The legal services market continues to undergo unprecedented structural change. Since the introduction of alternative business structures, a number of disruptive business models have emerged which have been quick to respond to changing customer needs and leverage new technology to challenge traditional law firms. They have now gained traction and established credibility, but the greater opportunity is likely still to come. As a growth investor for the last 40 years we have successfully backed many businesses disrupting traditional sectors, hence our interest in the changing face of legal services.
Pressure on legal budgets is creating opportunity
In the current competitive economic climate, general counsel are increasingly expected to procure legal services at lower cost.
This has resulted in an unbundling of legal services and the market has segmented into 3 broad categories. The most complex and /or higher risk work has remained with law firms, whilst lower value “bulk legal services” are increasingly being serviced by technology.
In the middle, an array of disruptive business models have emerged offering high quality, flexible, cost effective legal services and they are increasingly winning work at the expense of established players.
Traditional law firms have a choice to make, either focus solely on premium work and retreat from more commoditised areas, or evolve to deliver their services in a more efficient manner.
New entrants have, to varying extents, leveraged technology in their delivery model. Less complex work is now increasingly automated, but what are the limits of this automation?
Some lawyers dismiss artificial intelligence as the latest buzzword, whilst others are concerned that robots will replace lawyers altogether. The reality, as always, will likely be somewhere in between.
Over time, technology solutions will complete more and more complex tasks currently performed by humans, but are in-house lawyers ready to engage directly with technology firms?
Traditional law firms retain strong, trusted brands, long customer relationships and well established international networks. The most complex work will remain with them, but can they evolve quickly enough to stay competitive in other areas?
In the middle we believe there is a significant opportunity to leverage advances in technology to deliver increasingly innovative, integrated technology and services solutions, but how best can they unlock budgets?
Each of the three groups has challenges that could be mitigated through collaboration with another.
We expect significant growth for legal-tech and alternative legal services businesses, but believe that working with each other and with established law firms is likely to yield the best result.
A sluggish past but a dynamic future
The legal market, partly due to historical regulatory barriers, has been a slower adopter of technology than other service based industries. That is now changing and we expect businesses that embrace this opportunity to flourish over the coming years. ECI has over 40 years’ experience successfully investing in and supporting the growth of technology and technology enabled services businesses operating in disrupted markets.
We believe the legal services market will provide ample opportunity for businesses to continue to grow and we are actively looking for businesses to partner with.