The article below is from the ABA Journal
A funny thing happened on the way to amending the federal Rules of Civil Procedure in 2006: That watershed event triggered a surge of investment in e-discovery software and services, fueling a mini tech bubble. The number of players exploded from a few dozen in 2000 to about 600 these days.
“It was almost like a gold rush,” says John Bace, research vice president of Gartner Inc. in Stamford, Conn. “People saw e-discovery as a quick and easy way to make money.”
With data and lawsuits proliferating, there still is plenty of money to be made in electronic data discovery. Look no further than the exhibit hall at ABA Techshow 2009, where e-discovery vendors were prominent.
Commercial spending in this young niche is expected to increase this year by 20 percent to $4.05 billion, according to consultant George J. Socha Jr., who co-founded the Electronic Discovery Reference Model, an industry consortium that sets guidelines and standards.
But growth has slowed sharply from annual rates of more than 40 percent just a few years ago, according to Socha’s surveys. And it’s getting much harder to compete profitably in an industry that is coming of age during the worst economic downturn in decades. For one thing, clients no longer are willing to write open-ended checks for services that easily can exceed $1.75 million for an average case.
“Growth has started to moderate and margins have started to decrease,” says Nick Baughan of investment banking firm Marks Baughan & Co. in Cornshohocken, Pa., which advised such deals as Applied Discovery’s sale to LexisNexis.
“There is real technology disruption,” he adds. Big tech companies continue developing tools to classify and store data in formats that permit more efficient archival and retrieval for litigation and regulatory review. “They can do it at a push of the button,” Baughan says.