rest. Compare this to the traditional ediscovery model which I describe below, where data is shipped or FTP-ed from the client to the law firm to the vendor and back.
This week you will be hammered by multiple vendors at Legaltech hawking their cloud technology wares. Vendors will seek to show points of differentiation from their competitors as the cloud SaaS eDiscovery market becomes more crowded. In fact, that brings up a point that will keep occurring as we consider the state of the eDiscovery software market. Core eDiscovery functionality does not offer much by way of differentiation. As the market expands, evolves, and matures, vendors will look to new avenues for differentiation. As Jim Duffy of Blue Hill Research (he has done a deep dive into the e-discovery cloud) has noted: Yes. The rapid maturation of cloud-based eDiscovery software has done much to change the calculation.
I had lunch today with the head of global e-discovery for an Am Law 50 law firm. We are in the midst of an “extreme e-discovery” project for them in Iran so I felt obligated to spring for lunch.
His points about the e-discovery market were as follows. It used to be simple. You had three options:
(1) pitch all eDiscovery work to vendors,
(2) invest a gazillion bucks in on-premise hardware and software to perform the work internally, or
(3) the infamous hybrid model: depending on the nature of the work, some of it is fielded internally and some outsourced to a vendor.
And we have all heard the drill from vendors: “managed services” – the vendor provides the majority or all of the technology infrastructure, but also personnel who, in the best case scenario, serve as an extension of the firm’s full-time litigation support team (project managers, consultants, etc.). This is a boon for the managed services company, who can charge both for its complex, clunky technology and the highly-skilled labor needed to use it.
But then … BANG! The cloud. Which acts as a force multiplier. Efficiency and scalability are among its hallmarks. So, ideally, law firms and corporate counsel can “do more with less” (the current mantra) with the right cloud platform. Work that would otherwise have to be outsourced to vendors or managed service providers can be completed with internal resources at a fraction of the time and cost due to these platforms’ ability to automate, or eliminate entirely, many of the steps involved.
And ask any vendor, any law firm, any corporate counsel and he will tell you the same thing: while it is true that the incremental costs associated with data processing and search have come down significantly, the amount of data has risen exponentially so that e-discovery costs are still prohibitive.
Granted, for well-heeled law firms (and their Fortune 500 clients), the costs of eDiscovery are the costs of doing business. eDiscovery is a nuisance to be sure, but it’s not a killer. It’s not a deterrent to justice. But for the other two-thirds of practitioners – to say nothing of pro se litigants – the high price of evidence can be a non-starter. As Judge Peck (among many others) has noted numerous times: the system is driving an entire economic class out of court. For these law firms and corporations without the firepower, they are in the untenable position of either pursuing the dispute through to its merits and risk running up costs that outpace the value of the case itself, or attempt to bypass eDiscovery altogether – either by coming to a mutual agreement that electronically stored information will not be exchanged, or by relying on tools that are not equipped to handle the demands of modern eDiscovery.
SO HOW TO HANDLE LEGALTECH ..
So as you troll the exhibit halls of Legaltech … unable to find food or drink or even a place to sit down 🙂 … seeking answers about the cloud and e-discovery, a few thoughts:
- The terms “SaaS” and “cloud” are thrown around a lot in the cloud e-discovery space. Cloud computing is an architecture. It’s not a technology. It’s not a delivery model the way most people infer it is. It’s not a browser-based solution. It’s a three-tiered architecture that divides between infrastructure, platform and software. It’s the three elements you use when you create an application:
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- the presentation layer
- the logic layer, and
- the underlying network and database
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- So if you have the three tiers and appropriately divide your load between them – so, for example, if you can use the database from anywhere, if you can use the platform for specific functionality to deliver services, if you use software for the presentation layer and for minimal enforcement of validation and things like that … you have a true cloud architecture.
- If all you do is create a browser-based platform that’s on top of a hosted app that still runs as a single application in one server with everything intermingled, you don’t have a cloud computing architecture. The distribution to the three tiers and the distribution of work using things like infinite elasticity for scalability, that’s what being in the cloud means. Just having a browser? That’s not the cloud.
- That is why not all “cloud” offerings are true cloud offerings. For instance, how does the vendor get the data into their “cloud” system? Do you have to send it to them, either via FTP or physical media? Then the ingestion/processing piece is not automated – and not native to the rest of their system.
- And why automated processing steps are important is because it will affect your pricing. You can have 3,000 automated processing steps so that all your data is preserved, indexed by metadata, deduped, imaged, scanned for viruses and yada yada yada …. and that means you get more/higher value work completed at a lower cost with fewer resources.
- It is never going to be a question of right or wrong. It will be about determining how a model aligns to your organization’s needs, supporting greater variety of project types. My VC put it this way: you’ll be in “three places, three options”. Does your company need:
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- complex, white glove operations with secret, secure on-premises hosting;
- an on-demand subscription model for low complexity, high volume, high frequency (think FOIA requests); or
- casual, self-service models where the organization selects options that fit, etc.
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- For me, one of the best cases I have seen … in both the U.S. and Europe … has been in data processing. I have been working with an in-house corporate law department in Europe that is looking at cloud options. In the “usual suspect” vendor world, raw data is collected by the law firm, then sent away to the vendor to be prepared for review. The processed data is then made accessible via a review platform to the firm, or sent back to the firm so that it can be loaded into its in-house review tool. It’s a headache just to read that. With a cloud platform, the firm may simply invite its client into its account and have it begin uploading data. Drag, drop, done. The data is automatically processed and made immediately accessible to the firm’s attorneys for analysis and review.
