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NEW YORK (MarketWatch) — While Hillary Clinton is in the hot seat for using personal email for official state matters and Amy Pascal has been demoted at Sony Corp. in a separate email controversy — lawyers and software companies are making a killing.
The business of e-discovery, or the process of collecting digital data like email when a company is being sued or investigated, is quickly turning into a billion-dollar industry, with attorneys and software companies raking in the vast majority of the proceeds, and companies shelling out millions of dollars every year.
“The sheer volume of data companies need to sift through for e-discovery” is a problem, said Ben Cole, editor of TechTarget’s TTGT, -1.50% SearchCIO.com and SearchCompliance.com.
Add in instant messages and information stores in the cloud, and it quickly becomes very expensive.
‘I think instant messaging can be much more dangerous than email.’
Revenue related to e-discovery is expected to grow 8.1% in 2015, and by an average annual rate of 5.7% through 2019, according to an IBISWorld report. That puts it on track to reach $1.8 billion in four years, said the report.
The majority of Fortune 1000 corporations now spend in the ballpark of $5 million to $10 million annually on e-discovery, with several companies reporting costs as high as $30 million in 2014. A full 70% of the costs were tied directly to the physical review of documents, according to a study from FTI Consulting.
That boils down to about $1.8 million per case, or about $18,000 a gigabyte, which is about equal to a pickup truck full of data, according to a 2012 Rand study.
Lawyers benefit from the high fees they are paid during the time-consuming collection and review of data, while consulting firms like ACA Compliance Group and FTI Consulting Inc. FCN, -1.94% and software companies such as Kroll Ontrack, CommVault Systems Inc. CVLT, -2.01% and LexisNexis make money by either helping companies adopt preventive measures or selling software that organizes, filters and analyzes email, documents and messages ahead of a review.
Proponents of e-discovery software say it can alleviate some of the load on human lawyers and minimize the chance of human error. Technology has improved drastically over the past few years, said Veeral Gosalia, senior managing director with FTI Consulting, with companies now employing a number of software programs, including predictive coding — or the review of documents using technology-assisted and machine-learning platforms — which he says help “lower some of the costs.”
Other technologies can spot several duplicates of the same email or document and prompt companies to delete the excess baggage before attorneys get their hands on it.
“Reduce data as much as you can before you turn it over, because that is where you’re going to keep your costs down,” said Nadine Weiskopf, director of product management at LexisNexis.
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But email is only one problem. While employees have curtailed their email messages, they’ve started to talk more freely on time-stamped instant messages, often forgetting that a stream of consciousness is just as permanently archived as an email, said Josh Broaded, a managing director at ACA Compliance Group, who oversees the company’s analysis and review center.
“I think instant messaging can be much more dangerous,” he said. “It is a peek into an employee’s brain, quite often without the filter.”
Meanwhile, the advent of bring-your-own-device policies in the workplace and increased usage of third-party cloud platforms like Google Drive GOOGL, -1.47%Dropbox and Slack have raised new questions about who is responsible for e-discovery costs, if work data is stored off a company-operated device or platform.
All of this has become a problem from a public-relations standpoint, which can carry unquantifiable, but likely far higher, costs. In December, a hack resulted in the release of hundreds of emails involving Sony Corp. SNE, -1.96% executives and industry insiders ahead of the launch of the controversial movie “The Interview.” Among them were a series that showed former studio head Amy Pascal and producer Scott Rudin making inappropriate and racist comments about celebrities and President Barack Obama. Pascal in February stepped down as co-chairman of Sony’s Pictures Entertainment.
Hillary Clinton was caught in her own controversy this week for using her personal email, operated through a private server, for work matters during her tenure as secretary of state. If the cases of Clinton and Pascal can teach corporate America anything, it is that employees should be given guidelines about how to use work email.
“Sometimes we see employees engaging in bad behaviors,” said Broaded, “andsometimes we see employees talking in ways that could easily be misinterpreted.”
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