Cloud vs. Appliance: Comparing Total E-Discovery Cost

An ongoing debate among e-discovery professionals is over which is the better platform for hosting document search and review: the cloud or a local appliance. Among those who favor an appliance, a common argument is that bringing e-discovery in-house will reduce costs. But will it?

One way to find out is to analyze the total cost of ownership (TCO) of cloud-based and appliance-based e-discovery platforms. Only by laying out all of the expenses required to support an application—including infrastructure, technology, staff and ongoing operational expenses—can one accurately evaluate its cost.

We constructed a hypothetical, but typical, e-discovery client—a large law firm with a mix of large and small cases—and analyzed the total costs over a three-year span, using either a cloud or an in-house e-discovery platform. The outcome was dramatic: Using our most conservative figures, the cloud produced cost savings of 36%—$2.3 million—over in-house.

Methodology

We assumed that the law firm is managing 200 small cases of 25 GB each and 25 large cases of 200 GB each. That is a total of 10 TB of data, but since it is rare for all the data in a case to arrive at once, we spread that over the three-year span, or 3,333 GB per year.

We also assumed that the total data would be culled at a rate of 67%—the average rate reported by a recent industry survey—bringing the annual quantity of data to 1,100 GB after culling. We further assumed a maximum of 500 users on the system.

To establish the expenses to build the TCO model, we did the following:

• Selected popular in-house and cloud-based processing and hosting platforms that are widely available on the market today;
• Obtained actual quotations from hardware and software suppliers;
• Calculated annual hardware and software maintenance fees at 20% of the up-front capital expenditures;
• Accounted for technology refresh by giving hardware a three-year useful life;
• Excluded full redundancy for the in-house platform; and
• Excluded business impact due to downtime because it varies too greatly among companies.

Server downtime is a real risk. If downtime costs are included, then the cost-effectiveness of an on-demand, cloud-based service is even more dramatic.

Up-front costs: One advantage of the cloud is the absence of start-up costs. Because the cloud provider hosts and maintains the application, no up-front investment is required for hardware and installation.

Up-front system installation expenses for an appliance platform total $372,000 for the cost of new servers, storage and a backup library.

For our analysis, servers and storage were configured to meet the specification requirements of the selected processing and hosting platforms. Servers were configured to fulfill Web application, processing, search, analytics and database roles.

Other one-time fees: Typical fees for a cloud-based system include site set-up, processing and production fees. We estimated these to total $682,700 for each year in the three-year scenario for a cloud platform.

For the cloud platform, the site setup fee includes site consultation, instructor-led Web training and setting up standard fields, review forms, dynamic folders and user accounts. The processing fee includes ingestion—the extraction of metadata, text and native files—and culling—filtering the data via de-NISTing, deduplication, filetype filtering and date filtering.

There would be no processing fees for the in-house platform because the equipment costs and software licensing are accounted for in other expense categories.

Recurring fees: Although both cloud and in-house applications involve recurring fees, the fees differ widely in nature.

The in-house appliance would incur annual recurring fees relating to hardware maintenance and software subscriptions associated with the processing and hosting platforms. These are estimated to total $388,600 in year one, $587,400 in year two and $789,400 in year three.

For the cloud-based application, there are no maintenance or licensing fees. There would be a recurring monthly hosting fee, charged by the GB. Assuming a cull rate of 67%, then the data being hosted is 1,100 GB the first year, 2,200 GB the second year and 3,300 the third year. Corresponding costs for the cloud application are $330,000 in year one, $660,000 in year two and $990,000 in year three.

Ongoing operating expenses: Just as the cloud platform required no up-front costs, it also requires no ongoing operational expenses. The same cannot be said for the in-house platform, which is projected to incur $1,112,540 in year one, $1,353,540 in year two and $1,715,040 in year three in operational and staffing expenses. The ongoing operational expenses required to support the in-house platform include:

• Data center colocation to house hardware equipment and provide redundancies in power, cooling and 24x7x365 manned security versus an on-premise server room;
• Point-to-point connectivity between the data center colocation and office. Due to very high traffic volumes for ESI, we factored in a dedicated GigE link offering speeds up to 1,000 mbps;
• Cost for staff office space. We estimated 2,000 square feet at $30 per square foot annually to accommodate a staff of seven;
• IT staff includes one network administrator, one help-desk analyst and one database administrator to manage and maintain the infrastructure. We also included one programmer to assist with customization projects; and
• E-discovery staff includes one e-discovery manager and three e-discovery analysts to support the in-house appliance. We budgeted for three project managers in the first year, five in the second year and eight in the third year.

To set the salaries for e-discovery staff, we used the average salaries identified by The Cowen Group in its 2011 salary survey of law firm litigation support staff. For IT salaries, we used data from CBSalary.com.

When the costs over the three years are added up, the total for the cloud platform is $4 million versus $6.3 million for the in-house platform. That represents a savings of 36% with the cloud platform.

A 36% cost savings using the cloud over an in-house appliance is clearly dramatic. A further advantage of the cloud, not shown by these numbers, is that it provides flexibility to quickly ramp-up when activity increases and terminate costs when the project is finished.

With an in-house platform, operating expenses continue, regardless of the level of activity, and there is constant worry about the investment becoming a useless expense.

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For additional information, visit www.catalystsecure.com.