A lot has happened since the past two months (as of this writing).
The pandemic is seemingly getting global economies to a significant slowdown. Sovereign states are temporarily closing borders. Remote working has become prevalent even in industries where you would expect it the least.
(no, I don’t mean the legal service industry this time - it was just a matter of time. Even dancing classes are taking place remotely, which I usually wouldn’t see coming)
In circumstances where nearly everything you learned may simply be thrown in the water, we somehow still can’t help but wonder what the future would bring.
In these days of lockdown, I have caught up with Jeroen Zweers, a good friend and fellow legal innovator from the Netherlands (via a telco, of course).
Below you can find our thoughts on where the legal industry is heading over the next three to five years.
Jeroen Zweers: If you are to look at the legal services industry as a whole, where do you see changes coming from? Is it law firms? Regulators? Clients? Someone else?
Ivan Rasic: If we simplify (for the sake of this argument), we could argue changes on a societal level could arrive top-down, or bottom-up.
(reality, of course, is never that simple)
Now, what is a top layer in the legal services industry? We could agree these are regulators, law firms, and lawyers themselves. The face of the profession. Would any of them induce the change?
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By and large, law firms and lawyers have had an excellent run for a couple of decades. At least, that was the case prior to 2008.
Even over the past decade, they couldn’t complain. As one lawyer I know said, budgets for legal services were not as tight as many in-house lawyers would have you believe.
So that being said, why would law firms and lawyers want to change? Necessity is the mother of innovation, but do lawyers feel the need to innovate if they are already well-off?
Barring some external market force, I don’t see BigLaw ditching the Billable Hour, for example. I think they will continue the ride as long as they can. Which, from their standpoint, might be the rational thing to do.
However, it doesn’t mean lawyers aren’t prone to innovate. There are many leading examples out there.
Why would they?
Regulators’ sole goal is to protect the status quo. They aren’t there to break things. Hence, regulators rarely (if ever) have any reason to introduce changes without any significant societal influence.
In other words, regulators are merely there to acknowledge the new state of things. If the change of the norm is so significant and wide-spread, they will grant it legitimacy and legality.
However, regulators aren’t the driving force. At least, that is how it should be in theory.
Legal hackers, entrepreneurs, legal tech startups (ALSPs) would be the core of the bottom-up approach. In my humble view - happy to be proven wrong.
Essentially, the above category is not the establishment. They see new ways of doing things and discover new business models. Legal hackers aren’t afraid to experiment. Mainly, they have nothing to lose and lots to gain by doing so.
Photo by Fábio Lucas on Unsplash
However, they are often at the very start of their careers. Sure, there are also outliers and seasoned lawyers who initiate the change. But they are not the norm. If they were, this wouldn’t be the “bottom-up” road.
Berlin Legal Hackaton 2020 could serve as good anecdotal evidence. I attended it - it was the last trip I took in February 2020 BC (before Corona).
The event was pretty vibrant, with about seventeen teams presenting their ideas (some made more sense than the rest).
The event has made some lasting impressions on me.
First of all, as I already said, most - if not nearly all - participants were quite young and very early in their professional lives. Nothing wrong with that, of course - quite the contrary. I admire their energy and enthusiasm to help a profession that hasn’t changed for decades.
However, it is questionable how much they could drive change at this age. In Europe, social influence tends to move in certain circles, and, often, you don’t get to be a part of influential circles until a certain age.
It may not be easy to explain, but I believe readers would intuitively understand what I mean here.
Secondly, there were about a hundred people on the spot. A hundred is a good number (and the organizer said they fixed the number of places to keep a good focus on participants).
However, the whole time during the event, there was a pestering thought in the back of my head. A hundred participants at the hackathon (some of whom came from other cities or abroad) felt tiny for the startup center of Europe.
Don’t get me wrong - the event was great and necessary for our niche. It means a lot for the future generation of legal entrepreneurs, and the industry as a whole.
However, the event left me with the impression that we are still quite early in the whole legal tech movement in Europe.
I am wondering if VCs could play a role in fostering the change (especially if they participate in individual legal tech companies within their portfolio)? Or was that thought too naive?
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JZ: In my experience, only once there is persistent pressure on law firms, they will follow with change. Only then will they (have to) collaborate with startups, change their business model, and become more open in general.
You are right on the regulatory part - that is difficult. As ELTA’s board member, I see it as one of my main missions to influence regulators from the European perspective. While I didn’t manage to do much on the Dutch level, I believe ELTA has a much broader platform and a better vantage point.
Change in law firms is more likely once the Biglaw model gets under the pressure.
And such pressure is likely to come from the Big 4. They have vast resources and can act as a catalyst. You can see it already in the Dutch and German markets - especially if you look at, e.g., KPMG or PwC.
(there was a rumor in the Dutch market that PwC wanted to buy last summer one of the local law firms)
I am not sure about the VCs, though. Yes, lots of money seems to be flocking into legal tech startups. However, venture capital is about finding category winners. I don’t feel VCs are interested in lobbying and instituting policy changes.
While this may or may not come in the next 3-5 years, I also could see ALSPs stepping up. For example, vendors like Axiom or Elevate would eventually grow enough and go after a piece of that pie.
(they are still not present in the Netherlands, but I could see them at some point)
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IR: Alternative Legal Service Providers are an exciting segment - one I keep following fondly.
Currently, it feels that the mainstream legal (the “top” from my previous example, i.e., Biglaw and regulators) aren’t paying too much attention to what ALSPs do.
(I might be wrong of course, but that is just the feeling I have)
And why is that? Well, as we discussed before, currently, many of the ALSPs aren’t stealing the market from Biglaw. They are creating new markets and penetrate there.
For example, companies like FlightRight, the RightNow Group, and ClaimCompass are helping clients get their small-claim compensations from home, without ever having to engage a lawyer.
The claims go (in the case of the airline industry) as high as 600 euros. In the absence of such companies, do you think anyone would even bother going after such claims? The costs of engaging a lawyer would far surpass the recovery amount.
No, of course. The above companies enable us to file a claim (with no upfront costs) in a matter of 5 minutes. Whereas, the Biglaw doesn’t even want to want to deal with that.
So, in my view, regulators and Biglaw are currently tolerating such ALSPs. Why fight something that doesn’t bother you in the first place? Why grant legitimacy to a movement that you (presumably, albeit tacitly) claim does not affect your status-quo business?
You just wouldn’t. Hence, I feel regulators will keep tolerating ALSPs up to a point. Once they grow enough and decide to engage in areas of law that were traditionally more strategic to Biglaw… Well, it will be exciting to watch.
JZ: Indeed, I agree there. It will also be interesting to see how those alternative providers that already achieved a particular scale go about penetrating local legal markets.
I recently had a chat with Brian Kuhn - he used to be with IBM and moved to Elevate meanwhile.
When I asked him if Elevate would approach continental Europe with greater focus, he replied that they like to keep their focus global - not regional.
The answer seemed a bit diplomatic to me. Startup founders would relate - the global focus equals a lack of focus. And we all know that, especially in legal, there are different regulatory frameworks and cultural differences that vendors should take into consideration.
Q: Recently, there has been a lot of talk about platforms, ecosystems of platforms, and artificial intelligence (AI). Many of those focus on contract review, and some are focused on building no-code platforms.
Then, there are legal tech products that target the B2C space (e.g., the aforementioned small-claim compensation companies). I also see a lot of focus on platforms for in-house lawyers (e.g., compliance ticketing systems for using inhouse).
I am interested to understand what you see from a technological perspective? What could we expect to have in 3 to 5 years? Where do we have to focus?
IR: Looking back a few years, I can see a massive shift in the legal services industry. For example, when I started my previous company in 2013, Cloud computing was still quite a taboo for lawyers and law firms.
Everyone was so afraid about their data, security, etc.
Likewise, Law Practice Management systems were not as widespread as they are today. Yes, there were some desktop-based systems developed exclusively for particular markets.
The whole market was very fragmented (and still is to an extent). For example, there is a solution for Switzerland, another one for Germany, and so on. I am sure you know at least a couple of vendors - every jurisdiction likely has at least one or two.
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Nowadays, I don’t see anyone talking about law practice management platforms anymore. It seems as though they are no longer newsworthy as they used to be.
Lawyers seem to be accustomed either to using such systems - or perhaps not needing them.
By Law Practice Management systems, I consider products with a few modules included, and namely: legal billing, invoicing, time tracking, client, and matter management as a minimum. A more comprehensive project management module could be a bonus.
However, it is not like every law office has a law practice management system in place. I feel just the opposite. There are still a lot of markets to capture for LPM vendors.
Even products that came toe existence around two decades ago are still selling. These products may have not the most up to date UI, but they pack A LOT of know-how and business logic.
In the sense of the LPM market, I believe we are just past the early adopters and are getting into the late majority. Law Practice Management is not quite yet at the laggards stage.
Those (law firms, in-house legal teams, or Big 4) that were faster to adopt legal tech solutions nowadays have a new challenge - the one of interoperability.
However, the preference to have all tools under one dashboard is nothing new. Always - even while I run my previous company - I have seen integration requests.
And no matter how far you integrate, there will always be yet another piece of the puzzle, another pixel to add to the whole picture.
I see similar trends in my current position, as well. Law firms and legal service providers will continue their quest toward truly interoperable solutions.
This could be a significant opportunity for legal tech vendors and consultants. Whoever manages to be among first to set standards would position themselves for lasting success in the market.
Now, the only thing I am still questioning is - how big of a problem is this? Law firm partners are likely to have other challenges nowadays (especially given the pandemics).
They may not see this as a problem worth solving just yet - it remains to be seen. However, it is potentially one segment to be looked after.
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Next, I like the idea of no-code platforms and legal service productization. You may think I am a bit biased there - but it is not because we make one such platform.
I believe that is the future business model for many law firms. The Biglaw model doesn’t have much where else to go.
Not all lawyers like the idea of the billable hour. Time and time again, I see lawyers dreaming about creating scalable businesses.
By the very definition, the billable hour does not scale. Scaling means you add resources at an incremental (lower) rate while getting results at an exponential (higher) rate. Anything else is “just” growth.
A lawyer I know recently said, “I have seven more years to my targeted retirement age, and I want to set the whole revenue machine work without me.”
Having a complete sales funnel, as automated as it can be so that you can get leads online, that can get served, contacted, and charged with as minimum resources and intervention as possible. This is the goal of every scalable business.
I am pretty sure we would agree that not many lawyers think like that. Those who do are early adopters. However, it is telling me productization of legal services WILL continue in the future as well, and likely even grow. This is how I see it.
JZ: But the challenge is, Ivan, lawyers aren’t used to selling products. They are trained to sell billable hours. If ever, lawyers mainly would use products as a giveaway, to get leads for their hourly-based business.
That is my experience of working with law firms.
Once I discussed it with a law firm partner. I suggested we could create legal products that would amplify sales of law firm’s commodity line of business.
Can you guess what the partner’s answer was? “I am not doing any commodity work. What I am doing is genuine.”
And I think that is a typical discussion you would have in any law firm.
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Now, I was sure back then as I am right now - about 60-70% of what the law firm was/is doing is a commodity and can be productized. And parts of their work are likely not going to exist anymore in 4 to 5 years.
Creating some kind of a “wow effect,” being a first-mover or legal innovator, would enhance law firms’ brand. It could create a lock-in effect that is much more sustainable than the Biglaw model.
If law firms don’t act on this opportunity, the Alternative Legal Service Providers certainly will.
IR: I have a mixed feeling about AI (artificial intelligence). Indeed, there will be some experimenting with AI, as there is right now, but let’s just wait and see.
JZ: I have the same feeling. Law firms often use AI for marketing purposes - the so-called “innovation by marketing.”
Moreover, the solutions may not be quite there yet.
For instance, my team has reviewed LawGeex twice so far, and our conclusion was it was able to handle a very low-level commodity work. Think NDAs, labor agreements, and such. Nowadays, they claim they can process much more complex contracts.
We would bring our contracts when we evaluate a solution. Mostly they wouldn’t work with those. It makes me wonder if AI is really at the usable stage...
Currently, I would say AI requires too much upfront capital. The learning curve is significant. And, the people who have to train the AI (i.e., experienced lawyers) are too expensive for that. So, financially, I just don’t see a viable product there just yet.
Another problem with AI (which most startups in the space face) is the availability of data. If you don’t have useful data, you just don’t have competent AI.
Most startups have outdated datasets (e.g. the Enron case and similar). These cases are also frequently not relevant for the Continental European market.
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So yes, I, too, have mixed feelings about the AI. I am interested in such products, of course. However, I feel there is too much buzz around it right now, and we yet have to see it deliver in practice.
(I think the same about Blockchain and legal design)
Those aren’t low hanging fruit. Legal teams should firstly address their processes. Lots of tools and know-how nowadays help with that.
Q: To conclude this discussion, Ivan, I am wondering if you have any take on the legal publishing industry. Their business primarily relies on content - statutory provisions, court cases, books, and the like.
I know at least some of them would like to identify as software vendors. But the truth is, their revenue is pretty much content-based, even though they may move slowly towards software products.
In your view, what should they do in the next 3 to 5 years to stay relevant?
IR: Previously, I got in touch with legal publishers from the Balkans, so perhaps I could draw some parallels from the local experience.
There are about two or three most prominent legal publishers in every Balkan country, and, usually, these are homegrown companies. Some of those did want to get into the software business. Some have even created localized law practice management systems.
However, from what I could see, they aren’t that aggressive in pursuing those markets. I would agree with you that they are mainly content vendors.
There will always be a need for content. That much is clear. Practicing lawyers, in-house counsels, compliance officers - all need it. That will remain to be the case.
I guess the real question is, how will content change over time.
Photo by Fábio Lucas on Unsplash
To the extent legal publishers wish to remain in content, by and large, I believe they should carefully follow how content evolves. Would it change its form or the way we consume it? Is it moving from one platform to another?
Would it perhaps get more integrated into case analysis products, or in the drafting process?
How will content fit lawyers’ work habits? Could content potentially be the “one” to suggest drafts in particular cases? You know, to take a more active role, rather than being passive?
These are all the questions that may be worthwhile for legal publishers to consider.
JZ: Yeah, I think you are right. Legal publishers have one significant advantage - and that is, they own the content. Publishers have the upper hand over software companies that own no content.
And content is also not universally available, yet. It varies in different countries. In France, for instance, legal tech vendors aren’t allowed to use case law. And only 5-7% of all cases in the Netherlands are publicly available.
There are open-data movements that are aiming to change that. But it is difficult to say. I don’t think much will be different in 3-5 years there.
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In short, both of us are skeptical that a profound - business model innovation would come from Biglaw. Barring some Black Swan event, of course (we have seen a nearly immediate flight to remote work amid pandemics).
Legal hackers and entrepreneurs are essential and keen innovators. But they aren’t and likely will not be the driving force. They are outliers that may simply be tolerated by the establishment since they merely create new markets. They aren’t after anyone’s lunch, yet, or so it seems.
The legal hacking community still has lots of room to grow in terms of sheer quantity. This is where the entrepreneurial and startup culture will play a crucial role.
In terms of the legal tech - a lot has changed over the past seven years. However, there is certainly still room for growth for even bread-and-butter systems, like DMS, billing, or even matter management. I feel we are at the late majority stage there - and this is where most of the volume comes from.
Interoperability is becoming an issue over time. Too many narrowly focused tools, platforms, and standards are yet to emerge—a lucrative place to be in, potentially.
Photo by Victor Garcia on Unsplash
Legal service productization is still very early, but clearly, lawyers are considering it. No-code platforms are certainly lowering the cost of innovation. However, the AI still feels too expensive (in absolute terms, not pricing) to give an accurate picture of ROI.
Finally, the content was, is, and will be the King. It may change its shape and form but will remain among the most precious assets for a good while.
Likewise, the content is and will remain the King also in your marketing efforts. But that is a story for another day.
Ivan Rasic holds the Transnational Trade Law and Finance LLM, a program by Universidad de Deusto (Bilbao, ES), Universiteit van Tilburg (Tilburg, NL), and Goethe Universität (Frankfurt, DE). After his work in law firms and inhouse, he started a legal tech company.
Nowadays, Ivan leads STP Informationstechnologie GmbH's Sofia RnD center with project/development management, culture, strategy, and special project initiatives.
Ivan is an Ambassador at European Legal Tech Association (ELTA). He closely follows and writes on future of law, legal tech, ALSPs, and new ways of delivering legal services.
Jeroen Zweers is a legal innovator with vast experience in commercial law firms in the Netherlands. As a head of innovation, he helped implement distinct legal tech projects in corporate legal departments, both locally and globally.
Currently, Jeroen is a strategic adviser to law firms, legal departments, ALSPs, and legal tech startups.
He is a founder of Dutch LegalTech, and serves as a Board member within the European Legal Tech Association (ELTA).
Ivan Rasic holds the Transnational Trade Law and Finance LLM, a program by Universidad de Deusto (Bilbao, ES), Universiteit van Tilburg (Tilburg, NL), and Goethe Universität (Frankfurt, DE). After his work in law firms and inhouse, he started a legal tech company.
Nowadays, Ivan leads STP Informationstechnologie GmbH's Sofia RnD center with project/development management, culture, strategy, and special project initiatives.
Ivan is an Ambassador at European Legal Tech Association (ELTA). He closely follows and writes on future of law, legal tech, ALSPs, and new ways of delivering legal services.
