Ben Kerschberg, from Consero Group LLC, recently authored an article for Forbes.com on one of my favorite topics…the per gig pricing model. AccessData’s sentiments on this antiquated per pound archetype is well known. Mr. Kerschberg covers both the upward and downward forces driving pricing in the e-discovery (made to the third sentence before I penned “e-discovery”…not bad) market. While I ardently support most of the articles’ assertions I would like to comment on a few points.
First and related to the upward pressure on pricing; volume – as much an important variable on pricing as this factor is – I don’t believe is the primary upward force. Per gig pricing is simply a method to easily track data flowing through a discovery system. Data growth is just an unfortunate corollary within the larger pricing injustice. Volume pricing has historically been the simplest method to track and convey “costs” to clients at one point in time. It persists today for the following reasons:
- As clearly articulated in the Forbes article, venture capital demands a return on its investment and per gigabyte pricing can provide a fantastic yield
- In-house counsel and many law firms function primarily with operating budgets. This means there is little time spent trying understand what return is provided on expenses (read investments) incurred. E-discovery invoices come in and they are simply paid. This is certainly changing, but has been the historical reality.
- Finally and also related to VC, vendors have no motivation to change. One of the most interesting aspects in the legal market is the existence of hundreds, if not thousands, of small LLC’s and partnerships that survive simply because they have one or two highly profitable relationships with law firms that have existed since the days when they merely provided copy services. These smaller vendors in aggregate effectively set the market price.
The good news is that through well informed voices, such as Ben’s and colleagues like him, clients and customers understand there are alternatives and the market is changing (more on this later).
The article next covers downward pricing pressures. Commoditization is a major factor in a mature market that causes downward pressure, accompanied by price elasticity. One could therefore infer that the existence of price elasticity is an indicator that a market is mature. Recognizing that no one is making the claim that the e-discovery market is today “mature”, (this is more a prediction for the near term) I don’t think the asserted rush for market share will be any less pronounced. I have recently seen the proverbial baby thrown out with the bathwater in a recent bid where a competitor submitted with more than an 80% discount. While I too have claimed we (vendors) are all in a race to the bottom, this type of behavior diminishes the value of our solutions and will only end up hurting the consumer. It’s simply an unsustainable business practice. A fellow blogger, Bob Krantz, has commented on the larger topic and we both agree that there is hidden value offered through service providers that includes backups, redundancy, bandwidth, experienced analysts, etc. Said another way $150/GB (yes we do offer such a thing; but only charge for the output) includes all manner of value that doesn’t appear on an invoice, not the least of which is expertise. There is a pricing floor and a huge piece of that is the human element. But I digress….
As to the proposed solution of pricing based on business value, I can’t help but be a proponent. I admit, however, that I haven’t fully organized such a pricing model -maybe a percentage of the lawsuit’s value? That would essentially be a per case model which leaves a great deal of uncertainty for both sides of the software transaction if one is looking to bring a solution in house. This might be sustainable for a cloud based model, but many are not entirely comfortable with litigation-related data sitting in the cloud, just yet…public or private. In the end (my soapbox is looking tired) a comprehensive, practical and affordable e-discovery solution can be used not only by the litigation staff, but can serve the internal investigations, security teams and even HR. This quickly moves the budget or expense decision towards a capital investment outcome. The system and investment becomes part of the overall IT architecture which frees organizations from any hesitancy over pushing the magic red button because the incremental costs are so exorbitant with per gigabyte fees.
Happy to entertain this or other creative value based pricing models. Please contact me directly at firstname.lastname@example.org