Transperfect Shores Up Digital Reef in More E-discovery M&A

E-discovery software vendor Digital Reef was acquired by Transperfect today for an undisclosed amount. DR has been in the e-discovery market for years with what customers we’ve spoken to have called a very good tool for Early Case Assessment (ECA), processing, and classification; yet it is still a product that has ultimately failed to gain wider exposure and direct sales through several rounds of executive changes. This is in spite of SaaS, on-prem, and service provider options, as well as a wide range of analytics and its own data center.

Enter Transperfect – a privately-owned and well-regarded service provider reporting $350m revenues, known for legal translation among a host of other legal services, including e-discovery. New Yorkers may also know them from their many ads in taxis, telephone booths, and elsewhere up and down Manhattan.

According to Boston-based Digital Reef, the deal offers a springboard to broader US and international traction through Transperfect’s London, Hong Kong, San Fransisco, DC, and Philadelphia operations – both for transactional usage of the SaaS platform on service provider cases, and eventual up-sells to enterprise license deals. Transperfect’s website shows existing partnerships with DR-competitors Clearwell and Nuix – one already an enterprise heavyweight, purchased by Symantec in 2011, the other shifting from strong international indirect sales to pursuing more enterprise deals itself lately.

Financial details for Digital Reef and the deal itself are not being disclosed. My guess, given the paucity of news or sightings of the company in recent years (other than its executive turnover), is that there isn’t much to tell. It’s somewhat interesting on the back of Xerox Litigation Service’s $30m purchase of Lateral Data earlier this summer. Here we see another (if broader) tool for collection through review being scooped up by a service provider, again ostensibly for add-on license sales – a service provider with their own existing (if not yet product-ized) review tool (Omnix) and a substantial R&D budget, in the case of Xerox. Recall, too, that Lateral Data had itself been a service provider prior to entering the software market with Viewpoint.

The Digital Reef acquisition itself doesn’t raise many questions, then, given DR’s relative lack of market traction. But let’s think more broadly about where the e-discovery puck is headed…

Service providers have been saying for years that sales are shifting from law firms to a direct enterprise client base. With the concurrent in-housing trend, perhaps this is a good opportunity for them to get in the reseller business with technology, and what better way than with their own tool? On the other hand, is it compelling for service providers to cannibalize their own services business by re-selling in-house software? Are these instead Trojan Horse sales for providing managed services to the in-house tool, letting customers buy the technology rather than rent it, given commoditizing prices around processing and hosting?

More broadly, could either Digital Reef or Lateral Data even aspire to become “Clearwell Killers” in the software market from a service provider base, when service providers are not traditionally software resellers or developers? Probably not – it seems more like they’ve given up the fight and taken an exit. In the case of Digital Reef, Transperfect might even simply be disenchanted with the price of partnering with Clearwell or Nuix, and seeking to eliminate the middle man where possible, rather than compete with them significantly in enterprise license sales.

Thus the circle of life for service providers and software sales in e-discovery continues. Is it that the grass is always greener? Is it just that it’s really quite difficult to go from the traditional service provider channel to direct enterprise sales as a software vendor? How great of an idea is it for service providers to own their own tools anyway, given their typical reluctance to do much ongoing R&D on them, especially compared to the agile release cycles of partners like Relativity?

More specifically: Is Venio the next to get bought? Will kCura's Relativity ever go on the block? Could either become the Clearwell-killer in enterprise deals, especially without funding, rather than going to a service provider? Or will Nuix eventually become the heir apparent for corporate sales? Will Recommind go down-market and cut prices given its IPO plans for next year? And what’s going on with the Clearwell acquisition behind the scenes at Symantec, now that they’ve got a new CEO – can an IT company even do a better job selling e-discovery software than service providers, unlike Seagate with MetaLINCS and so many others before and after?

But most importantly: which basket are you placing your eggs in as a user or service provider, and why?