eDiscovery solutions optimize how electronically stored information (ESI) is sought, located,
secured, and searched with the intent of using it as evidence in a civil or criminal legal
case. When combined with the increasingly “risk aware” culture that permeates many tech-
enabled organizations, rising volumes of content, and more complex content management
workflows, a new spotlight has been cast on the importance of eDiscovery.
At TripleTree, we consider the breadth and context of data growth across all industries to
be significant. For CXOs, the tools required to manage and optimize this growth call for
advanced information management solutions – features that are at the core of eDiscovery and
enterprise-wide compliance strategies. Because many roles within organizations leverage
information and document handling and storage tools, they also have needs for eDiscovery –
naturally leading to inconsistent definitions and vendor solution approaches.
Alongside eDiscovery, organizations are expecting more consistent content management
solutions. In response, best in class eDiscovery vendors are engineering their applications
and services (and directing their messaging) to tie together disparate formats of electronically
stored content and information (email, documents, images) with a strong focus on compliance.
Today, litigation support is the biggest driver for eDiscovery processes and procedures and
represents a key reason why knowledge workers, IT, and legal departments need a common
platform. It is further reinforced because eDiscovery spans a number of functional areas
(search, identification, content management, content analytics, archiving); and it is
impractical and costly for organizations to use numerous tools and approaches for each need
and gain accurate and complete eDiscovery results.
Many factors contribute to eDiscovery’s increasing relevance and alignment alongside other
business applications. Legal precedents, Federal Court rulings from tech-savvy judges, and
other new government regulations are driving eDiscovery solutions to fill an important gap
that exists between IT and the legal world.
Not all vendors who claim to provide eDiscovery features truly offer them. An in-depth
understanding of the legal industry vertical is important but alone is not enough. Vendors
who directly serve the legal market and provide (or partner) with technology solution vendors
to address complex eDiscovery and information management problems are the strongest
contenders for market leadership.
This report is TripleTree’s second publication on Compliance and Risk Management (see
Next Generation Compliance for additional perspectives). It briefly assesses eDiscovery
through the lens of technology and builds on the premise that eDiscovery solutions exist
as a subset of broader compliance automation initiatives. Our team currently tracks 70-
plus vendors who we characterize as eDiscovery specialists. In addition, we are watching a
myriad of global firms chase the same fragmented market drivers of content management,
search, and archiving. Given all the noise, it’s easy to see how headaches for CXOs
are multiplying and why more mature eDiscovery approaches are warranted.
The eDiscovery landscape is complex and suffers from a number of misconceptions, some
of which are clarified below.
Platforms Are About Scale Not Size. Perhaps the most critical component of an
eDiscovery solution is its ability to scale quickly and efficiently while integrating
with other data sources. Too often vendors point to their revenue size and/or the amount
of data they manage as the main benchmark(s) for success. However, the eDiscovery market
now calls for unique expertise that should force vendors to consider unique IP and scalability
above revenue size and capacity as a key indicator of success. A considerable number of
eDiscovery vendors post revenues between $30m - $50m annually but cannot accelerate to
the next plateau of growth. In particular, services-intensive businesses may struggle to make
the transition to proactive eDiscovery because of the inability to scale quickly.
Other important business considerations:
• Business Models. eDiscovery vendors bring solutions to market with a variety of
pricing models that include subscription, case volume, cost sharing, and billable hours.
Many eDiscovery vendors began as professional services firms, taking on case-loads (and
customers) and the requisite workloads to drive revenue. But like any business, law
firms and offices of the general counsel don’t want to pay for services they don’t use –
thus, the case-driven model has become popular yet it exposes vendors to risk, including
limited revenue visibility.
• Technology Delivery Models Define Scale. Professional services, software, services,
and hybrid technology delivery models make up the vendor landscape. Software ranges
from traditional on-premise licensing, to hosted licensing, to Software as a Service
(SaaS); and services range from hourly and project based consulting, to tech-enabled
business services (TEBS) and outsourcing. Hybrid technology delivery models blend
software and services around a proprietary approach, and could also be an installed
appliance with firmware. All point to the most important aspect of a distinguishable
eDiscovery business: scalability. Much of the eDiscovery market has been defined as
“services-driven” – a tough basis on which to scale revenue as the market transitions to
more proactive solution selling.
End-To-End eDiscovery Solution Roadmaps Represent Strategic Challenges.
Specialized eDiscovery vendors survive on their ability to execute on a specific feature set.
As vendors who are truly “emerging” (< $20m annual revenue) manage through a critical
stage of development and growth for their business, TripleTree has witnessed more than
a few who have become distracted by partnering opportunities lying outside of their core
competency. Because first impressions are critical, wasting a year (or more) with the wrong
partner can impact marketing (inconsistent positioning), sales (conflicting messages), and
customer service (up-sell and cross-sell). Specialist vendors can’t count on any alliance to
result in a preordained strategic exit, but they can usually count on a meaningful partnership
to introduce new market opportunities that may have previously been unattainable.
With few exceptions, winning exits for eDiscovery vendors have consistently been a match
between a global software leader and a specialist vendor whose solution complements the
functionality of the larger acquirer.
Look To The EDRM Framework As A Reference (Not A Roadmap) For Value
Creation. The Electronic Discovery Reference Model (EDRM) serves as a good framework for
understanding eDiscovery processes. However, the EDRM is limited in its ability to capture
functional needs along the eDiscovery continuum and does not adequately address the
individual aspects of eDiscovery delivery that can vary significantly from one implementation
to another (data volume, size, scale, and delivery model), nor does it address how specialist
vendors interoperate along the functional continuum. Understanding the limitations of the
EDRM are crucial when planning or developing an eDiscovery solution and roadmap. The
following points summarize several limitations of the EDRM:
• Does not capture all eDiscovery processes
• Not all eDiscovery components can be positioned definitively in a single
category on the model (i.e. search)
• Does not show how each functional solution integrates
• Too easy to claim full end-to-end functionality
Figure 2: The Electronic Discovery Reference Model (EDRM)
Identification Review Production Preservation
* Source: EDRM - The Electronic Discovery Reference Model (www.edrm.net)
Traditional Content Management Practices Alone Aren’t Enough For eDiscovery.
Distinct knowledge of the legal market will be table stakes for eDiscovery vendors who
aspire to successfully compete as the market evolves. Even global vendors with content
management and other significant resources at their disposal don’t have the tools and
expertise to execute a seamless transition into eDiscovery success. TripleTree expects vendors
to update supported file types in order to reach beyond email and unsecured file formats
to gain traction, including content management features that can integrate with other front
and back office applications like ERP, CRM, and Customer Service. These approaches
will be most relevant as proactive eDiscovery vendors begin to address broader enterprise
compliance and content management needs.
Evolving A Proactive eDiscovery Approach. As enterprises further enmesh compliance
disciplines into their workflows, the corresponding reliance on archiving and retention will
also increase. While business unit executives, knowledge workers, and corporate counsels
continue to share eDiscovery responsibilities, highly litigious verticals like tobacco, energy,
pharma, and financial services are still playing “catch up” to new data management
approaches. These types of organizations will be the early adopters of in-house (or
proactive) eDiscovery deployments. Moreover, these investments will be justified by the
simple avoidance of high risk and penalty-ridden failures to comply with legal precedents.
FINDING AN EXIT
Partnering To Broaden EDRM Functionality Can Make Sense. Global content
management, storage and archiving, or service provider partnerships can help emerging
firms whose point solutions may require an “anchor solution” to enhance competitive
credibility. As with any strategic alliance, performance objectives are critical and for
domains like eDiscovery, subject matter knowledge is paramount. Proactive eDiscovery
should be considered a strategy rather than an objective. For every well-aligned
eDiscovery vendor with strong partnerships there are two that don’t understand how
the eDiscovery puzzle fits together and therefore cannot identify and secure beneficial
partnerships. For emerging vendors, specialized knowledge of the eDiscovery domain and
workflows will be the key differentiator sought by global firms and will represent a good
starting point for strategic partnering discussions.
An advantage that emerging vendors have over global software providers is specialized
knowledge of the eDiscovery domain and workflows. As enterprises make the push to
control eDiscovery processes internally, global software providers will look to acquire
specialist vendors with quality technology, strong features, a good reputation, and the
ability to easily integrate with internal data workflows.
As a counterpoint, global software providers have multiple levels of enterprise-wide
relationships – relationships that have likely been cultivated over a number of years.
Because eDiscovery solutions usually involve a number of buying influences within an
enterprise (especially so for electronic document delivery), global vendor relationships will
be quite beneficial for leadership and attracting specialist eDiscovery vendors looking for
partnering and growth opportunities.
The eDiscovery Leadership Race Is On. eDiscovery exits are occurring with
predictable frequency. Multiple enterprise categories are filling out gaps in their portfolios
by targeting emerging vendors through M&A. Among the most attractive qualities of the
eDiscovery market is the intense interest from a wide array of buyers. These acquirers
include vendors across pure-play eDiscovery, enterprise compliance, content and storage,
publishing, services and consulting. With market leadership still “up for grabs,” the 70-
plus specialist vendors we are tracking will need to appreciate some of the trends and
attributes of market comparables shown in Figures 3 and 4.
The maturing eDiscovery market is trending toward leadership by global software providers
whose international reach, extensive sales force, and strong content and records management
suites will match up with the increasingly complex data management needs of organizations.
This proactive sales approach breaks traditional norms for eDiscovery vendors and will emerge
as an imperative for new market leaders.
To address the opportunity “white space” in compliance and risk management, these
firms will find a likely entry point through eDiscovery, via acquisitions or partnerships with
specialized eDiscovery vendors. These best in class specialists are defined by unique
eDiscovery knowledge, IP and services. In addition:
• Compliance Is Top Of Mind For CFOs, CROs & CIOs. eDiscovery is a segment of
a broad landscape including IT Governance (ITG) and Governance, Risk and Compliance
(GRC). The importance of these silos is garnering attention from organizations as they
seek more holistic compliance solutions for enterprise-wide needs.
• Solutions With Process And Workflow-Centric Features Are Relevant. Key
eDiscovery features include the ability to support EDRM workflow and integrate with other
compliance automation workflows like ITG and GRC. Other beneficial features include
content search, filtering, tracking and notifications; as well as support for document
retention, policy protocols, and repositories that acknowledge native document formats.
As the market shifts to a proactive approach, enterprises will develop more stringent data
and security requirements for their eDiscovery providers. This means that the enterprise
customer base may resist entrusting highly confidential legal data to small vendors who are
susceptible to failure or breach. In addition:
• eDiscovery Purchasing Decisions Will Remain Fragmented. eDiscovery buyers
in the enterprise are still being defined. General counsel and external counsel purchasing
decisions may happen on a case-by-case basis, and the shift to a proactive eDiscovery
sales approach means decision making and financial support for eDiscovery investments
are inconsistent. Global software vendors will take advantage of these trends by leveraging
long-standing client relationships and triangulation toward e-Discovery decision makers.
• People Will Remain Vital To The eDiscovery Process. The introduction of
automated eDiscovery solutions supports a faster, more consistent and increasingly
reliable eDiscovery process. However, many aspects of the eDiscovery process are still
people-intensive and global vendors may begin to position eDiscovery solutions into their
broader solution mix because they are best positioned to fold in the requisite specialty
services and support.
eDiscovery vendors face a set of unique challenges. As eDiscovery M&A consolidation
accelerates, it is critical for emerging vendors to understand how value drivers affect their
business. There is considerable variation across a variety of business metrics for the 70-plus
vendors who comprise TripleTree’s emerging eDiscovery universe. TripleTree has developed
a comprehensive 40-factor scoring methodology for indentifying where companies can build
value and overcome potential challenges with an eye on future liquidity.
Below we’ve listed a summary of factors for eDiscovery vendors interested in a high-level
Quality and type of revenue; profitability; growth metrics; contract structure and terms.
» Operational / Technical
Scalability of solution; uniqueness of IP; technical architecture; delivery model and
» Market Presence
Proven sales model given diverse buyer universe for eDiscovery solutions; cross-sell and
up-sell applicability; brand momentum with one or more channels.
» Feature Set
Specialist or platform approach; EDRM workflow components; application programming
interfaces (APIs); robustness of solution across TripleTree’s Compliance Q-Diagram.
As an investment bank and strategic advisor, TripleTree is committed to helping mid-market
companies understand and take advantage of macro-trends like those in eDiscovery.
• The Appetite Of Private Equity Has Abated…For Now. Lumpy revenue streams
have stifled much of the PE interest around eDiscovery, yet roll-up and platform
• Valuation Disconnects Need To Align. Valuation disconnects persist between
buyers and sellers. Buyers are seeking “value” at 2x revenue and sellers are seeking
“premiums” far higher. Any savvy industry observer has seen similar scenarios play out
before. Consolidation will occur and eventually innovators will be acquired and some
valuation “balance” will be attained.
• Vendor Consolidation Will Continue. Fragmented markets cannot sustain themselves.
As with most sectors, organizations are shrinking their list of trusted vendor/partners.
For vendors who want to remain relevant, the points below warrant consideration:
• Align sales tactics to pinpoint a quick eDiscovery ROI
• Create an open approach to strategic alliances
• Publish best practices for eDiscovery deployments to reinforce the proactive
TripleTree looks forward to learning more about your organization, the opportunities you’re
facing, and how we may be able to accelerate your success through a unique and insightful
investment banking process.