Google launched a bank, Apple has a credit card, Facebook wants you to pay with or without their own money. Are they Legal Industry challengers?
Ready, Aim, AI
Big tech companies are striking at the heart of the financial industry: transactions. The finance institutions are hitting back by becoming the biggest investors in AI companies according to HBR. These AI companies will help them better assess risk in terms of missed opportunities, compliance or fraud. Risks are hidden within documents describing these transactions. These technologies mimic the traditional eDiscovery platforms that legal professionals use to uncover legal risks in documents. Practically it’s LegalTech applied as RiskTech. By the way, aren’t accountants or tax professionals hired to spot risk in finances?
What we may finally be experiencing are the effects of software eating the world..and especially the world of professional services. The first symptom is the struggle to identify the competitors. This problem gets worse because every industry is becoming fluid and the barriers to entry are eroding. Once the pain is located, one can aim and train AI on it. This opens the door for any tech company to venture into any market. And it’s well documented how very adept tech companies are at raising capital.
Every business needs to grow. Companies can achieve growth within their market or in an adjacent one. If growth becomes harder in your current market, you’ll notice the luscious green grass at the neighbors. The grass your neighbor still cuts with a toenail clipper while there is a fleet of Robo lawnmowers sitting idle. This is why big tech can go after finance. That’s why accounting software is looking at legal billing and eDiscovery providers also do contract management.
Many centuries-old banks are reluctant to view tech companies as competitors so someone coined the term “challenger bank“. We’ve noticed a similar stance within the legal industry. Law firms don’t compete against legal tech companies and legal tech companies only compete for the adoption by lawyers. However, data paints a stranger picture. Here’s a breakdown of the forces the data implies to have the most impact:
- Non-consumption & adoption;
- Automation & AI;
- Competitors & challengers.
We discussed the cost of acquiring customers is set to become exorbitant which will drive down consumption and adoption. The next big nemesis is automation. IBM’s latest prediction is that 100% of jobs will be impacted by automation. Here is where the world gets weirder: automation in legal usually originates from outside the industry. The most successful Dutch legal research platform was originally a medical search engine. The largest contract managers started as extras of a customer relationship management (CRM) platform. Most of this stuff wasn’t created by lawyers for lawyers. They challenge our belief of what the competition should look like and where it comes from.
The companies that operate in the legal industry will face two sets of adversaries: competitors and challengers. Here’s a rule of thumb: you will see the competitors coming, but you won’t recognize the Challengers right away.
Competitors are usually the incumbents with an established name they bankrolled with marketing and sales. They are listed in Google search between the ads you can’t afford and you read about them on the review sites you refuse to pay for. Your competitor is the first name that comes to your customer’s mind when they see you. They are the ones you have a prepared response for once you’ve entered into a sales conversation.
Challengers come in two sizes: large and small. Large challengers are big players looking for a new game. They have already gathered feedback from your customers but haven’t yet revealed their new offering to them. Small challengers are the nimble startups looking to disrupt. The small challengers are talking to the investors and are a raising war chest of cash. You would never mention a small challenger to your customer. If they do enter the conversation, we get into a ‘dismiss and defend’ mode.
How We Play
Why are challengers so difficult to spot? Here’s where data comes into play. Matching companies based on how they describe themselves is a real challenge. Every founder will aim to differentiate and that seeps into how they articulate their solution. Owler and CB Insights solve this by using the Spotify method of customer recommendations. That approach works when you have a large and engaged audience. In new segments, this approach delivers diminishing results.
And there is an extra complication when identifying large challengers. Some are so far removed from the legal industry that it takes a while before they pierce our bubble. The other factor is their size: they create so much noise making it difficult to capture the signal. Many, like me, were pleasantly surprised Google’s play for contracts this year. Yet we’ve found a frequency and are able to lock-in on their signal.
Here’s how: there are 163 contract managers at Capterra. We’ve registered 1076 private companies dabbling in contracts at various stages. Not only the ones that review or draft, but also handle the ‘before’ and ‘after’ of a contract. From the procurement, negotiation, and signature stage all the way up to the dispute and entity management of contracting parties. Whenever this is in the construction sector or content licensing, these ventures provide a wealth of data on trends within a particular area. Challengers free up more capital and reveal new opportunities.
Ultimately companies thrive with many challengers but little or no competition. So before we ‘dismiss and defend’ let us ‘discover and distill’ the data from our challengers.