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TABLE OF CONTENTS
The new laws of competition on the legal market call for shifting focus from the customary “Who?” towards the question of all questions – “Why?”. Beware of old habits, as this is an outward query to clients, on top of some preliminary self-examination. This is a turn from “me/us lawyers” to “you/them clients”. It’s a building block towards “we/us team”. Legal experts teaming up with clients to tackle law’s challenges as part of providing broader business solutions. It is a cultural change, “shaped by client expectations, not by the legal guild” in response to the requirements of the globalised and digital economy.
Legal profession shall be able to thrive, beyond merely surviving, only upon: (i) truly listening, combined with (ii) scrutinising the basis of the success of the non-traditional legal service providers, and (iii) promptly acting upon what we hear and observe. Otherwise, lawyers follow suit of the supposed Henry Ford’s customers. Stuck in the “faster horses mindset”, traditional law is choking. Behind the wheel sit the new competitors – the business of law companies – racing towards greater market shares; leaving the practice of law far behind.
1. INTERESTING TIMES FOR LAW IS NOW
Judging by the many Machines taking over your job!-style publications, automation anxiety has crept into the legal field. Although today, the Robot lawyer invasion slogan is frequently used tongue-in-cheek, fear-mongering still serves as a clickbait. On the opposite end of the spectrum sit advocates of AI as a saving grace. Luckily, the myth of legal exceptionalism – commonly framed as “We are special. There’s no way any machine replaces us, bespoke lawyers.” is now defunct. Yet, regardless of whichever way technology in law is described in the abundance of publications and events, it tends to be portrayed as the main force behind recent tectonic shifts across the legal sector. Examples? New players who have already gained a chunk of the market share – ALSPs (Alternative Legal Service Providers) – the Big Four and business of law companies are painted as “tech-powered”. So is, by nature, the vast array of start-ups operating under the umbrella of #legaltech and #lawtech. Given that we get the impression it seems to be mainly about the technological potential and openness for innovation, and, we know that ALSPs are here to stay, the question whether they are the final and/or most significant entrants into legal occurs. Preliminary answers, almost instinctively, lead from the Big Four to Big Tech. Assessing the new market realities, we’re applying the old, familiar, schemes. In the environment of lateral hires, relatively frequent firm changes on a closed market, which is largely based on “reputation” and personal brands, there’s an almost innate tendency to obsess over “Who?”. Yet, rather than wonder who’s next, we shall start with “Why?”, closely followed by “How?”. Because as it is possible that Big Tech could enter the legal field, it is much more plausible in the capacity of enablers, such as vetting or platform agents, rather than full-scale providers of legal services.
What is more important, however, is that while without a doubt their tech and investment potentials are hard to match, ultimately, this fight for survival is not about the tech’s arms race. The appeal of the current ALSPs and any potential “second generation” entrants lies in the combination of tech with features overwhelmingly lacking in traditional law – such as customer focus, understanding of entrepreneurial mindset or agility and flexibility. Hence, to survive and thrive, rather than fear what’s already happening or is to come – legal shall borrow tried and tested best practices and learn from other industries, which had already gone through a similar modernisation path. The true transformation requires systemic cultural change, rooted in new delivery models and driven by people. We, people – albeit as “lawyers 2.0”: with a business-oriented, creative and responsive approach and augmented by AI & automation; can still remain central pillars of the legal ecosystem.
2. LEGAL TRANSFORMATION – STILL “IN PROGRESS”, ALMOST THERE
The legal market’s “in transition” status already spans over a decade. It’s a path towards a modern industry – digital, customer-focused, business-oriented, multidisciplinary and dynamic. While we are not there, yet, as the transformation is far from accomplished, the industry seems to be at a tipping point. Clues suggesting its ripeness for the leap include:
- the unprecedented spike in investment in legal tech (in 2016 – US$224 million, in 2017 – US$233 million, in 2018 – US$1663 million, while up to the third quarter of 2019 it already reached almost US$1200 million. This means year-on-year growth of 713% for 2018.). Big money spotted big opportunities.
- major market movements, with growing – in quantity and quality – number of legal tech M&As (to name a few: EY’s acquisitions of Riverview and Pangea3; Thomson Reuter’s purchase of HighQ; LexisNexis entering into a joint venture with Knowable, following investments in Ravel Law and Lex Machina). These moves not only confirm the market’s maturing but also shall spark further shifts. Especially in the direction of unique differentiation and specialisation, with many stakeholders focusing their offering and consolidating – all in pursuit of greater market share or, simply, remaining competitive.
- deregulation of legal markets and profession (for example, in the UK – with SRA introducing Alternative Business Structures in 2011 and new rules around the solicitors professional indemnity insurance coming into effect this November; or plans for opening up the field for “non-lawyers” to practise law in the growing number of the US states, such as California and considered by others, like Illinois). These changes are aimed at making access to legal services easier for the public, while simultaneously increasing the standards by introducing the forces of competition. Though, the response from the core of the practice of law seems to be rather hostile.
- customer expectations – with a shift in the supply and demand towards the buyers’ market, more for less challenge and disaggregation of legal practice from the delivery of legal services – clients (or rather legal buyers) drive and demand changes. Traditional law, with its inward-facing guild form and mentality, in the new realities of a customer-centric marketplace, needs to adapt. Or perish. To quote Richard Susskind: law firms, when asked about their competitors, “mention someone who looks quite like them. But I tell them that the competition that will kill them won’t be like them.”.
While accurately predicting what does the far future hold for law might be impossible (unless, largely, for Prof. Susskind) some pretty clear answers emerge about the short-term from the market data. So far, it looks like ALSPs are the assassins. The king is dead, long live the king?
3. WITH LAW FIRMS’ LOST HEGEMONY ALSPs CUT INTO THE PIE
Despite still widely used terminology of “new, disruptive players” the ALSPs market segment is not nascent anymore. As the Alternative Legal Service Providers 2019 Report by Thomson Reuters & Georgetown Law showcases – the business of law offering has matured significantly over the years. Legal buyers reciprocate with greater interest. The cognitive bias favouring traditional law firms over other legal function providers is waning. Also, initial concerns about the security and quality of work have not only decreased but were skilfully turned into an advantage point. The “specialised expertise” of ALSPs, along with the need for more strategic and efficient use of resources, has become a major factor in engaging their services. This is the case equally for corporate clients, as for the law firms partnering with ALSPs. This finding is confirmed by EY’s Reimagining the Legal Function Report 2019. The top five areas of expertise – tasks now performed by ALSPs, taken over from law firms, currently are:
- litigation & investigation support;
- legal research;
- document review;
- eDiscovery; and
- regulatory risk and compliance.
This range is expanding, with new providers entering the market and agile responses to the growing customer needs from the segment leaders. Cornelius Grossmann, EY Global Law Leader, mentions “a general appetite for outsourcing many legal activities, such as contract life cycle management, legal entity management”. With the diversification of services on offer, growing in quantity as well as quality, given the increased sophistication – ALSPs are moving up the value chain. Conversely, law firms continuing to provide “single-point, practice-centric” solutions capped to legal expertise – in the words of Mark Cohen – are being pushed down, into a diminishing corner of the legal market. This is mirrored by financial data.
The key performance indicators for many legal markets show only modest increases (if any), especially in demand for law firms services (for example, in the US around 1.3% in 2018 – as states the 2019 Report on the State of the Legal Market by Thomson Reuters & Georgetown Law). Similarly, on the markets were demand and growth were higher (like Australia or China) only partially was it driven by work commissioned to law firms. ALSPs, on the contrary, have been experiencing a period of turbo-charged growth, globally.
As the Alternative Legal Service Providers 2019 Report presents, growth in corporations’ use of ALSPs is stronger than projected by the previous 2017 survey. Law firms, too, are experimenting with ALSPs, establishing project-specific collaborations and partnerships. The results? Between 2015 and 2017, in just two years, revenues for ALSPs have grown at a compound annual growth rate of 12.9%, from US$8.4 billion to about US$10.7 billion. What is more, this growth is projected to continue.
Given that ALSPs segment is very diverse – with small start-ups and global corporations – who’s specifically growing? The 2019 (3rd) edition of Acritas Global Alternative Legal Brand Index analysed and ranked over 90 organisations. According to this Index, EY Law has taken the top spot, minimally surpassing PwC and closely followed by Thomson Reuters. The other Big Four representatives – KPMG and Deloitte Legal – took 4th and 5th (tied with Axiom) places respectively. Top ten is rounded off by LexisNexis (7th) LOD/Lawyers on Demand (8th), Elevate (9th) and Wolters Kluwer (10th). The common denominator and one of the core strategic advantages amongst this varied group is their use of technology. Hence, it’s almost natural to wonder – are they, really, the final entrants into legal? The traditional law firms successors from the world of law 2.0? Alexa, help us out in here.
4. NEW KIDS ON THE BLOCK: AMAZON. ALPHABET? APPLE?
On 1 October 2019, an almost seismic wave was sent across the legal world with the release of a new Amazon service – Amazon Intellectual Property Accelerator. “Already happening!” – Amazon edging into legal. Despite the talk of potential new players on the market of law recently permeating many a legal event (for example appearing during the 2019 Legal Design Summit in Helsinki), this notion isn’t entirely novel. Considerations of whether legal is the next market there for the taking date back a few years. Already in 2016 commentators, such as Michael McDonald, wondered what the purchase of Whole Foods could mean for the law. This question, posed as “teaser alert”, appears in one of the latest columns of the industry’s transformation leading authority, Mark Cohen. He asks:
“What’s to prevent Amazon, Google, or some other tech giant from entering the legal space, creating a global platform, injecting billions into infrastructure and talent, creating a global legal services hub that connects consumers with global legal delivery sources as never before imagined?”.
Going further, it appears in line with Amazon’s strategy to become an “ecosystem brand” – to offer interconnected products and experiences, branching out from online retail and cloud services. Equally, with AI and automation focus, it could probably fit in Alphabet’s (Google’s parent company) very diverse portfolio.
Considering the delivery of legal services has become a branch of business, just like any other, the chances of big tech’s success, in theory, seem very high. Not merely because of the obvious advantages, such as the almost unlimited investment capital and the flesh behind the status of the global most innovative companies (centred around their use of AI, platforms and creating ecosystems). Tech giants are not only the most valuable brands in the world. They also top global charts as the most trusted. Moreover, their customer-focus has become an exemplary model (think Apple’s end-to-end customer journey leading as far as to what some call a “cult following”).
All this is in stark opposition to law firms and lawyers. Lawyers are considered one of the least trusted professions. Law firms with their guild mentality and lack of focus on user/customer experience massively lag not even in terms of innovation but simply keeping up with what is the standard elsewhere in the business. Everywhere else, that is. The aggregated effect? As the most innovative, trusted and customer-focused brands, the tech giants, should they wish, could simply venture into new fields, including law, to provide an improved legal experience for their loyal buyers. Yes, it is possible. Is it likely? Probably not, at least maybe not in the nearest future.
The market for legal services has a lot of growth potential, especially when addressing a few legal paradoxes (for example: “the lawyer supply and demand paradox” – growing and unmet need for legal services amongst individuals and SMEs vis-à-vis an increasing number of unemployed or underutilised lawyers) and in light of broader global trends (such as the swelling amount of highly specialist regulation that entities need to comply with against their limited and decreasing funds for the task). The global legal services market is actually growing – in 2021 expected to surpass US$1 trillion. While the trends and numbers appear tremendous, they might wither in some perspectives. In comparison, the global health care spending is also growing steadily and projected to exceed US$10 trillion by 2022. The clues might further stem from other indicators, though, such as margins, investment capital required or returns on investment. There are also some other complications, such as growing concerns over the big tech’s monopoly and omnipresence – big tech becoming too big. For the time being, the issue of big tech entering legal remains unknown, especially as full-scale providers of legal services in direct competition with the traditional law firms and (the current generation of) ALSPs. More likely, and already happening, seem smaller steps in the direction of additional services within a brand’s ecosystem, where the company acts as a vetting or platform agent, enabling others to provide the legal function, while still improving their customer experience. In the meantime, instead of prophesying or panicking, the law must learn from the global leaders – shifting the delivery model towards a customer-focused.
5. SO… WHY? HOW? THE NEW LAWS OF COMPETITION
What the legal industry calls “innovating”, frequently, is simply an act of catching up with the already settled business and society standards. ALSPs, themselves being modern business organisations with deep innovation cultures, are much more aligned with corporate clients. Besides the qualities now perceived almost as given (including expertise, professionalism, “value for money” and supreme technology adoption) ALSPs’ appeal often includes many more intangible assets, such as dynamism, diversity, transparency or accessibility. These constitute an additional value, which speaks to individuals, too. Because, equally, new legal service providers are much more on par with what a today’s consumer (likely a millennial or digital native) needs and expects from any enterprise s/he engages with. This consumer is not only some remote “individual client”, outside of the big law’s target, but mainly – is a client of their client. This consumer (and legal buyer) is now behind reshaping the legal culture, in line with the broader socio-economic trends, to which law cannot remain unresponsive.
Hence, in short, as to why the new generation of legal service providers is overtaking traditional law: because they are closely aligned with the customers they serve. How? With customer-focused delivery models which provide a superior legal user experience.
What’s traditional law to do to remain relevant and compete for this new type of client/customer? Turn to these clients, listen and adjust accordingly. Learn from the new leaders: borrow and improve on their best practices, especially in the field of customer experience, whether providing standardised or “bespoke” legal services. In the latter case, emphasise legal practice’s unique selling points. Result? Hopefully, “law 2.0”. Good artists copy, great artists steal.
Legal tech as a secret ingredient, magically transforming an outdated legal sector into a thriving, modern, industry is a bubble. Now is high time to burst it. Tech solutions, to many lawyers, seem an easy substitute for a hard grind of creating a culture of innovation and systemic reshaping of the legal culture. On this journey, creativity, agility and empathy are key to success. Returning to the Henry Ford’s legend, there’s an important catch. Just like lawyers shall not simply ask for faster horses (given that to solve our problems, we cannot use the same kind of thinking as we used when they occurred), equally we mustn’t discard the customer if a horse is what s/he asks for. It’s the customers’ unmet needs and desires which point towards what will be the next Model T – as long as they fall on the fertile ground of attentive, experienced and inventive designers. For now, ALSPs have taken on this role, and their success validates the approach. Other legal stakeholders, most notably traditional law, shall follow.
Looking forward to comments and questions – get in touch! Thank you for reading 😊
Karolina Jackowicz is a (re)inventor. With analytical mind – lawyer by education. As curious and empathetic spirit – mediator by profession. At heart, driven by creative urge with a get-go attitude – a habitual process improver turned manager, serving as legal tech start-up’s CEO. When not on the road: swimming, reading or walking basenji Amiś.