Why Invest in Legal Tech
Today, the emerging legal technology market has an estimated value in the region of $400 billion. However, barely three decades ago, in the 1990s, the question of technological innovation, in relation to law was centred around if technology would revolutionise the legal industry, rather than when. Today, the question has metamorphosed entirely from when or if, instead to: ‘how?’
The surety of the rise of legal technology is bolstered by a great demand among legal professionals, with as many as 74% of UK senior partners stating that they believe greater investment in legal technology is needed, alongside innovative new legal tech start-ups, who are successfully disrupting the norms of the legal industry and are demonstrating the efficiency and strategic superiority of legal technology in practice.
Of course, when questioning whether to invest in legal tech, one must investigate why now is such an opportune time for legal technology to alter the law, but also how that alteration might take effect.
Why is Legal Tech Needed?
In his book ‘Tomorrow’s Lawyers’, one of the foremost experts on the rise of legal tech, Sir Richard Susskind, provides a useful theoretical framework for why legal technology is necessitated. This framework rests on ‘three main drivers’ of change, which Susskind delineates as the ‘more-for-less’ challenge, liberalisation and information technology. While Susskind recognises that other factors such as demographics and globalisation play their own parts, he sees these central tenets as inseparable from the increasing demand for legal tech.
The ‘More-For-Less’ Challenge
Susskind’s research shows that overall legal budgets in companies today are, on average, being reduced by 30 to 50%. Simultaneously, the amount of legal work companies need to complete is rapidly increasing year on year. Moreover, the penalties of legal non-compliance, accidental or otherwise, are growing more stringent.
This increasing demand for more, higher quality, legal work is undermined by fewer financial resources allocated to support the workload. Thus, a situation arises in which law firms will need to complete more work at a faster rate, while charging comparatively less than before. This legal compression foreseeably generates a considerable challenge.
This second driver shares an overlap, in terms of circumstantial factors, with the ‘more-for-less’ challenge. As any student of economics knows, significantly greater demand than supply creates sub-optimal market conditions, with the consumer facing a restricted number of options. Throughout much of recent history, the legal market has been restricted in terms of supply, due to regulations around who can provide legal services – namely only highly trained legal professionals.
However, this captive market has begun to diversify, with the Legal Services Act 2007 paving the way for the new phenomenon of ‘Alternative Business Structures’, which are legal businesses run by non-legal professionals. These new alternative business structures have recently allowed household brands such as AA, BT and Direct Line to make forays into the legal industry. While non-legal businesses entering into the legal field is not an entirely new occurrence, with a precedent being set in the rise of ‘conveyancing factories’, the scale at which this liberalisation of the legal field has occurred is exponentially increasing.
The third driver, unlike the ‘more-for-less’ challenge and liberalisation, acts as more of a pull factor than a push factor.
Fuelled by the massive five quintillion bytes of data produced every two days, and by the proven doubling of computer processing power every two years, predicted by Moore’s law, the power and efficiency of information technology has grown to titanic proportions. Exemplified by potent general knowledge programs such as IBM’s Watson, ingenious computer software has shown a considerable aptitude for key skills lawyers require, such as natural language understanding, information retrieval, knowledge processing and speech synthesis.
An Overview of Susskind’s Three Drivers
As Susskind puts it, these three drivers are poised to produce a ‘perfect storm’ that will drive innovation in the legal industry. While the more-for-less challenge galvanises the consumers of legal services to seek out alternative providers, increasing liberalisation breaks down the regulatory boundaries that limit the number of suppliers in the legal sector, thus enabling an increasingly diverse and numerous legal producers to address the shortfall in supply and meet the existing demand side gap.
All the while, advances in information technology are providing increasingly sophisticated and disruptive new tools that can revolutionise the way legal professionals operate, increasing efficiency and dispensing with outmoded and previously indispensable conventions.
Consequently, a dynamic and lucrative new niche has opened in the legal sector, one which can only be filled by legal technology.
The Form of Current and Near Future Legal Tech
Of course, the question of how the legal technology that fills this niche might take shape is a necessary quandary for anyone seeking to invest in legal tech.
Current appraisals of the form which legal tech will take differ; however, two broad perspectives typically emerge, one which envisions the long term potential incarnations of legal tech and one which appraises the current and near future appearance of legal technology. As Susskind apprehends, the former of these perspectives is vastly more radical in its vision, with AI systems that will supposedly have the potential to replace traditional lawyers entirely. Echoing the words of Susskind, these kinds of ultra-futuristic advancements are often overstated and, at the very best, they are the possible advancements of a distant future.
However, equally exciting and, crucially, contemporary, the shorter term legal tech advancements provide a much needed support service for legal professionals. This support often takes the form of a plethora of administrative and documentation roles. For example, GOOD LAW SOFTWARE supplies a number of ergonomic and practical functionalities a prospective user could take advantage of.
These functionalities can be partitioned into the categories of:
● Practice Management: features that enable efficient firm management.
● Synced Banking: FCA approved, in-software payment acceptance and transaction mirroring.
● Case Management: organisational and detail oriented support for casework.
● Accounting and Billing: partially automated, saving time on regulatory audits.
● Advanced Reporting: automated analytic insights into firm and caseworker performance.
● HR Management: centralised and expedient staff management.
These functions do not replace lawyers’ more complicated tasks. Instead, they serve to decrease the number of strenuous administrative chores a lawyer and other law firm employees might otherwise need to directly complete. Indeed, current analysis shows that already 23% of a lawyer’s day to day duties can be automated by machines. This statistic doesn’t even consider the number of legal undertakings that, while unable to be entirely automated, could be significantly augmented by legal tech.
Moreover, these advancements and support systems are just the thin end of the wedge. Increasingly sophisticated programmes, such as Good Law Software, stand poised to replace the need for much of the back door, administrative, staff currently required for law firms to operate.
Increasingly, specialisation in the legal industry is also becoming redundant as legal support programmes offer a wealth of information for practicing lawyers for increasingly lower costs. As a consequence, practicing lawyers can immerse themselves in specialist fields with less painstaking practice and research than was needed before the arrival of legal databases. Resultantly, the concept of cultivating a highly specialised and exclusive legal department to perform speciality law is being rendered redundant.
The Legal Industry’s Attitude to These Developments
Many eminent legal technology specialists, such as Susskind himself, have predicted that there will be a number of legal professionals who will act like ‘jealous guards’ in seeking to ring fence areas of the law from automation and technological advancement.
However, the trend, as it stands, appears to be the reverse. Already, many law firms, from big names such as Clifford & Chance through to high street firms, are embracing the ‘new norm’ of increased efficiency and productivity, optimised workflow and better client services as a result of legal tech advances.
Firms from across the legal market, with a variety of target clientele and specialities, are flocking to legal tech providers, in order to take advantage of workflow automation, cyber security hardening and to comply with progressively stricter data privacy regulations.
Understandably, firms who have not embraced this change stand at a considerable disadvantage in comparison to their more technophilic competitors, not only in terms of their comparatively decreased efficiency in completing tasks, but also in terms of price flexibility. Where firms that take advantage of legal tech can reduce their overheads by potentially 30% through automation, firms without this edge have entrenched operation costs. This means that firms using legal technology can be flexible with their prices and can, if needed, undercut any stagnant competition, as well as complete tasks with greater efficiency. Unsurprisingly, this gives technologically augmented firms a substantial competitive edge.
The Considerable Advantages of Investing in Legal Tech Now
With all of these considerable advantages, it is easy to presume that an overwhelming majority, if not all, of the legal sector has already embraced legal tech in its entirety. However, this is not the case. A 2020 survey found that just 58% of law firms are making active use of cloud computing, not to mention the other more innovative types of legal tech. This means that the market is currently undercapitalised and is ripe for further market capitalisation. Nonetheless, this is not likely to stay the case for long, as the aforementioned advantages of legal technology will almost certainly galvanise any legal professionals who were previously reluctant into purchasing legal tech systems.
Furthermore, savvy investors are already placing their capital into legal tech companies, such as Good Law Software. Indeed, a 2019 estimate shows a year-on-year increase of £260 million injected into the legal tech sector.
While the legal technology industry may be still emerging, in the vaguest sense, it is far from mature in terms of its capabilities. In truth, the future is likely to herald a cornucopia of innovations and advancements in the field. Crucially, those best poised to take advantage of these improvements will be the businesses that are already engaged in and at the forefront of the legal tech revolution.
Numerous investors have recognised this, and are funding new legal tech developments. Allen & Overy, for example, has teamed up with six leading banks to produce their ‘rulefinder’ software. In this arrangement, the banks acted as financial backers that supported the cost of producing the new software, while Allen & Overy provided the expertise required to make the prospective software a reality.
Susskind terms this legal synergy as ‘collaboration strategy’, where investors and various legal entities collaborate to bring together the competence and financial acumen required to create and improve upon legal technology. This strategic collaboration is being employed not just between conventional law firms and financial backers, but also between other entities, such as the ‘Big Four’ accountancy firms. All of these actors have foreseen the lucrative rewards the legal tech market has to offer and are capitalising on it.
While the legal technology market is not yet fully capitalised, the wait for neoteric, radical and industry altering technology is over. Equivalently, the legal sector is primed for the many profound enhancements legal technology has to offer. As a consequence, the legal tech field is poised to receive an inevitable capital surge that will boost tech development and provide far-sighted early investors with substantial remuneration.
 Susskind, Richard, Tomorrow’s Lawyers: An Introduction to Your Future, 2nd edn (Oxford: Oxford University Press, 2017).