What the eDiscovery consolidation trend really means for clients

Consolidation is a frequent topic of announcements and articles in our industry. Mega-providers buying smaller versions of themselves, and forming an even larger entity. And as each of these acquisitions occurs, the market is given the same line: this merger has "broadened their services, extended their geographic reach and increased scale economies and efficiency."

It's a nice thought, and at first blush we might assume clients will truly benefit from the merger. But history suggests it isn't true. In fact, a quick look at four other industries suggests what really happens to clients in the wake of consolidation.

Health insurers are often merger-happy companies that will gleefully tell their customers that the new mega-insurer will have increased efficiencies and those savings will be passed along to the customer. But they aren't. In fact, research suggests that following the merger these monopolistic giants, now with far more power to raise premiums and lower coverage, do just that. Insurers promise greater buying power, but the net effect seems to be most of the savings are retained by the insurers.

Note: I specifically chose health insurance first as it provides an example of a bilateral monopoly, that works particularly well for this illustration given the marketshare currently enjoyed by kCura.

The airlines industry also has undergone this type of consolidation in the past, and as expected it resulted in worse service, increased fees and overall lower customer satisfaction. But it also has resulted in record prices and record low fuel prices. So the merging parties seem to have been the primary beneficiaries, along with their shareholders/investors. In fact, some observers have speculated that the low fuel prices are masking the effects of the mergers.

Cable and internet provider consolidation is also a frequently cited example of the problem with the "bigger is better" mindset. Most people, especially customers of Comcast, genuinely despise their broadband provider (a quick Google search for "comcast sucks" will give you plenty of insight into the level of hatred people have for this company). And as expected, when the consolidations were occurring consumers were told the classic reasons why this was good for them: increased efficiency, increased scales of economy, etc. But once again, hindsight reveals that this isn't what occurred. The net result was greater frustration, limited choices, and higher prices.

And I would be remiss if I didn't use the example of law firms. Perhaps it is the consolidation of law firms, as the consumers of these discovery services, that primes the service providers to believe this is the natural state of things (assuming for the moment the consolidation is driven by anything more than a financial motive that benefits the company and its investors - which I don't believe). But law firms seem to provide one of the best cases against consolidation.

As firms get bigger, and the overhead increased, the rates increase. In fact, the controlling variable for how much a lawyer will cost you per hour isn't the experience of the lawyer, but rather how big is the firm overall. Most law firms generally fail the client-centric test for a merger: what services can the firm provide as a result of the merger that they couldn't provide before the merger? If the answer is simply the firm can provide the same services in a different geographic market (that was already being served by the now acquired entity), then how did the client benefit?

The bottom line: there is no compelling economic evidence that mergers produce better results for customers; and even if these mergers could result in some sort of financial savings for the newly formed mega-providers, there is scant evidence to suggest those savings will be passed along to customers (or that there is even an incentive to do so).

So before we accept consolidation as the natural state of things, lets ask first: what is in it for our clients?

#discovery #consolidation