What is Legal Technology? Has it been successful? What are the top 5 Tools? How to make money and grow in Legal? Questions with answers.
This is not a “…I often get asked…” pretentious post to signal: hey people! I’m the expert! Let’s set the record straight: I’m not an expert, I refer to numbers as the expert. Being an ‘expert’ will automatically take away my right to be wrong. It robs me of the joy of serendipity. The pandemic showed us what happens when we rely on ‘experts’ without data: people die. So I decided, a long time ago, never to judge ideas. I, much rather discover them. Ultimately, the market decides who’s right or wrong, I’m just keeping score.
Our Best Answers
Despite the above, friends ask me to chime in on topics. I report the numbers to the best of my ability and limit my opinions to possible explanations. This year, we’ve been quoted 14 times by the largest news outlets in Legal. In 2021, it was just 3 times. This is not a sign of success, it just shows more are getting interested in numbers. Even so, the majority of questions come from conversations I have with enterprises, entrepreneurs, and educators.
Last week, I spoke with academics from Norway about the definition of legal technology. As I gave them my answer, I encouraged them to come up with their definition. That conversation inspired me to write this. Some say we find the meaning of life, not in the answers we seek, but in the questions, we ask. These are five burning questions with answers.
What is Legal Technology?
1. The first answer I ever found was on Quora. I searched, but couldn’t find the original post. So I’m summarizing this from memory: software used by lawyers to process legal data. Currently, this definition covers a declining set of tools. It doesn’t include software used by companies and citizens to process laws. Respectively, these are labeled by us as RiskTech and CivicTech. Now, ‘Legal Tech’ is mostly a marketing term used to win business from law firms and lure participants to conferences.
We use a more general definition of software supporting the law (not just lawyers) to qualify profiles for Legalpioneer. However, that definition covers just 31% of companies we have in Spark Max. Do more businesses impact the legal industry? Insurance, Biometrics, Security, Supply Chain, and FinTech come to mind. Of course, we also include data analytics companies that sway public opinion and find bots on Twitter.
Has Legal Technology been successful?
2. No, was my answer at the Amsterdam LawHub debate. While it may have been so in the past, wins have been few and far between in the last decade. Thomson Reuters, Lexis Nexis, and Wolters Kluwer rode a lucrative wave of legal publishing into the digital age. However, that growth was fueled by copyright law, not technological innovation. While the world embraced disruptions like the iPhone, Airbnb, Uber, and Spotify, lawyers continue to rake in record profits with a millennia-old model.
Checking the stock market today, the big three still top every new entrant like Legalzoom, DocuSign, and FiscalNote. Even the eDiscovery providers are all lower than their initial listing. There have been spectacular growth stories and big acquisitions of Legal Tech companies. But these were little miracles. Like a startup in The Netherlands called Legal Intelligence. Despite being born in the backyard of Wolters Kluwer, they grew to break their monopoly. Likewise, Dutch SignRequest and Clocktimizer can both claim better exits than counterparts in major markets with bigger budgets.
What are the top five Legal Technology companies?
3. Based on usage? We got this question from Law360 and our answer was a bit controversial. I came up with two lists: my favorites and tools with a large user base. Here are the top five based on adoption and usage to process legal data:
PDF tools are used by lawyers perhaps more than any other profession. Legal needs security and relies on continuity. In Gaslight, we highlighted these essential requirements for legal. In commerce, we use PDFs to lock up revenue in signed contracts. Wonder why Google may have dropped contracts analytics to bet on e-Signature? The same reason Apple launched their e-Signature tool, way back in 2017 WWDC. Yet, only after a smart question on our mention in Law.com, did it hit me where this is going. Keep reading, the reveal is below.
How does one make money in Legal?
4. The short answer is capital or conflict. Whenever there are big financial transactions or huge conflicts, legal talent will laugh all the way to the bank. It doesn’t matter where we are economically or politically in the world, these two conditions are always present. Did you click the link about the record profits big firms made in 2020? Don’t bother, we calculated revenue per employee for top Dutch law firms and came up with $18K a month [NL]. Just imagine: a starting salary as a janitor at a top firm could be plus $10,000,- a month. Just kidding.
Does technology help? Yes, the tech that closes the connectivity gap. The pager, email, and blackberry were all eagerly adopted by legal professionals. Research tools, which kept track of the competition, flew off the shelf. Tools that help professionals connect and be in constant communication with clients were instant hits. This could explain why many firms elect to build instead of buying legal tech. Noticed some firms partnering with outsiders? Essentially, they are looking to create a Robot Rainmaker: a tool that brings them closer to capital and conflicts.
How does one grow a business in Legal?
5. Like any other business, sustainable growth comes from identifying durable demand. For legal talent, the business from capital has fallen off a cliff. Companies struggle to raise money from public & private investors, banks, or other companies. The drop in deals occurred in initial public offerings (IPO), venture rounds, debt financing, mergers, and acquisitions. This leaves lawyers scrambling to find legal fees. Don’t panic, there’s still one space that’s delivering fat fees. So I’m very curious if the 2022 revenue numbers will top 2020-21.
Meanwhile, as the capital market collapses, we see conflicts everywhere. Case in point: Twitter is suing Elon Musk and claims damages. Correct, claims are the fourth catalyst for legal growth. So, don’t worry about legal talent, let’s worry about legal technology. We published a poll asking: If tech could help Elon or Twitter win. Most voted for talent, not tech to be the deciding factor. Why is it so hard for the tech, to succeed in Legal? Because, laws, made by lawyers, prevent it. This was our conclusion in our best-read analysis: copyright law boosted publishing, but it breaks automation. However, there is hope.
How can legal tech grow again?
By acknowledging why growth stopped. Most tech companies follow a familiar path: a founder gets frustrated with a problem and searches for a solution. They end up building one, convincing investors it is unique, and capturing curious early adopters. After the curiosity wears off and adopters churn, the dopamine and dollars run out.
Why did tech growth stop? Well, maybe you already picked up on two hints: “searches” and “unique”. Noted in ‘Challengers‘: most solutions aren’t unique because founders didn’t properly canvas the competition. Growth becomes difficult when customers have better or cheaper options. Growth becomes impossible when behaviors change and customers quit the product. The first is now happening to Netflix. The second is why some of you saw a Sony Walkman for the first time in Stranger Things. This is economics 101: supply and demand.
The Right Questions
One can forecast downfalls like Walkman or iPod, by measuring supply and demand using the CAT Method. Running calculations on close to $1.2 Trillion in deal data, Spark shows us where the action is. Following deal flow tells us that Biometrics will one day replace antiquated e-Signatures. However, history tells us that laws won’t allow it. Nevertheless, numbers reveal these spaces. That’s why we’ll keep taking snapshots and sending them back to earth.
So before you start running up that hill, check our two TikToks about markets and growth. The message: numbers will help you find new or different customers in bigger and better markets. Looking at current market conditions, entrepreneurs will have little choice, but to start asking the right questions.