by John C. Tredennick*
Electronic discovery, once largely confined to the United States, has gone global. Various factors are driving this, from ever-increasing volumes of cross-border commerce to ever-stricter government crackdowns on corruption and bribery. In far-flung locations throughout the world, the need to preserve, collect and review electronically stored information is becoming common.
As e-discovery expands worldwide, so too does the need for e-discovery software and technology. A December report by the technology research firm Gartner Inc. predicted that e-discovery software sales will double over the next five years, from $1.4 billion in 2012 to $2.9 billion in 2017. The rise in international e-discovery will be a key factor in driving this growth, Gartner said.
With greater demand for e-discovery software comes a heightened need for diligence in its selection. E-discovery is typically the most expensive aspect of a legal matter—and the most expensive phase of e-discovery is document review and production. For this reason, choice of a review platform is a critical decision for corporations and legal professionals involved in international e-discovery.
Choosing a Platform: Cloud or Appliance?
In selecting a review platform, a core decision is whether to go with one that is delivered via the cloud, also known as Software as a Service, or to use one that is installed and hosted locally, sometimes referred to as enterprise software or appliance-based software.
For international e-discovery, cloud platforms offer many advantages over an appliance. Cloud applications are available on demand, scalable to meet the power and capacity needs of any sized project, and accessible via a Web browser from anywhere in the world.
When comparing the cloud against an appliance, one gray area has been cost. Comparisons can be difficult and deceiving, because the costs that go into one are not identical to those that go into the other. This has caused confusion within the industry about which is more economical.
To get to the bottom of this, we undertook an analysis of the total cost of ownership (TCO) of cloud-based versus appliance-based e-discovery platforms. In order to accurately evaluate the true costs, we broke down all expenses required to support each application, including infrastructure, technology, staff and ongoing operational expenses. We enlisted several e-discovery experts and analysts to help us get it right.
The conclusion was clear: Taking all costs into account, and using our most conservative numbers, the cloud proved significantly cheaper. As we explain in more detail below, the cloud resulted in cost savings of 36% over the appliance.
Designing a Hypothetical Law Firm
For our analysis, we designed a hypothetical, but typical, e-discovery client and analyzed its total costs over a three-year span, using either a cloud or an in-house e-discovery platform. Our hypothetical client was a large law firm managing a mix of 200 small cases of 25 GB each and 25 large cases of 200 GB each, for a total of 10 TB of data. Because it is rare for all data in a case to arrive at once, we spread it over the three years, for 3,333 GB per year.
Another assumption we made was that the data would be culled at a rate of 67%, the average rate reported by a recent industry survey. After culling, the annual quantity of data was reduced to 1,100 GB. We further assumed a maximum of 500 users on the system.
In building our TCO hypothetical, we wanted to ensure that the expenses were accurate and realistic. Towards this end, we:
· Selected popular in-house and cloud-based processing and hosting platforms widely available on the market.
· Obtained actual quotations from hardware and software suppliers.
· Calculated annual hardware and software maintenance fees at 20 percent of the up-front capital expenditures.
· Accounted for technology refresh by giving hardware a three-year useful life.
· Excluded full redundancy for the in-house platform.
Notably, even though server downtime is a real risk, our analysis excluded business impact due to downtime because it varies so widely among companies. If downtime costs had been included, then the cost-effectiveness of an on-demand, cloud-based service would be even more dramatic.
Up-front Costs: Advantage Cloud
One acknowledged advantage of the cloud is the absence of start-up costs. Because the cloud provider hosts and maintains the application on its own servers, users require no up-front investment for hardware and installation. The following table illustrates this:
For our analysis, servers and storage were configured to meet the specification requirements of the selected processing and hosting platforms. Servers were configured to fulfill web/application, processing, search, analytics and database roles.
Set-up and Processing Fees
Other one-time fees include site setup, processing and productions. The following table shows our estimates of typical fees:
For the cloud platform, the site setup fee includes site consultation, instructor-led web training and setting up standard fields, review forms, dynamic folders and user accounts.
The processing fee includes ingestion—the extraction of metadata, text and natives files—and culling—filtering the data via de-NISTing, deduplication, filetype filtering and date filtering.
There would be no processing fees for the in-house platform because the equipment costs and software licensing are accounted for in other expense categories.
Recurring Fees Differ Widely
Although both cloud and in-house applications involve recurring fees, the fees differ widely in nature, as the following chart shows:
The appliance would incur annual recurring fees relating to hardware maintenance and software subscriptions associated with the processing and hosting platforms.
The cloud application has no maintenance or licensing fees. There would be a recurring monthly hosting fee, charged by the GB. Assuming that the cull rate is 67%, then the data being hosted is 1,100 GB the first year, 2,200 GB the second year and 3,300 the third year.
Ongoing Operating Expenses
Just as the cloud platform requires no up-front costs, it also requires no ongoing operational expenses. The same cannot be said for the locally installed platform, as this chart illustrates:
The ongoing operational expenses required to support the in-house platform include:
· Data center colocation to house hardware equipment and provide redundancies in power, cooling and 24x7x365 manned security versus an on-premise server room.
· Point-to-point connectivity between the data center colocation and office. Due to very high traffic volumes with processing and hosting ESI, we have factored in a dedicated GigE link offering speeds up to 1000Mbps.
· Real estate cost for staff office space. We have estimated the real estate space to be 2,000 square feet at $30 per square foot annually to accommodate a staff of seven.
· IT staff includes one network administrator, one help desk analyst and one database administrator to manage and maintain the infrastructure. We have also included one programmer to assist with customization projects.
· E-discovery staff includes one e-discovery manager and three e-discovery analysts to support the in-house appliance. We have budgeted for three project managers in the first year, five in the second year and eight in the third year.
This final bullet point is crucial. For enterprise applications, a hidden cost that buyers often overlook is that of hiring experienced personnel to run and support the system. IT staff can maintain the infrastructure, but they are not capable of operating the software, sufficiently supporting users, managing expectations and facilitating communications between internal clients, end-users and operations.
To set the salaries for e-discovery staff, we used the average salaries identified by The Cowen Group in its 2011 salary survey of law firm litigation support staff. For IT salaries, we used data from CBSalary.com.
Bottom Line: Cloud Saves 36%
When the costs over the three-years are totaled, the cloud platform cost $4 million versus $6.3 million for the in-house platform. That is a savings of 36 percent with the cloud platform. The following table summarizes the savings:
Thirty-six percent savings using the cloud over an in-house appliance is clearly significant. A further advantage of the cloud, not shown by these numbers, is that it provides flexibility to quickly ramp-up when activity increases and terminate costs when the project is finished. With an in-house platform, operating expenses continue, regardless of the level of activity, and there is constant worry about the investment becoming an idle money pit.
For corporations and law firms engaged in international e-discovery, selecting the best e-discovery platform can be a daunting decision. While a number of factors enter into the decision, cost is always a concern. As our analysis shows, when you evaluate the total cost of ownership of cloud versus local platforms, the cloud is by far the better choice.
* John Tredennick is the founder and CEO of Catalyst Repository Systems, an international provider of multi-lingual document repositories and technology for electronic discovery and complex litigation. Long a nationally known trial lawyer, he was formerly editor of Law Practice Management magazine and editor-in-chief of the best-selling book Winning with Computers: Trial Practice in the Twenty-First Century.