Mixed Reality: Is Legal in A Supercycle of Growth?

Mixed Reality: Is Legal in A Supercycle of Growth?

Mixed Reality: Is Legal in A Supercycle of Growth? 1618 872 Raymond Blyd

Marc Benioff from Salesforce calls this moment in time a supercycle. While, the reports are mixed, the reasons remain remarkably subtle.


For those new to Legalcomplex: we missed our analysis in May, so this one includes June as well. We presented numbers at Futurelaw 2023 in Estonia and were asked to share slides. Meanwhile, Apple unleashed a new computing paradigm and made us nostalgic. Finally, we’ll explain our confusion about DocuSign’s latest earnings. Now, we always limit our posts to three minutes read time. It’s a discipline to suppress any delusions of grandeur. Therefore, this is our most dense analysis ever.


We presented a couple of spoilers in Tallinn. One slide on the size of the legal market in contrast to GRC or FinTech (Hint: it’s tiny by comparison). A slide about what lawyers and firms want to buy. (Hint: they rather build tech themselves). We delved into Europe and the Baltic Rim but started with AI. We had to because two days prior, Nvidia became a Trillion-dollar company. A reminder that lasting wealth usually ends up with picks and shovels. Next time you wear Levi Strauss, remember to read up on the 1853 gold rush. So, the spoiler? Profits from AI currently come from hardware, not software.

Bewildered? That was just a warm-up. Let’s address three more myths:

1 AI investment is taking off. Investments in AI have been dropping precipitously. In 2022, AI investments plummeted by a 26.7% decrease over 2021 as reported in AI Index Report 2023 by Stanford. Are things looking up this year? Nope, the downward trend continues, as shown in CB Insights AI funding for the first quarter of 2023.

2 AI will return on investment. The fact that investors struggle to find value in AI correlates with the cost of scaling AI. It costs OpenAI $700,000 a day to run GPT. We’re not debating the value. We’re just calculating how quickly it can return on investment. AI will increase efficiency, not profitability. Currently, it’s just too expensive to scale.

3 Legal AI investment is taking off. Surprisingly, it could. Despite macro trends, Legal AI funding held steady. The white line in the chart below reveals no big dips in the last three years. The chart cut-off is May 18th. This is just halfway through Q3, 2023. And this explains the drop at the end. As previously stated: Legal is Stable & Durable.


So what will Legal AI do? History, tells us that it will expand legal business and profitability. Remember what e-Discovery did for litigation? It allowed law firms to tackle bigger cases with fewer fee-earners. E-Discovery gave lawyers a forklift, so they could now bill for skyscrapers. More revenue with less overhead equals higher profits. This caused a stampede to join the e-Discovery bandwagon. We measured the impact of e-Discovery by several exits in Legal since 2001. See the video below and watch what happens after 2004 up until 2019.

However, after the HP-Autonomy $8.8 Billion bust in 2017, exit options for e-Discovery chilled. Therefore, the only way for the bigger ones was to go public. Now, if you look at stock prices today, and compare them to the initial stock offering. Well, let’s not rub it in and get canceled. We’re sticking to our principles and not name these. Better yet, I’ll offer a message of hope: “Buckle up those jeans, and remember what you are”.


This brings us to tell a tale of two legal technologies. Here’s a pro-tip: a shortcut to get a pulse on the legal market, is by listening to earnings calls. The question & answer (Q&A) is the juicy part. Note: the next three links jump to the mentions in the YouTube versions of the calls.

Dropbox narrative has two sides. First, the e-Signature struggle is still real, yet Dropbox did get a bump from Formswift: a legal doc platform. The reason was tax season. While the HelloSign acquisition remains a strategically important asset, it did not contribute as meaningful as Formswift. Neither has Docsend, another Dropbox acquisition. Why? Both HelloSign and Docsend, suffer from a severe drop in deal flow in many industries.

But not all segments suffer the same fate. Two weeks later, DocuSign earnings call comes with an upbeat message on contract tech. Now I’m baffled. However, we noticed a subtle but crucial difference between both calls. During the Q&A, Docusign singled out real estate as weak versus manufacturing and business services as strong. Ask GPT: what are business services? Among a short list is Consultancy, Legal, and Supply Chain. Also known as “Picks & Shovels”.

Bottom line: Dropbox won with Tax and DocuSign relied on Legal and several other ‘shovels’. Only looking at the extremes “Capital & Conflicts” will make you miss everything in between. Kudos to pro analysts on these calls asking questions. They help rookies like us to see when areas in legal deliver profits. So, Legal Tech, whenever you’re ready to harvest, grab a shovel.

Recap: mixed signals will remain since legal relies on seasons. While the tourists only enjoy the summers, the pros can weather any storm.

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