Reflecting on our First 1000 Days
A thousand days today Hyperscale Group was born. We thank our clients for their support and the fantastic projects they have involved us in.
In many ways we entered the market at a hugely exciting time. We launched at a time when the legal tech market was undergoing exponential growth and the increase in investment figures (713% plus) speak for themselves. In many ways it was “feast to famine”. It used to be difficult to find tech to solve problems. Instead now teams will be confronted with a wide array of start-ups which can do virtually anything anyone wants and people are literally spoilt for choice and are often overwhelmed.
We also entered the market at what will historically prove to be a defining period. The $850bn legal industry had always leveraged technology. Virtually all of this technology has been information management technology i.e. managing finances, documents and emails. In the last 5 years we have seen a new wave of technology hitting the market which helps with the “delivery of law”. For the first time the delivery of law is moving from analogue to digital. The quantum and consequences of this change cannot be underestimated. Historically the ability of a law firm or in-house team to deliver legal advice will have been constrained by having the right number of people with the right skills at the right time. Now these constraints are minimised. “All bets are off”. A smaller law firm or in-house team has the ability to scale and build capability in a way which has never been previously possible.
In other ways the timing was not so great. Ironically, at a time where we are seeing a vast number of solutions
hitting the market we have seen people rebel against the point solution. Often they can’t cope with the volume of products and providers and have seen the cost of integrating multiple projects and managing large numbers of vendors. We have seen a diminution in the tech stack with a desire from most clients to move away from point solutions. We have probably also seen the worst of the Gartner curve. We have seen huge expectations about new technologies such as AI, they have created huge excitement. Law firms in particular have spent a lot of time and money only to find themselves in the classic “trough of disillusionment “.
We have seen the “Rush to Innovation” with every firm dreaming of launching the next Facebook or Uber for Law with the proliferation of never seen before job titles and appointments heralding huge promise. Without doubt we have seen some great people enter the market but equally we have seen some without any real experience or knowledge
promising the world on a stick and then failing or eventually gravitating to basic business transformation or developer type roles which could have easily have been delivered elsewhere in businesses. It has felt a little like the ‘dot com’ boom in the late 90s where markets were “investing in dreams” and businesses were taking on talent wherever they could find it – where new roles are being invented you can’t find people with track records. Sometimes people have thought the “Innovation Gig” would be easy whereas the exact opposite is the case. You are tackling the problems no one has ever been able to sort out, you need to do this with a model which addresses multiple practice areas and often with little or no resource. The demand is often piecemeal and problem statement led but to be successful your solutions have to incrementally help to develop your target operating model. They need to be sustainable and scalable in their own right but from a technology perspective, as without this it won’t be in the
long term interest of the business. This is definitely not easy territory. We are lucky to have come at this area with multiple skill sets as lawyers, technologists, ops people, compliance people, client partners and more, and it has helped us to get clients to the right place more efficiently and cost effectively than others have been able to. We believe in building the right machine/operating model as opposed to delivering disparate projects which can be costly in the long term.
In relation to Hyperscale Group building any business is not easy but equally it is hugely enjoyable. In our first year we established ourselves and built our platform - product, knowhow, systems and processes. We are hugely grateful to have our clients supporting us during these early stages. The second year brought a great team (we now have five people), setting ourselves up in our offices (developing a strong culture and developing people is key in the early days and an increasing number of clients wanted to swing by). It also provided a venue for training in our Boardroom. We also launched our alliance www.intuityalliance.com which has been superb. We have now developed a number of products and offerings relating to strategy, technology and digital (watch this space) and have worked for clients in over 12 countries, with a further 3 jurisdictions in the wings. We have been blessed to work on some fantastic products from a number of innovative clients and we have been acting for in-house legal teams, law firms, accountants, litigation funders, venture capitalists, strategic consultants and start-ups. A deliberate decision to work across the industry has helped us to gain a stronger insight on where this market is going.
And so, a few observations from our first thousand days, broken down in to 10 key points:
1 Unprecedented Change
We are in no doubt we are going through an era of unprecedented change. There have always been threats to the legal profession but seldom have there been so many storm clouds at the same time whether it be the big four, ALSPs, cyber security, AI, Start ups, Blockchain or the automation of law. Legal Tech systems have evolved too slowly over the last few years. Due to this the Operating Mode of law firms has not altered materially. Most law firms have operated with the same principle systems for the last 30 years; namely a PMS, document and email management
system and potentially case management or CRM. These are core foundational systems, but this operating model alone can no longer be fit for purpose. The market is demanding a different approach.
2 Office 365
We often see great products, but Office 365 is becoming a real game changer for both the legal and many other industries. Yes, this has always been anticipated, but with over 200 million global users and an increase in monthly user rates of 3 million per month, the effect is huge. Also, as corporates are adopting Office 365 it is giving rise to an acceleration in the diminution of the tech stack. It acts as a catalyst to reduce the number of products used meaning some traditional legal tech vendors are sometimes finding it harder to get traction with their products.
Only products which are in the stack/their ecosystem pass muster and most organisations are keen to get the most out of Flow, Teams, Power BI, Power Apps et al. Piece by piece Office 365 is also chipping away at the incumbent legal tech market (as well as many others) with capabilities in relation to Disclosure, Digital Dictation, Process automation, Reporting/Dashboards, RPA, BOTs and AI. With a turnover of $125bn and profit of $46bn what investment do we all think Microsoft will be making in AI? Plus, they have an unprecedented amount of data
and will hold it all in a platform where we can apply the AI? I am speculating but I struggle seeing how Microsoft won’t be a major player in the AI market.
3 Law Firm PMS’s
There still seems to be some dissatisfaction in the Law Firm Practice Management System (PMS) market. Yes, there are some solid capable products, but some products seem very expensive on a ROI model and have perhaps not evolved far enough over the last few years. As one managing partner put it to me “this seems like a very expensive database that will deliver very little to how we service our clients or the revenues we earn”. There also seems to be an emerging shift with people realising that lawyers don’t perhaps want to spend the time in PMS systems and from a cost of ownership perspective some have realised that combined systems, although in some cases less sophisticated or scalable, are perfectly adequate and are more palatable from a price point perspective. Some people want to move away from the best of breed model and comment on the unforeseen operating costs. The market is evolving too with new players and ERP systems gaining traction.
4 Innovation
The world of innovation has been interesting. It’s clearly important that law firms and in-house teams continue to progress but many of the models that people are putting in place are not necessarily delivering the results people want. For a full-service law firm in particular, given that innovation really requires you to get under the skin of the delivery of legal work, it is very hard to deliver the breadth of improvements which people really need. Also, there is a huge difference of opinion about what innovation means - is it really business transformational transformation? Is that what we are really seeing? Are there truly many examples of real innovation? I would be delighted to see law firms launch more products but again there are not as many examples as you would think. One thing that has surprised me in the last 1000 days is that some of the firms that seem to be really powering ahead on innovation are perhaps small to medium size firms rather than some of their larger counterparts. It perhaps is reminiscent of Joshua Browder producing the first ‘Do Not Pay’ chatbot from a dorm at University ahead of the IT Departments of most large law firms.
5 AI
On AI, as discussed above there have been some inroads but there has been a lot of disappointment. Those people who have engaged have learnt that to make something work well requires time, effort and dedication. It also requires a good corpus of documentation. Many of the AI vendors have fallen victim to the same issues that legal IT vendors have suffered, namely that most people have been selling toolkits rather than solutions. My well-worn example is that if I want to fly to China I book a ticket online and go to the airport and fly. The equivalent in the legal IT market is that I am shown to a hanger with boxes of components and a manual on how to build a plane, and then an option at extra cost to learn how to fly it. Very few law firms and teams have the resource to make this model successful. They could have bucked this trend by supplying turnkey solutions but in most cases have not done this. That being said we are seeing the emergence of productization in AI in at least two ways.
First we are seeing people focus specific products on particular tasks. The Big 4 did this with IFRS16 data extraction tools, suppliers are doing this with subject access requests, and we are seeing the emergence of products such as Avail which is focused specifically on the extraction of data points from real estate leases. Several products too have embedded AI enabling them to mark-up incoming documents (e.g. Legal Sifter, Doc Juris, Blackboiler etc). Other tools are identifying repeat work product. This is a real positive and I am hoping to see some similar developments in the next thousand days. Also don’t discount Microsoft (see Office 365 above) and what people will do with their product set.
6 ALSPs
The Alternative Legal Service Providers or Law Companies as they are sometimes known have become a key feature of the market in recent years. They have changed from the new kids on the block to established players and now have a well-deserved place on every major corporate panel. They have a very different way of doing things and are building impressive capabilities. They are growing faster than virtually any part of the market at an estimated 25% to 33% per annum and are actively partnering with a number of larger law firms. Unlike most law firms they have been able to put in place contracts for five to seven years and operations such as Riverview Law and Pangea Three have been purchased by the big four (EY). In some way it is still only a $10.7 billion market which is small compared with a $850 billion global market, but this is clearly a segment of the market to watch. Clients like what they see and their propositions are appealing which is why some law firms too have moved into this space.
7 The dominance of the client
The power of the client in the client/law firm relationship is continuing to increase. Simultaneous with this there has been a threefold increase in the number of in-house lawyers. For years there was a missing piece of the jigsaw in that clients struggled getting their hands-on technology. There were several reasons behind this including the fact that often in organisations they were the poor relations and law was not seen as something requiring technology in the same way as Finance or HR departments. Things have changed now. There are a range of reasons for this such as the move to the Cloud, Office 365, finance functions and HR functions winning large budgets for transformation/system implementations and the increase in regulatory risk (and the technological firepower of regulators) – the business case has been made easier. Also, technology hitting the market such as AI is more suited to those organisations with many similar documents such as in-house teams. I could go on. Alongside this there has been a huge growth in Legal Operations and the development of organisations such as CLOC. Some of the metrics and financial information available to clients (e.g. via Apperio, Pursuit, Alacrity Law and Repstor) now surpasses that available to many law firms. Expectations are also altering with client’s increased knowledge of the benefits this new breed of technology can bring. When you can automate a large proportion of the task yourself, it will affect what you will want a law firm to do. Buying patterns are altering and clients are getting much more challenging about what technical capabilities they want their providers to have and who will do what work.
8 Capabilities
We very much see this as an era of capability. We all need to ask ourselves what capabilities we will need as businesses now and in the next 5 years. We then need to look at what we have and incrementally find ways of building those that we don’t have. This needs to be a gradual process though supported by strategy. In this way you end up with sustainable innovation, you save money and you are constantly building a stronger and more modern operating platform.
9 The Death of Legal Tech
I am not going to repeat what I have said before (https://www.hyperscalegroup.com/news/2019/11/27/the-death-of-legal-tech), but the following is worth quoting. Our market and role may be very different going forward and we perhaps need to recognise this:
“What we need to do is recognise that Legal Tech has perhaps missed its
moment. Law firms have been too busy being preoccupied with PMS systems and
document and e management systems and the move to the cloud. We failed to push
the boundaries of developing and implementing legal technology to enhance the
delivery of law. Even AI products are often delivered as toolkits rather than
solutions. We should have seen more platforms emerge albeit the tide is turning
in this regard and so watch this space.
Whilst everyone’s attentions have been elsewhere in the last three
years, we have seen a wave of other technology moving into the space legal
technology should have occupied; namely PropTech, DisputeTech, InsuranceTech,
PensionsTech, IPTech, ContractTech and even DeathTech (together “MarketTech”).
Conventional Legal Tech is now under attack from multiple directions and to
survive it will need to interface with all of these new technologies and
platforms which are coming its way. We need to accept that Legal is not a
“thing” but an essential step in a much wider business process, so perhaps it
is right that these wider business platforms and systems should dominate but
interoperability and flexibility of legal platform will be key in achieving
this.
Legal Tech is no longer dictating its own future. If in five years from
now every property transaction is executed on one of two blockchain platforms
with algorithmic valuations and auto financing, it will be the job of Legal
Tech to fit in and to interface with these systems. Sadly, for most law firms
(and for some in house legal teams) this will be a struggle as the core
platforms tend to comprise PMS/e billing, Document and e mail management and if
they are lucky CRM. The core capabilities of these systems will not have
altered materially in the last 20 years and so how will they interface with
this new breed of systems without creating multiple projects for IT functions?
LegalTech needs to step up and we need stronger platform capability”.
10) The Rise of the Platform
In many industries we have seen the emergence of dominant platforms. It has been talked about in Legal before and in the late nineties and early 2000’s, there was talk of the “battle of the dealrooms” and who would own the desktop. The gauge has moved though. We are now genuinely seeing a few contenders to become the platform or one of the platforms in legal. Our analysis (mainly focussed on the UK, US and Europe) has shown there are
potentially over 20 contenders. We don’t know who will take the trophy (okay I admit we have views), but we suspect the next thousand days will see some platforms getting real traction. Tied into this there are a few systems looking to become the “missing middle” of law firm and in-house systems. I.e. middleware allowing low/no code automation, orchestration of other technology products, integration with MarketTech and more. The effect of these platforms and middleware cannot be underestimated and obviously Office 365 will be in the fray too and I am not
sure you would bet against it.
In conclusion we feel blessed to be part of this market and we have loved our first thousand days. It is hugely exciting, and we are going through what is perhaps the most profound period of change the Legal Industry will ever see. We will see winners and losers and are hugely grateful to the clients we are working with. We feel very lucky to be engaged with such talented people. Perhaps the message of these times needs to be “Doing” is easy but “Doing the right things” is much harder and so it is a time to really pay attention and engage with the best people and suppliers. We all need to be circumspect and take time to understand where this market is going and build for the longer term where possible. We need to make the smart moves and not be busy fools by confusing action with progress. We need to constantly mindful of the new competitors entering the market with totally different
approaches.
Some people see this era of change as threat but quite simply it is a huge opportunity. It is also probably the biggest opportunity we will ever see in Legal and so we intend to spend our next thousand days helping our clients to make the absolute most out of it.