e-Discovery Team

As to the price paid for Equivio, it’s a windfall for Equivio; but for Microsoft, the price is as impactful as it would be for you or I to purchase a good steak.”

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John Grancarich (Vice President, Product Management, Kroll Ontrack): “Microsoft is continuing to expand its data analysis offerings to provide solutions for larger data management problems. The ediscovery marketplace has some compelling and cutting-edge technologies that can move Microsoft closer toward achieving those broader goals. A few years back, Microsoft representatives started attending EDRM conferences – and other such think-tank meetings – which certainly helped them attain a deeper level of understanding about the robust capabilities across the entire technology provider landscape. When you think about combining the power of Microsoft with the software and service capabilities of key players in the ediscovery industry, the future ahead is exciting.”

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Kenneth J. Withers (Deputy Executive Director, The Sedona Conference): “First, all we know is that there is a letter of intent signed between Microsoft and Equivio, in which Microsoft states its intention to acquire Equivio for $200 million. We don’t have any details on exactly why MSFT is doing this, or what it plans to do with Equivio’s products, current client base, IP, or staff. Based on a quick look at Equivio’s web site, it doesn’t’ look like they have any high-ranking female executives, so I think we can rule out “executive and staff diversity” as a goal in this acquisition. Beyond that, it may be a mistake for readers of eDiscovery team to think that entry into the legal marketplace is a goal, either. The eDiscovery market is – or soon will be – dwarfed by the larger Information Governance (IG) market, and that is an area in which MSFT really needs to step up its game, especially in relation to SharePoint. For several years, information professionals have viewed SharePoint as a proverbial poisoned apple, symbolizing the potential for both great knowledge and great sin. You can’t keep people from biting at the apple, you can only manage the consequences of immediate expulsion from IG Eden into a wilderness of terabytes of fractured data. I’m sure it has not been lost on MSFT executives that there are at least a dozen third-party IG solution providers purporting to tame data generated by Microsoft Office applications and stored in SharePoint. There are many facets of IG that are amenable to smart automated solutions. As volumes of data continue to grow exponentially, an advanced data analytics component to an overall IG suite of applications is absolutely essential. Readers of this blog may think first in terms of eDiscovery, but for many companies providing data analytics solutions, eDiscovery has become the market testing ground for the much more lucrative IG market. If you can make it work for the litigators, there is hope for the rest of the world. And not only would you have a good IG tool, but you would also still have a solid eDiscovery tool that could be built into a client’s (or law firm’s) Microsoft deployment. So this acquisition might also be another step in the mainstreaming of eDiscovery – taking some of the most costly and least lawyerly tasks out of the hands of the big law firms and third-party legal service providers, and enabling small businesses, small law firm, and even individuals to cost-effectively engage in eDiscovery. I mentioned, I don’t think that is MSFT’s primary motivation. But if MSFT offers a serious eDiscovery tool to the masses, I think that many of the legal service providers (and large law firms with eDiscovery search and processing divisions) will need to reexamine their business models.

Largely through its eDiscovery offerings, Equivio has built a solid reputation and a respectable client base, so I am not surprised that MSFT would look to it as a potential partner (or meal, depending on your point of view) to add advanced data analytics to an emerging suite of applications for the IG market. And for MSFT, the $200 million offer is equivalent to a rounding error in their overseas tax liability, so it’s a bargain, too. And I don’t equate this with HP’s acquisition of Autonomy at all.

All this is speculation, of course. I’m not qualified to predict what MSFT will do, but by acquiring Equivio, MSFT is positioning itself to compete with IBM (which has Watson and lots of other R&D in the works) and Google (which is, after all, Google) in large-scale data management through analytics.”

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Bill Hamilton (Partner, Quarles & Brady): “I see it as a seismic shift.”

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J. William “Bill” Speros (Attorney Consulting in Litigation Management): “Practical. Rational. Responsible. Therefore, not natural for a big company.”

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Bruce I. Blank (Director, Litigation Services & Support, Foley & Lardner LLP): “With an organization like Microsoft and the endless list of research they are conducting you can only guess at why they would purchase Equivo and that is exactly what I am going to do, guess. Microsoft has been inching closer and closer to the discovery world for several years now.  With the role out of Exchange 2013 and the in-place discovery search tool being integrated into the discovery management system it is clear there is a defined focus on collection for hold and discovery purposes. There was an  announcement today that with Office 365 and OneDrive Microsoft is going to separate attachments from emails. The first reactions is it sends a chill down ones back, at least those that had to deal with linked attachments to emails in the past but maybe Microsoft has solved that problem with key pointers that will preserve family relations. Where does Equivo fit in? Microsoft is using Keyword Query Language, (KQL) which they claim will easily construct powerful search queries to search content indexes for both on-premises and on-line however this is just keyword searches, which is very limiting in many ways. But what if you incorporate Equivo’s analytics in conjunction with the KQL. Keyword searching now with predictive coding analytics raises the bar of credibility. Maybe this, now common workflow, is necessary to make this palatable to the corporate market.

I am not really sure at the end of the day what gets accomplished using Microsoft e-discovery tools, particularly if we are dealing with a large organization with many moving parts. Microsoft clearly says we can search it if it is in our Ecco system but if not, you need another way to search for discovery. In other words, if you are using OneDrive, SharePoint, Exchange, or Office products, for example, then they will be able to search it. If you are using any Apple or Google tools (or many others) on your computer they might not get searched, just tagged as un-searched or un-readable. Thus potentially throwing any search term reports off and possibly even requiring a third party vendor to finish the job to put the pieces back together again. Relaying on an inexperienced attorney or IT member crafting the search strategy coupled with the limits of Microsoft e-discovery tools could be a recipe for disaster.

Well as I said, all of this is only a guess. There is much to learn yet about what they are up to but on the face, I wonder what the discovery attorneys I work with would have to say about clients IT getting even more involved in the discovery process.  The discovery industry has grown in sophistication not only by the technology tools used but by the flesh the attorneys have had to pay for the inconsistencies and inaccuracies of tools given to our IT friends.  There are some good things that Microsoft is doing in discovery but I would certainly recommend solid experienced guidance with your discovery projects. I started this with just a guess but if my guess is close then one must ask not only who will be doing discovery in a few years but what “won’t” be discovered?”

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Gregory P. Bufithis (Attorney & Managing Director, eTERA Consulting Europe): “I am intrigued by the Microsoft/Equivio tie up. My initial reaction was the deal makes sense given Nadella’s strategy for the “New Microsoft”, what he calls the “data analysis” Microsoft. And I agree with Ralph: it seems to be an admission by Microsoft that they do not have any real AI capacity as concerns document search. But I thought Microsoft would have gone after somebody else. The acquisition of Equivio is no surprise. From what I understand, they have had a book out on the street for the past 12+ months. It will be interesting if anyone else makes a play now.But as Ralph says, one’s first thought: is Microsoft really serious about playing in “our” legal sandbox? Just a few points:One point to immediately dismiss: the purchase price of $200 million being bandied about in the press. In the Bloomberg review, the analyst thought $200 million was far too high. I have been following the business press in Israel and the general take is the price will be “far lower”. But we have no way of knowing since we have not seen any press releases, no signed letter of intent being waved about. The 8-K disclosure requirements do not mandate the disclosure of letters of intent and other non-binding agreements so I doubt we’ll see the LOI via an S.E.C. filing by Microsoft. But if it is $200 million … way to go Amir!!

Nadella [Microsoft CEO, Satya Nadella, shown right] has been trying hard to redefine his company for the post-Gates/Ballmer era. If you took the time to read that 3,100 word “positioning memo” he sent out over the summer to every Microsoft employee (and to the world in general) it’s all in there. But as a media guy who spends a lot of time in the digital biosphere, I have a short note to Mr Nadella: your memo was waaaaay too long with too many messages. Your troops either stopped reading it or just forgot it as soon as they scanned it. A video would have worked better at that length [point of reference: Tim Cook’s excellent video to his troops after taking command of Apple]. And Satya, I mean really: fake cheerleading and empty words like “synthesize” and “potential” and “revolution” will bring out all of the cynics. Like me.

Yet I found it a fascinating document for many reasons. Talk is cheap and Nadella has to produce and match his talk of “potential” and “synthesize” and “revolution” with “real substance”. You cannot talk your way into continued technology leadership. A press release is fine and we all love cultural revolutions (and, yes, I admit it: he does looks perfect in a shirt and jacket and jeans; Tim Cook would love to look that good) but he has a problem: he begins at the altar of innovation and for Microsoft that means a tradition of pretty much stealing technology, so Microsoft’s “tradition of innovation” is a bit hard to even detect, much less revive. …

Nadella has talked endlessly about Microsoft keeping important to personal and organizational productivity by emphasizing, it seems, the coordination of information in a world where users have multiple devices and there are a growing number of devices independent from any user. Oh, you know. That damn, that infernal Internet of Things (IoT). But an obvious problem: for the first time in a long time Microsoft is not a leader in any of this. Microsoft is just one of many companies in analytics and business intelligence. Yes, he sleeps a little better knowing Samsung must continue to pay him $1 billion+ a year in patent licenses because Samsung phone technology is dependent on Microsoft tech they patented but never did much with. At least on that score the old Microsoft … Bill Gates’ all embracing essence of Microsoft …. Was a bit innovative, establishing de facto standards. But while Windows is the top OS, it’s pretty much ignored in mobile and IoT.

Yes, Microsoft makes a boatload of money. But in Silicon Valley there are two sayings that everyone regards as truth. One is that profits follow relevance. The other is that there’s a difference between strategic position and financial position. It’s easy to be in denial and think the financials reflect the current reality. They do not. Around three-quarters of Microsoft’s profits come from the two fabulously successful products on which the company was built: the Windows operating system, which essentially makes personal computers run, and Office, the suite of applications that includes Word, Excel, and PowerPoint. Financially speaking, Microsoft is still extraordinarily powerful. In the last 12 months the company reported sales of $86+ billion and earnings of $22+ billion. It has $85+ billion cash on its balance sheet. But the company is facing a confluence of threats that is all the more staggering given Microsoft’s sheer size. Competitors such as Google and Apple have upended Microsoft’s business model, making it unclear where Windows will fit in the world, and even challenging Office.  …

Yes, Microsoft has a boatload of money and thousands of good employees but its management culture works against true innovation. Nadella figures he’ll “buy” that culture (Minecraft and Equivio being examples) to right the ship. So how does Equivio figure in this? A few points:

1. Nadella is an engineer with advanced degrees in computer science. So he knows that clean logical code simply does not exist in some abstract conceptual space. It “plays” in a complexly shaped, intricately interacting digital information universe. We all know that having been in the e-discovery trenches. And Microsoft and Equivio have been in the trenches together. Equivio has been working with many Microsoft technologies … including Windows XP, SQL Server and SharePoint Server … since 2006, if not earlier. One thing the Microsoft reps noted at LegalTech this past year was that the integration of Equivio’s technology added an important layer of structure to SharePoint data repositories. One chap said “we have seen that it clearly has expedited a corporation’s response to e-discovery requests, internal investigations and regulatory tasks.” And we know from market chats that Microsoft and Equivio have talked about integrating Equivio technology into “Track Changes” and “Compare Documents” and other functionalities within Word. So we must assume that Nadella pretty much knows what he is buying. He now has the chance to weave together the “potential” and the “synthesis” and the “revolution” and the “real substance” he has been talking about. Granted, at a low level but a key one in keeping with the e-discovery model they have been building.
2. Microsoft has been pushing machine learning in more of its products. I saw Nadella speak earlier this year and his whole focus was “data analysis” and “machine learning.” We know that machine learning traditionally requires complex software, high-end computers, and seasoned data scientists who understand it all. Nadella’s pitch has been that for many startups and even large enterprises “it’s simply too hard and expensive.” So he has moved to bring machine learning/predictive analytics to a more accessible level to a much broader audience. Equivio can help that.
3. But the point (always in these acquisitions): can Microsoft execute? Can they integrate Equivio? The problem with Microsoft has been they lack consistency and perseverance. They always seem to be looking for quick success. Each Microsoft leadership comes in and implements his own stuff. And I will not even get into the infamous Gates/Ballmer internal wars after Ballmer took over.  … You only need to look at a company like Symantec to realize one can gobble up big and small vendors alike but you really need to integrate, market, and sell them. I have studied the M&A market. Rarely is an acquisition failure a function of buying bad companies/bad technologies. Almost every time it is a direct function of the inability to execute on a broad vision. I will use … yet again … my essay on the H-P acquisition of Autonomy back in 2011. HP wanted to make itself more like IBM, which had been successfully revived by Louis Gerstner. But Gerstner refused to act precipitously after taking over IBM. He had a plan, he had a vision and he and his team slowly showed their vision worked by establishing their operational credibility. They satisfied the Board, they satisfied the market, they satisfied the pundits. That has been something H-P and Symantec have never been able to do.
4. And the biggie vis-à-vis Equivio: in so many cases Microsoft has acted the “rogue” takeover company, attacking companies to reduce their value then buying them up without the knowledgeable team in place. In the press it became known as “Microshaft”. It would take over a company and then every single person with a brain would immediately resign leaving the source code in the hands of interns and idiots. Will Nadella do the smart thing and keep the Equivio team? Otherwise … as an analysts said about a previous Microsoft acquisition … “they end up handing the new source code over to those without a clue, those who don’t care and they crate Windoze.”

… Will the electronic data discovery (EDD) herd be winnowed down? The EDD pundits say eventually there will be only 7-10 companies doing this. Up until this week I would have not put Microsoft (via Equivio) on that list. But nobody can accurately predict because we are so, so early in this game.” For more on Greg Bufithis’ many interesting thoughts on the deal, see the Project Counsel blog.

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Rob Robinson (Managing Partner, ComplexDiscovery Solutions): “The rumored acquisition highlights the ever-increasing need for organizations to do more for information governance purposes than just store documents. Equivio will offer Microsoft enterprise customers additional ways to organize, cull, and work with their text-based documents. However, the combined offering may still leave organizations challenged in terms of being able to work effectively with non-text or poor-text documents – and in some industries like Oil & Gas, those types of documents can account for a significant percentage of entire collections. So bottom line: appears to be good progress for Microsoft in dealing with text-based documents, but still a need and opportunity for technologies dealing will all document formats.”

William Webber (Information Scientist, eDiscovery Consultant): “It’s not the case that Microsoft lacks the capacity for applying AI to document search; indeed, the research group at Bing has been somewhat in advance of Google in applying machine learning approaches to web search. I think that a company like MS buys a company like Equivio not for their technology in the abstract (and while I think Equivio has been successful in finding the appropriate application of technology to e-discovery, I don’t think that their technology itself is all that revolutionary); rather, a MS would buy an Equivio as a path into an industry, first for having a concrete product, and second for having practical experience (and a customer base) in that industry. Is Equivio a good choice for MS on this basis? Well, I guess time will tell. My main query here would be that Equivio seem to have an offering narrowly focused on certain technologies, most specifically predictive coding, while leaving much of the surrounding work (processing, review, producing) to other products.  MS-Equivio have to decide whether they’re going to continue in this technological niche, or to expand to a full e-discovery management system. Staying in the technological niche seems an odd choice, and a potentially perilous one, as it assumes that full-featured providers will not be able to replicate Equivio’s technology offering on their own. But will an Equivio under MS ownership have the focus, drive, and industry understanding to expand their offering to a full e-discovery suite?”

Barclay T. Blair (President and founder of ViaLumina and the Executive Director and founder of the Information Governance Initiative): “In the past two weeks, three of the Information Governance’s Initiative’s vendor supporters have been involved in M&A transactions. Fontis International was purchased by Iron Mountain, and, according to some reports, Equivio is being acquired by Microsoft. These transactions are exciting to me as they provide the latest validation that the information governance market is taking hold. In the case of Fontis, Iron Mountain was attracted to the central IG rules engine that Fontis provides. In the case of Equivio, I can only surmise that Microsoft was not only interested in Equivio’s predictive coding offering for e-discovery, but also in the long-term growth opportunity represented by its productization of predictive coding for proactive management and remediation of content, another IG use case. I expect that we will see other transactions involving leading IG companies as this market matures and develops. This topic has come up in advisory sessions innumerable times in the past couple of quarters both with my IG provider clients and with investors. Hot acquisition targets are any company that provides automation of IG, or so-called auto-classification. Everybody is looking for it and the smart money realizes that there is a huge opportunity there for companies who can bring it to market in a way that is easy, cost-effective and that scales across multiple categories (a very different use case than e-discovery). There are dozens of small, specialized companies in that space. Remember it encompasses a much broader world than e-discovery. Clearly there will be massive consolidation as the big horizontal enterprise software companies move into this space. Enterprise software companies hear the same thing over and over from their customers: we need help managing the deluge of unstructured information. Even the new wave of content management vendors like Box, which claim to “not be your father’s content management system” are adding decidedly unsexy features like workflow and retention management.

The most important question moving forward is: who has the data? As more data flows out of company owned and operated data centers and into broad horizontal cloud environments like Google, Amazon, IBM, Microsoft, HP, and even Apple and “data lake” providers like Pivotal, and into vertical-specific hosted applications (construction management, sales management, manufacturing management), I believe we will see wide-scale adoption of things like industry-standard taxonomies, automated retention schedules, file plans, information protection programs, etc. The vendors who hold this data are starting to see and realize the opportunity to add increasingly valuable services on top of the data.”

Anonymous One: “EDiscovery is data dialysis. We take the data out of the corporate body and scrub it, then re-inject the data into the enterprise requirements flow (in this case, production of responsive ESI). In the long run, if the corporate filters are functioning well (like a healthy liver) externalizing ESI to filter it appropriately will not be necessary. EDiscovery will be part of enterprise IT, inside the firewall. Microsoft apparently believes this.Microsoft only acquires 2.0 and above versions. Their faith that advanced analytics of ESI by Equivio are at the 2.0 level is good news for every predictive coding solutions provider.Predictive coding is now in play for enterprise IT. Look for more acquisition and integration.”

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Anonymous Two: “Anomaly or harbinger? The discovery market still seems very fragmented and immature, and curiously so. If we were to start the clock around the time the 2006 amendments came into force and compare the discovery market to other markets, say in some technology sectors, the discovery market has remained very much immature. Just when there one thinks that the market is starting to rationalize, new entrants arrive. At times it feels like a game of whack-a-mole. Whether this market immaturity is a desirable or undesirable depends on your point of view. Put another way, how do the buyers of discovery services view a more consolidated market? Is it a good thing, as it may engender standardization and more efficient vendor management, or will it result in less competition in the market. I just don’t know.”

Economic theory most certainly teaches that, in the long run, the market will consolidate and mature but, then again, “in the long run we are all dead.” (A quotation attributed to John Maynard Keynes, I believe).”

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Anonymous Three: “There is no question that Microsoft was a pioneer in business software. But the kind of workflow automation software at the core of eDiscovery and information governance is not Microsoft’s area of expertise, which is likely why they’ve waited so long to enter this market.

The easiest way to close gaps in their information governance and eDiscovery portfolio is by acquiring technologies like Equivio, but that still leaves a lot of unanswered questions for their customers and the eDiscovery market as a whole. For example, all of the eDiscovery providers who license Equivio’s technology for predictive coding may find themselves in a major bind because they don’t own their own machine learning technology. It will be interesting to see how this move impacts companies like Kcura and their Relativity product.

On the customer front, Microsoft also needs to figure out how to handle data collection from laptops, desktops and systems beyond Exchange and Sharepoint. There are also a lot of lingering questions about Microsoft’s search limitations, scalability and integration between multiple on premise and cloud offerings that have to be answered.

Buying Equivio could help solve problems related to analytics, review and production, but they still have a long way to go to catch a lot of enterprise eDiscovery and information governance competitors who have a big head start.”