By Eric M. Jackson and Christopher Grey
We live in a world of unprecedented convenience and ease of use. You can now access almost any information you want in seconds on Google, your iPhone, and other smart devices. Almost any product or service, from Uber to Amazon, will come to you on demand in record time. Payments can easily be made from your phone using Paypal or ApplePay. Even governments have embraced the modern era of convenience with electronic tax and regulatory filings.
While the “consumerization” of enterprise software is accelerating, there is still one area of finance that is stuck in the past. Data rooms—which are traditionally used to host due diligence information for M&A deals and financings—are difficult to use, slow, inflexible, and unfriendly to most mobile devices. Fund investors have openly complained in the media that they find some of these products “tough to navigate and clunky.”
Adding insult to injury, these legacy data rooms are extremely expensive. Published reports suggest their pricing usually starts at $25,000 per room, but we’ve seen situations where the cartel was pricing 2-3 times higher than viable alternatives in the market.
How is this possible in today’s world of modern technology and hyper competition among software companies? A significant portion of the virtual data room (VDR) market is ruled by an uncompetitive cartel of three companies. We don’t need to say who they are because everyone in the industry already knows. These companies got into the data room business back in the Nineties and have protected their market position not by building the best products or offering a great value proposition to customers. Instead, they have held on to market share by bribing the employees of their customers and spreading negative information about SaaS companies outside of the cartel.
If that sounds harsh, consider that we’ve witnessed the cartel firsthand spend huge sums of money on lavish dinners, sporting events, night club parties, and other indirect payments to the employees of their customers, or their customer’s bankers. These extravagant sales and marketing expenses have made it impossible for them to properly invest in upgrading their technology, even though they charge high prices.
Like a bad episode of “Portlandia,” the cartel’s products remain stuck in the Nineties. With user interfaces that look like they came straight out of Windows 95, their software relies heavily on browser plug-ins. This utilization of plug-ins poses a problem because they frequently break, require updates, and are themselves a security risk. This means that the victims of the cartel aren’t just their upstart competitors, but also ironically it’s their own clients who suffer from having to use outdated software.
All of these customer stakeholders are stuck paying many times the cost for inferior products and services because of the market dominance of this cartel. Still at work late trying to figure out how to upload documents? Thank the cartel. Can’t use the data room on your iPad or other tablet? Thank the cartel. Plug-ins causing your computer to freeze and crash? You get the idea.
What’s the solution? The industry needs more competition to dislodge the cartel and bring new technology options to clients. Companies need to stress to their employees and investment bankers to “just say no” to the bribes being thrown at them by the data room cartel and take a fresh look at the technology alternatives that are out there.
Now, in the interest of full disclosure, we’re not an idle observer and won’t pretend that we don’t have an interest in this. Our company, CapLinked, is an app for secure enterprise file sharing, and data rooms are one of the use cases that our product supports. But we’re not the only innovator in this area of enterprise SaaS, and we’re more than happy to compete on a level playing field.
Remember, when you’re evaluating software to manage a deal, those Yankees tickets you were offered could come at a steep price. The Saturday night at the office you avoid just might be your own.
Eric M. Jackson and Christopher Grey are the cofounders of CapLinked, a secure workflow solution for enterprise sharing. Jackson previously ran the marketing team at PayPal, and Grey was previously a private equity executive.