The Failure of LegalTech
LegalTech is regarded as a hot sector from an investment perspective. Barely a day goes by without an announcement of new investment or fresh M&A (see our M&A tracker). I have been in the LegalTech market since around 1998 and so you could argue LegalTech has had a good 25 year run and the market should now be very advanced. In some ways this is true. We have large stable suppliers who invest a huge amount in R&D. In many ways however the market has failed to deliver on its potential. Let me explain why. Another way of putting this is to say that there has been a huge focus on parts of the market but little focus on other areas meaning there is a lot more that could be done.
1. Tackling the hard stuff –Some might argue though that LegalTech shouldn’t be called LegalTech as there’s no legal in it. Most of the tech that has been implemented is “information management tech” (i.e., practice management systems, document management systems and CRM). Very little of this has gone under the skin of how to deliver legal work to improve legal efficiency. There are exceptions to this of course in areas such as case and matter management. Also, smaller firms who have perhaps operated on an all-in-one PMS/case management and CRM have made greater inroads into the improvement of the efficiency in the delivery of legal work as they are by design more process driven. I am not saying that this tech is bad – far from it, it is good and is essential but it is only one piece of the jigsaw but seldom touches legal workflows or process delivery. This is changing a little now though with PMS and DMS vendors moving into legal workflow. Tools such as Fliplet have prebuilt apps and some case management providers have “work pods” which make implementation easier. The AI providers are rising to the challenge too with pre trained modules. As per previous articles there’s a definite need for some sort of no code/a missing middle type tech like Kim Technologies or ShareDo to improve work delivery in these areas and to act as an orchestration layer to bring in other products. Foundation Software is also playing a part by analysing experience, financials and team diversity.
2. Market Tech and Legal Process – Law is an $800 billion global business. Law firms deal with extremely important matters which are often of high value. Much of the work is very specialised and the people doing it are remunerated accordingly. What is surprising however is often when we go into law firms, we go around the legal groups helping them to improve. Often all they have available to them are the generic information management tools. Seldom do they have any specialised tools for their practice areas in areas such as dispute tech, contract tech, prop tech and death tech. Often where there are tools that can help them e.g., AI tools they will have very little knowledge of what is available and how to use them. Regularly they have no, or little knowledge of the leading tools focused on their practice areas.
In fairness to the start-up community, many of the tools which impact on these areas have been developed by smaller agile businesses rather than the traditional tech vendors which solve team rather than generic problems. This is great in many ways and sometimes these tools are acquired. The negative however is often they are regarded as point solutions and for those running enterprise technology or operations it is hard to deal with a multiplicity of smaller vendors. In short, the legal market’s knowledge of usage of LegalTech needs to increase in areas where these products have real value. A simple example is the world of property where there are some very sophisticated property search and visualisation tools which deliver compelling business cases, such as Veya, Orbital Witness, Search Acumen and Avail. It is hard to imagine how a firm can deliver an efficient high-quality service without them.
3. Data Strategy – For years many firms have aspired to advance their data strategy. Some have made a really good job of organising their own internal data. Now due to the rise of Microsoft 365, Azure and AWS, the theoretical and aspirational is now becoming much more achievable. People now have a clear view as to how they can deliver their data strategy. Any data strategy involves several levels of maturity, but some more advanced firms are beginning to successfully experiment with data science and are taking insights to their clients. All of this sounds great, but a key challenge is that some legal tech vendors are not helping firms as much as they could. SaaS products hold people’s data and frequently will have a variety of ways of delivering insights into it. What they tend to be very poor at is delivering that data back to the client in a way that they can analyse and leverage it in conjunction with all of their other data. Also, as quantities of data increase (which they inevitably will) the data management costs of suppliers are charged at rates over and above what law firms can procure themselves. Not all suppliers adopt this approach. There are SaaS suppliers we know who will work in this way but also will let you host an instance of their Cloud system and will also act as a conduit to organise data and pass it back to a client at pre-determined intervals. With the increased rise of Microsoft’s cognitive services, it is hard to see how this area cannot be addressed. Firms will want much greater control over their data.
4. Education and Skills – Many years ago, the law firm formula for making money was much simpler. In short you had to have the right number of people with the right skills and experience at the right time to charge them out at a rate which exceeded your cost base. It was still possible to get this wrong – the standard joke about resourcing was that law firms were like a 1980s Porsche 911 Turbo where perhaps you put your foot down and nothing happens and then all of a sudden there was a surge of power meaning in this case that the resource timing was not aligned with the demand.
We are now entering a different era. If you look at the major stock markets of the world, it is easy to see they are dominated with tech stocks as digitising delivery means you can scale and improve profitability in a way not linked to headcount. The same applies to legal. The biggest and most popular firms no longer need to have the most people. The days have gone where a lawyer just needs to be able to give great legal advice and manage clients well. Lawyers going forward need to find different ways of delivering, that leverage new technologies (whether they be market tech, AI or wider) as well as differing skill sets. The more sophisticated clients are doing this themselves and accordingly will expect it of their lawyers.
None of this will be possible without educating our lawyers differently. Research from Acritas and others have shown that there is a gap here where often lawyers don’t know enough about the technology, don’t know how to implement it and accordingly are nervous about speaking to clients. This gap is compounded where there are perhaps some deficiencies in basic tech skills.
There are many answers to this. Some firms are launching their own academies or delivering courses. Others have video footage cascaded to their people and/or use tools such as The Professional Alternative which have been developed to address this.
In short, however, unless we educate our lawyers better in relation to technology and new delivery models (as well as other essential areas), they will not be able to meet the demands coming.
Many proposals from suppliers often include training or train the trainer models. This is great but is it enough? Frequently we ask suppliers to supply video training for new joiners but again often more could be done. I have also seen some suppliers who keep video training modules up to date and who also have opportunities more aligned with delivery of commercial objectives. These things can only be good.
5. Dashboards and Silos – Sometimes you have to compare LegalTech with other markets. The insurance market isn’t necessarily renowned for its client care but if anyone calls a major insurer, the insurer has available to them screens that show a customer’s details, records of telephone calls and other key points to help them sell, such as dates of renewal of other insurances. Law firms have all of this data but for most law firms I know (excluding smaller firms operating on a case management model), most of this data is hidden in their systems. It can be accessed but not easily. None of it is optimised around the tasks that lawyers carry out.
For the last 20 years we have been helping to deliver law firm dashboards. As long ago as 2006 we won the “Legal Business most Enterprising Law Firm of the Year” award for the work we had done on a client centric dashboard. To me there is a huge opportunity for law firms here (especially as they advance their data strategy). It means you are presenting the right information a lawyer needs at exactly the time they need it.
Having literally consulted with hundreds of organisations, lawyers principally need five dashboards with potentially six supporting dashboards, and this is very deliverable. To deliver these however requires internal silos to be broken down. I often hear comments about what HR and finance are and aren’t willing to do and the way that they want their own dashboards. Whilst this is progress, delivering dashboards from an internal business services function perspective as opposed to focusing on the jobs and tasks a lawyer needs to do, is inevitably going to add much less to productivity. In big picture terms, draw an analogy with a car. Many law firms operate on the basis of getting a report at the end of the month showing how fast they have been going and having to lean over to the back seat to turn on their indicators. This needs to change and we need to optimise the interface of our systems more. Many suppliers could help in this area too.
6. Fixing the Model/Legal Expertise – It is vital that we recalibrate how we deliver projects as we tackle legal efficiency. In my experience most lawyers are incredibly hard working and very focused on their clients. This is a huge strength but also brings with it a huge weakness in that they are perhaps not as engaged or vigilant in areas such as wider skills, education and market tech. Also, if a key client demand comes through the door, they immediately become absent from any LegalTech project.
As per 1 above, legal technology projects need to alter too. Historically, if a firm were rolling out document and email management this could be done with very little impact from lawyers. Accordingly, lawyers have been conditioned to having projects done for them. To deliver a project that gets under the skin of legal work e.g., implementing PropTech tools or case management, these projects cannot be successfully delivered without material input from the lawyers in these practice areas. Their domain knowledge is vital. These projects therefore need to be done with and not for lawyers. The nature of the business case needs to be different with the senior partners in those groups adopting different roles and responsibilities and playing a much more active role in success and driving change.
All of this sounds obvious but for many firms there is an education process and then when a new client project or demand comes in, they are often pulled away which makes running a project hard.
We also need to look at how lawyers are incentivised. Many lawyers are incentivised by the hours they work or fees that they bill. The type of projects we are talking about here are much longer term and strategic. Many firms still lack appropriate incentivisation models to work on these projects. If a project is small this may still be viable but for larger more long-term projects, it is simply not. Some firms are growing their “legal engineering” teams but unfortunately a lawyer experienced in one area isn’t necessarily the right person to automate another which means that these projects often struggle to succeed.
7. Fixing the System – Anyone with experience in the legal market will know there are many facets and that each practice area has its own challenges. For a variety of reasons, I have recently had cause to become involved in working with some clients in areas such as Court of Protection, Probate and Trusts. In some ways these are difficult areas in themselves in that they are very sensitive areas with obligations to register death within five days and to register trusts by set deadlines and to pay inheritance tax within 6 months of death. There are some focused systems in this space such as Isokon which are focused on real LegalTech (i.e., the delivery of the legal product).
A huge barrier to efficiency in these areas though are delays in the systems. Sometimes these are the result of Government systems being overloaded causing huge delays and on other occasions the delays in getting even basic information from financial institutions. I spoke to a senior partner who is a probate lawyer in his office the other night at approaching 10pm, because the Government systems for registering trusts were crashing. For probate it can take 6 weeks to get a reply to a letter from a bank and Court of Protection delays can go on for months. I think these highlights two problems, namely: 1) Unless LegalTech fixes the system as a whole it is almost impossible for these practice areas to work as efficiently as possible; 2) However efficient a law firm is they are largely dragged into an inefficient world of paper-based processes and delays.
What is largely absent in many legal areas are end to end collaborative online process tools. Years ago in the US a site called LadyMarry was developed which was an end to end process workflow tool for organising a wedding. Bar the recent emergence of deal execution platforms there are very few examples like this within legal and many areas would benefit. I commend Exizent for their efforts in bringing data process automation to the world of probate. The legal market needs to see more examples like this that “fix” the markets they operate in.
8. Platforms for Legal – In the work we do with corporate clients, for years we have seen the emergence of platforms for other business functions such as finance, HR and procurement e.g., SAP, Workday, Oracle and Salesforce What is frustrating however is that within legal this is still not the case. Yes, we have best of breed systems to manage information but some of these systems are expanding out into other areas e.g., Aderant, NetDocs (Afterpattern), iManage, Closing Folders and Tracker). Intapp also has a very strong connected firm vision. Lupl is a very interesting development to drive collaboration. That being said we still don’t have a recognised platform for legal and the tools available, although good, have perhaps not tackled the automation of legal work as well as we could hope which has given rise to a whole range of start-up products. This might be solved with the emergence of SaaS based case and matter management systems but again there’s often too much work in joining the key components together. One might argue we are now at a time where we perhaps need to see the emergence of more dominant players. Is the emergence of a platform foreseeable from one of the main aggregators as per our LegalTech M&A list? In some ways I hope it is.
9. Cost – First to get one thing straight I am a firm believer that suppliers should be paid at an appropriate level. It is in everyone’s interests that they are stable and invest in R&D. Like everyone they will be subject to cost increases. Data centres have power requirements that will be subject to the energy cost inflation we are seeing which has to be paid by somebody. That being said we perhaps need to get a little perspective in the market. In the past many people will have licenced a product on a perpetual licence with say 20% annual support and maintenance. This gave a degree of price certainty but probably this model was skewed more in favour of law firm and corporate clients than the supplier. With the move to SaaS we have seen annual recurring revenue models. Again, there is nothing wrong with these per se but what is becoming evident in the marketplace is that around costs rising and some suppliers are taking advantage of this. We have heard from clients who have had nearly 300% price increases imposed on them with 3 months’ notice. Yes, it is possible to move away from a SaaS product but in doing this there is a large implementation and data transfer project which makes things hard and/or expensive. If we wind the clock back a little to the times when inflation was low, we were seeing suppliers who wanted to impose 7% or 8% price increases per year (albeit query now with current levels of inflation, it looks much more appropriate) which again was not great (and in any event well above inflation at the time).
My point is quite simple that for some suppliers I think the market was skewed in favour of the customer too far, and now is skewed too much in favour of the supplier. This makes things very hard for customers who need much greater degrees of price certainty. In fairness we are seeing some suppliers with capped price increases, whereas others are less keen which leaves customers exposed. We need more balanced models in the marketplace with much greater degrees of price certainty. If this is possible for commercial real estate leases e.g., with only 5-year rent reviews and break clauses, it should be possible for SaaS products and perhaps we will see the emergence of the ”SaaS lease”?
10. Integrations – For years many have joked how law firms in particular have huge commonality of products. Many large law firms use one of two practice management systems, one of two or three document management systems and one of three CRM. In case management there is not a huge number of options. Yes, there are other products that work around this (e.g., DocuSign, DocsCorp, Workshare etc) but in short there is relatively a small ecosystem of principal products. Notwithstanding this, conversations about integrations are not what you might imagine. Some products claim to be heavily integrated but when you look into the detail and speak to their partners the message is much less clear. Also, for some products you would imagine that the integrations were tried and tested but again often this is not the case. In a world where you have SaaS products like Xero with an ecosystem of products that you can literally download and are automatically integrated, there is surely room to do more? We need to make this area simpler. I commend the approaches of companies like Reynen Court and Kim Technologies in this area.
11. Product and ARR – For years the main publishers have excelled at delivering knowledge products. These are typically delivered online with an annual recurring revenue. Many start-ups too have emerged and again focus on specific legal problems and are typically delivered on a SaaS model, again with an annual recurring revenue. To state the obvious there has been a huge amount of M&A activity and private equity firms are attracted to businesses with an ARR revenue and many of the largest most successful businesses in the World (including Microsoft) operate on a similar model. By contrast law firms are paid once for their efforts. When they end a financial year, the clock starts at zero. There is a huge opportunity to deliver products and if law firms do not do this, others will (e.g., whether it be start-ups, publishers, third parties etc). Some firms have made real inroads in this space, Allen & Overy, Kennedys, Pinsent Masons, DWF, Wedlake Bell and Foot Anstey but to mention a few and others like TLT have been very good at reselling products. Surely for any LegalTech team delivering products with an ARR should be a strategic imperative. Law firms have the technology, the people and above all the intellectual insight from very experienced lawyers in a whole range of practice areas. Some might see this as cannibalising work, but the evidence would suggest that this theory is flawed.
12. Mobile – Recently I have seen a webinar for Fliplet and was blessed to have a selection of superb IT directors and CTOs including David Hymers, Paul Harker, Emma Jackson and Jo Owen. It was a real eye opener in that when looking at the mobile adoption stats, globally and in other sectors the figures were jaw dropping. Examples include:
The Growth of Mobile
Smartphone users in the world today = 6.37 billion
People who have smartphones today = 80.63%
Global smartphone users increased by = 73.88% in 2016-2021
Internet users who will solely use smartphones to access the web = By 2025, 72%
The adoption of mobile devices is continuing to increase at a pace and foldable phones will provide a very different user experience and accelerate this. We obviously have mobile applications in legal (Fliplet have done a great job in this regard) but is the LegalTech market missing a trick here? Also, when looking at areas like hybrid working, mobile is the common denominator, should it now be used as an interface to drive business process. Users of tools such as Leap, Xero and QuickBooks all have access to very good mobile interfaces, letting them do a whole range of things including view information, issue bills, make expense claims etc. Should all LegalTech do the same and give mobile the serious attention it deserves?
Conclusion
To conclude, what I am absolutely not saying is that our LegalTech systems are bad; they categorically are not, they are very good. Many systems and suppliers are excellent and they do a great job. What I am saying is there is a lot more to be done and we all need to focus much more on the proper digitisation of legal work as well as the areas discussed above. I fully accept this is hard as it involves getting under the skin of how legal work is delivered. It requires us to put in place incentivisation measures with the lawyers who are domain experts and perhaps requires us to think differently? It will be vital to our future success. We also need to look at the wider problems and opportunities. Some of these will be game changing and could be the making or breaking of firms.
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