By Terry Williams of LexisNexis and Richard Perrin of Dickstein Shapiro
To get an idea of the "pitch" for cloud computing in the law firm, imagine this fictional conversation between a senior litigation attorney at a large law firm and an executive of a company that provides cloud computing services:
Attorney: My firm is being squeezed by rising operational costs (particularly related to technology) and client demands for the reduction of legal fees. Decisions about whether or not to litigate are strongly influenced by the cost of pretrial discovery.
Cloud Executive: Your situation is not unusual. Most firms face similar financial and budgeting challenges, but have you considered moving your firm's and your clients' electronic data to the "cloud"? It's possible to experience significant savings by shifting some or all of your firm's infrastructure and data operations to a cloud service provider.
Attorney: We've given cloud computing a preliminary look - and the options seem interesting - but we have concerns about data security, flexibility under contracts with cloud vendors and the overall cost.
Cloud Executive: Cloud computing can reduce hardware and software costs substantially. Most vendors will customize their services to give you exactly what you need and will provide secure transmission and access to your data on a 24/7 basis.
Attorney: It's hard to keep up with all the changes in technology and practice law at the same time.
Cloud Executive: You and I should meet with your practice support director to discuss cloud computing services. I'm sure there are offerings that can enhance your practice.
Computing practices and technology services for the legal profession are changing rapidly. This year, the industry buzz continues to focus on the exciting promise of cloud computing as an increasingly valuable way of delivering computing platforms, software and services to law firms and legal practitioners.
We understand that cloud computing is a paradigm shift that requires careful analysis and detailed planning to anticipate legal and operational issues. However, cloud computing creates opportunities to simplify legal technology, reduce concerns about network capacity, system backup and computer performance, and even reduce that constant and critical concern regarding data security. The idea that most computing needs and services can be delivered cost-effectively to users from the cloud - whenever and in the capacity needed - is one that virtually all legal technology professionals can embrace.
What Is Cloud Computing?
"Cloud computing" describes the delivery of hosted IT services over the Internet. Three general services provided in the cloud include:
- Software As a Service (SaaS): Software applications are hosted by a cloud vendor and made available to users over the Internet. There are few true SaaS offerings available in the legal market today, but this is an area in which we can expect innovation in the years ahead. For now, there are some "single-tenant" software applications available in the cloud (i.e., tailored to each company seperately).
- Infrastructure As a Service (IaaS): This permits users to outsource computer equipment and the operations that support the organization. Costs of operating the actual equipment are the responsibility of the service provider; the user generally pays for the infrastructure on a per-use contract.
- Platform As a Service (PaaS): Software developers use this in an environment in which operating system features can be changed on-the-fly and new performance can be evaluated quickly. Development teams can collaborate on system changes, rather than perform separate evaluations on duplicate or incompatible systems.
In general, cloud services are sold on-demand and are therefore flexible and elastic. Purchasers can buy cloud services as needed and reduce the service if demand declines. Cloud services are managed by the service provider, and users need only a computer and Internet connection to access cloud services.
The Drive Behind These Changes
In the legal environment, there are three critical factors behind this fast-growing service:
- Data Security: Data privacy and strict security measures are crucial to all attorneys. There are few greater risks to an organization than the improper handling of confidential client documents. It's becoming more important to support on-demand data storage and retrieval in an environment that meets "best practices" criteria for assuring data security. This also involves technical expertise of specialists handling the data for law firms and their clients.
- A Need for Flexible, Cost-Effective Software Applications: Law firms and their corporate clients demand software tools that improve efficiency and accuracy while containing costs of acquisition, maintenance and use. Responding to this demand, legal technology companies have developed increasingly robust software applications, enhancing many aspects of a law firm's ability to better serve its clients. However, it is not surprising that these products often require huge infrastructure investments to host the applications internally, plus increases in IT staff headcounts, an investment in training and other administrative costs necessary to manage these new systems effectively. The bottom line for every firm is how best to control operating costs. Cloud computing and managed services now offer real competitive options that relieve firms of significant investment burdens, such as acquiring and maintaining continually changing software computing platforms.
- Data Overload and Discovery Costs: According to the McKinsey Global Institute's 2011 report, "Big Data: The Next Frontier for Innovation, Competition and Productivity," the volume of global data is expected to grow at a staggering 40 percent annually, while the rate of spending on global IT resources is expected to grow at just five percent per year. In the legal space, for instance, the tremendous volume of electronically stored information (ESI) subject to discovery in litigation means the need to preserve, process, review and produce this ESI as evidence has also grown dramatically. This surge in data overload is likely to accelerate in the years ahead.
Benefits of the Cloud
Reduction in law firm capital expenditures is likely the most significant benefit of moving data and software applications to the cloud. By utilizing cloud computing, law firms can have easy access to both their necessary software applications and all their data without having to purchase and maintain ever-expanding hardware systems and software applications. An added benefit of cloud data management is the IT staffing support for these systems can be reduced or used for other in-house tasks.
Cloud computing for law firms also offers greater flexibility with respect to software platforms. Technology in the legal market is evolving continuously. Innovative software tools and upgrades are announced daily. By moving to the cloud, a law firm can essentially "rent" the latest software without having to make a major investment in seat licenses and without having to invest in additional hardware often required to support new products. This creates flexibility in the budget as well.
Increased productivity is another advantage that law firms can realize by moving data to the cloud. As concerns about storage, server capacity and security are eliminated, law firm personnel can concentrate on client matters.
Risks of the Cloud
Of course, there are some important risks associated with cloud computing services to be considered. The top concern for law firms using the cloud is data security. Any time a law firm turns over confidential information to a third party (i.e., a cloud computing services provider), there is a risk that unauthorized parties could access the information and use it to the detriment of a client. Just as with various data service companies and delivery personnel, cloud computing vendors should be carefully scrutinized and obligated to respect client confidentiality under serious potential consequences for any security failure.
Cloud service users should also recognize that data in the cloud might be subject to spoliation or some unauthorized tampering. According to ABA Formal Opinion 99-413, 1999, transmission of confidential and sensitive information over the Internet without encryption by email is acceptable in most cases because there is "a reasonable expectation of privacy from both a technological and legal standpoint." This opinion has been extended to cloud computing in New York (NYSBA Opinion 842, 2010) and Arizona (AZ Bar Ethics Opinion 09-04, 2009), provided that law firms take reasonable precautions to avoid unauthorized access. Most states seem to be following suit, but it's important to check with your own bar association to ensure compliance with the latest ethical standards.
Cloud clients must also consider the risk of service failures. The fact is that all major technology companies experience service failures at one time or another - it's just a reality of life in the information age. This is a serious risk consideration for law firms that need 24/7 access to their information stored in the cloud. However, this same risk factor applies to a law firm's own computer network and data infrastructure. Be sure to seek information about the reliability of a cloud provider's services, including a history of all prior service interruptions and the time required to re-establish service.
Finally, there is the consideration of the cloud service provider's financial stability. It's essential that you investigate the company's fiscal condition and their access to working capital in order to minimize the risk of a sudden business failure. You should also determine a process for acquiring your data from the provider if the business relationship ends for any reason.
A Model Choice
Law firms that have already gone down the road of cloud computing have blazed a trail for the industry and identified two principal business models for the delivery of cloud computing services. Of course, many law firms technically have stored some of their data in the cloud for years, such as accounting records and legal research results. Taking shape now, though, are a couple of general models for a fundamental shift in how we manage even the most sensitive data files, including client electronic information related to pending litigation and governmental investigations.
The first model is the total outsourcing of all data and software applications to a third-party provider that manages all of the electronic information in the cloud. This is an attractive model for law firms that want to achieve all the benefits of cloud computing and focus on the delivery of legal services to clients. For others, however, there might be some unique reasons to maintain a specific range of data management responsibility, either due to client concerns, business reasons or ethical restrictions in certain jurisdictions.
The second model is partial outsourcing of individual client matters, software applications or law firm data. This is a sound model for firms that want the benefit of being able to scale-up rapidly to take on a large new matter or manage unexpected system demands. However, it might not make sense for firms that are seeking maximum cost-efficiencies in their data storage and retrieval.
A Question of Public or Private
Once the appropriate business model is chosen, there is one more decision to make: Do we want to move to a "private" cloud or a "public" cloud?
A private cloud arrangement guarantees the dedicated hosting of the law firm's data and software applications at a specific data center operated by a cloud services provider. This option provides law firms with knowledge of where their data reside and gives them direct access to the physical servers, administrators, backup hardware and storage procedures in place for protecting their data.
A public cloud arrangement means the law firm's electronic information is hosted with a service that is available to the general public, securely over the Internet. This option is less expensive to use and easy to set up by the firm with just a series of mouse clicks and an encrypted data upload.
A Place To Hang Your Hat
And so we return to our fictional conversation, where the attorney and executive, after a thorough face-to-face discussion of what cloud computing can offer, resolve to move forward into a likely partnership:
Attorney: I'm glad we talked about the cloud. I see the potential advantages and would like to explore the costs and contract terms of going forward. Of course, we'll need some strict performance representations and warranties in the cloud hosting service agreement.
Cloud Executive: Naturally. You'll also want to talk to some other legal professionals who have experience with cloud computing to get their perspective on the opportunities and challenges with this kind of technology strategy. When you decide to move to the cloud, I'm confident you'll find a customized approach that creates the perfect home for your firm's data.
Terry Williams is the Vice President of Hosting Services in the litigation tools and professional services business at LexisNexis. He can be contacted at email@example.com.
Richard Perrin is e-discovery counsel for Dickstein Shapiro, where he is based in the firm's Washington, D.C. office. Richard can be contacted at firstname.lastname@example.org.
This article was published in ILTA's December 2012 white paper titled "The Changing Face of Computing" and is reprinted here with permission. For more information about ILTA, visit their website at www.iltanet.org.
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