Guest post: The NewLaw tipping point

“That magic moment when an idea, trend or social behaviour crosses a threshold, tips, and spreads like wildfire.”

Malcolm Gladwell, The Tipping Point: How Little Things Can Make a Big Difference
As recently as three years ago in 2013, NewLaw was a neologism introduced in response to [1] Axiom Law’s Mark Harris’ interview with Bloomberg as he noted that the challenge of innovating and creating a new category was that no vocabulary was yet created, when quizzed if Axiom was a legal process outsourcer (LPO) and [2] The Lawyer’s series of articles on how the 2018 legal landscape may look like with a notable absence of any mention of the so called alternative legal service providers. In my 2013 article, I posited that NewLaw firms would be a permanent fixture of the legal services industry in 2018 by intentionally projecting Axiom Law’s early compound annual growth rate (CAGR) of a start-up against the CAGR of DLA Piper (the largest law firm in the world in 2013 by revenue) over the same period.
The NewLaw neoglogism has cemented its place in the legal industry lexicon as much have been written on this topic in books, textbooks, articles and by the media. It is quite interesting that since its origination, the idea has taken a life of its own with different consultants putting forward their views on what a NewLaw firm is, as you can see in Jordan Furlong’s An incomplete inventory of NewLaw or George Beaton’s Fresh thinking on the evolving BigLaw–NewLaw taxonomy. In other words NewLaw is a broad church of businesses providing alternative service using different business models in the legal services industry. Regardless of the changing face of NewLaw (which also include LPOs and LegalTech firms), three years has passed since its introduction, have we reached the NewLaw tipping point? This article examines the recent developments (post-September 2013) of NewLaw firms in the corporate legal services arena and BigLaw firms’ adaptive responses.
NewLaw crossing the threshold
2015 and 2016 have been annus mirabilis for the NewLaw movement with many headline grabbing deals like Axiom Law’s acquisition of Cognition’s general counsel business, Lawyers on Demand’s acquisition of AdventBalance and Deloitte Legal’s acquisition of Conduit Law, were announced. From its humble beginnings as a peripheral player in a knowledge intensive and relationship-driven industry, NewLaw firms are today viable competitors to the traditional establishment. As recently as the early 2000s, when an organisation had a legal need, it essentially had two choices, firstly to turn to its in-house legal department and if needed, then law firms were appointed to help solve that legal issue. Fast forward to today, that same organisation would be faced with a myriad of options to service its legal needs. The mushrooming of NewLaw providers is made possible as vast majority of legal work are unbundled, breaking the traditional value chain of the industry into its components where parts are serviced by the best cost efficient providers.
It is also important to note that a combination of forces have been at work since the 1980s as we entered the internet revolution when computers entered households in developed countries. Globalisation and outsourcing were some of the key enablers of the information technology outsourcing (ITO) wave of the 1980s and then came the business process outsourcing (BPO) waves of the 1990s with the key motivator being cost reduction. The 2000s saw knowledge process outsourcing (KPO) taking centre stage, it is also important to note that it is around this time that legal process outsourcing (LPO) companies like Elevate Services, Exigent Group, Pangea3, CPA Global and Integreon were founded. As the legal industry was engulfed by technological and demographic trends of the 2010s, crowd-source business models of Axiom Law, Lawyers on Demand, Nexus Law, Riverview Law and its ilk took centre stage. Using a combination of technology combined with labour and knowledge arbitrage, the NewLaw firms were able to standardise and systemise processes and knowledge to offer clients similar solution to law firms often at cost competitive rates.
The Global Financial Crisis pulled us into an era of cost cutting where legal spending on external law firms, once sacred, were also scrutinised. This made the industry fertile ground for the mushrooming NewLaw firms to thrive as we entered a buyer’s market for the first time in the legal services industry’s history. NewLaw firms like Axiom Law, Riverview Law and Elevate Services have expanded far beyond its core to advise general counsels on different sourcing strategies to reduce the cost of serving their legal needs while maintaining the quality they enjoyed. This is a great example of job-to-be-done theory in practice as NewLaw firms now assist corporations in being more efficient in how they hire external lawyers to buy a commercial outcome by solving their legal problems. Applying my economics training, I would observe the NewLaw market is on the ‘growth’ phase of a typical industry lifecycle. Using publicly announced deals, I have mapped major NewLaw firm deals (excluding BigLaw deals with NewLaw) announced since my September 2013 article. [Click to enlarge image]
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This analytical excursion of NewLaw firms’ deals and expansion has revealed:

NewLaw firms are expanding into and in Australia (i.e. Keystone Law’s Keypoint Law, Neota Logic, Nexus Law) followed equal seconds by UK, US and South Africa.
NewLaw firms are consolidating to expand service portfolio (i.e. Exigent Group’s acquisition of mLegal), enter new market (i.e. Axiom Law’s acquisition of Cognition) and add new capabilities (i.e. Elevate Services’ acquisition of Legal OnRamp).
NewLaw firms are coopetition-ing to expand service portfolio (i.e. Exigent Group’s partnership with HUB International), enter new market (i.e. Neota Logic’s partnership with Transform Data International) and add new capabilities (i.e. Hive Legal’s alliance with Neota Logic to develop the Hive Legal Super app).

Gauging the recent NewLaw developments, it is interesting to see how each firm is steering in different strategic directions. Riverview Law is engaging deeply in the application of legal technology, artificial intelligence and data analytics while Lawyers on Demand is expanding geographically, entering into partnership with DLA Piper and launching online matching platform, Axiom Law, already a global player is filling its geographic gaps in Canada via acquisition of Cognition and Australia via alliance with Plexus Law. Elevate Services is expanding its LegalTech capability via acquisition of Legal OnRamp. While in Australia, Bespoke expanded its corporate commercial capabilities and Nexus Law is expanding its national footprint. This begs the question, how are the BigLaw firms responding as the NewLaw movement gathers pace?
NewLaw spreading like wildfire
The rise of NewLaw is most evident when looking at the partner-level talent movement as evidenced by an increase from 0% to 6.4% for the period of FY12 to FY15 in the $23 billion Australian legal services industry. Agile BigLaw firms are also taking a spin of their own, incubating their own versions of NewLaw as they future proof by investing in different business models. UK’s £26 billion legal services industry is example rich with firms building law firms of the future, whether it is Allen & Overy or Pinsent Masons. The orthodoxies of what makes up a law firm is changing as we speak. Much like the different outsourcing waves that engulfed the industry, law firms with sufficient capacity first set up outsourcing centres to brick-wall clients from LPO providers. Then law firms tapped into their alumni to create crowd sourced secondment lawyer service as in-house departments required additional lawyers during peak seasons. We are currently entering an era where firms are also working with expert systems like Neota Logic or artificial intelligence providers like ROSS and Kira Systems as data analytics and visualisation enters the legal industry. I have mapped publicly announced deals of BigLaw firms’ acquisitions, alliances/partnerships with NewLaw firms and BigLaw firms’ incubation of NewLaw skunkworks (in reference Clayton Christensen’s work on disruptive innovation) below [click to enlarge image].
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This analytical excursion of BigLaw’s NewLaw deals and foundation reveals:

BigLaw firms are diversifying their service and business models, setting up their version of NewLaw whether it is outsourced experienced lawyers (i.e. Peerpoint, Simmons & Simmons Adaptive, Orbit, Lexvoco, R&T Asia Resources, AG Integrate, MinterEllison Flex), or provision of legal document (i.e. Cooley GO, Allens Accelerate) or online legal service (i.e. Aosphere).
BigLaw firms are coopetition-ing with NewLaw firms to enhance service (i.e. Morgan Lewis partnership with Exigent Group), provide new service (i.e. Norton Rose Fulbirght alliance with LawPath) and access new technology (i.e. BakerHostetler partnership with ROSS Intelligence).
BigLaw firms are establishing joint ventures with NewLaw firms to create new service (i.e. Littler Mendelson joint venture with Neota Logic) or to access ability to create lawyer on-call service (i.e. DLA Piper joint venture with Lawyers on Demand).
BigLaw firms are investing in NewLaw firms to use and learn new technologies (i.e. Pinsent Masons’ Cerico deal, Gilbert + Tobin’s LegalVision deal).
Deloitte Legal’s acquisition of Conduit Law marks the first Big Four accounting firms’ deals in the NewLaw space and sets the scene for the Big Four firm’s innovative approach to provision of legal services for their clients.

Interestingly amongst the BigLaw firms, we are seeing most incubation of BigLaw’s own NewLaw skunkworks in U.K. (4) and Australia, (4) followed by U.S. (1) and Singapore (1). This points to the fact that U.K. and Australia are mature legal markets that have interestingly seen the deregulation of law firm ownership. However BigLaw firms in the U.S. would lead the way when we look at partnerships and alliances between BigLaw and NewLaw firms which would lower the cost of servicing legal needs by parcelling out some of the work to the most cost efficient provider. Interestingly some BigLaw firms like Pinsent Masons has acquired Cerico which provides automated compliance solution to help Pinsent Masons’ clients proactively respond to legal risks rather than reactively responding. Or Gilbert + Tobin’s equity investment in LegalVision that would enable the firm access to pre-existing online legal service capabilities and also work as an externally developed skunkworks that is not beholden to traditional orthodoxies. Finally the 2010s also mark the re-entry of the Big Four accounting firms’ legal practice since Sarbanes-Oxley ended these firms’ legal ambitions in the early 2000s. Deloitte Legal’s acquisition of Conduit Law sets the tone for how these firms will be expanding in the legal arena.
If any indicator is required, (some) BigLaw firm’s adoption of Newlaw as the analysis above reveals, we have arrived at the NewLaw tipping point in the legal service industry. It is quite interesting that some industry commentators are warning the end is nigh for BigLaw firms. But like multicellular organisms, these BigLaw firms are evolving to adapt to its new environment. It is also important to note this is not a journey for the faint hearted, as Dominic Barton of McKinsey & Company shared in this Harvard Business Review interview that unyielding leadership is required in a partnership environment. Most successful change program in partnership environment are those driven by voice of the client in internal debates. It also begs the question on the right metric of the future for law firms of the future. In an industry fixated by profit per equity partner standings on league tables, it is hard for most to invest spare capacity (or billable time) on non-billable initiatives.
The NewLaw tipping point
In my 2015 article applying Clayton Christensen’s theories on BigLaw vs NewLaw, I posited that the job-to-be-done by lawyers is essentially to assist their clients in navigating the regulatory environment by stopping money from flowing out and making sure money comes into the client’s organisation. In other words, corporations hire external lawyers to buy a commercial outcome by solving a legal problem. How this problem was traditionally served, came in the form of the all-encompassing law firms where legal knowledge is retained and practiced. As Richard Susskind and Daniel Susskind put it so succinctly in The Future of the Professions, the professions’ raison d’être in a print-based society was to provide practical expertise to their clients under a grand bargain, which is an arrangement where they provide services at the exclusion of others, thus creating an economic rent as they act as gatekeepers, curating their own body of knowledge. The difference of course is that we have now entered the digital age where knowledge can be codified, democratised and transferred.
As NewLaw momentum continues its trajectory, this analysis reveals we are observing consolidation, coopetition, and competition in a segment that was, until recently a peripheral in the legal services industry. As Clayton Christensen observed in his work on disruptive innovation “Upstarts will first capture new and low-end customers and then gradually move upmarket to pick off higher-end customers from incumbents”. As a result Biglaw firms are responding, incubating their own NewLaw skunkworks, coopetition-ing with NewLaw firms, establishing joint-ventures with NewLaw firms, and investing in NewLaw firms. Much like what we have seen in the retail industry, successful retailers are combining the bricks and clicks model and the retail reinvention is not a battle to the death between bricks and clicks. Of course this analytical excursion is time bounded (September 2013 onwards), other pathfinding BigLaw firms have already been responding to these market changes, whether they are FLEX by Fenwick, Eversheds Agile, Freshfields Continuum or Vario to name a few. As the chart below reveals, we have reached the NewLaw tipping point in the legal services industry. You just have to look at mature legal markets like U.S. (17), Australia (16),  and U.K. (11). [Click to enlarge image]
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2016 unfolded with many NewLaw headline grabbing deals because of its many firsts, whether it was NewLaw growth by acquisition, NewLaw acquisition of LegalTech firms, entry of Big Four accounting firm by acquisition of NewLaw firm or BigLaw partnership with NewLaw. Ultimately the success and failure of NewLaw will be dependent on the clients, as appetite to use and better engage the NewLaw cohort increase. As we observe the NewLaw tipping point, it is the innovators, disruptors, adopters and shapeshifters who are shaping this new normal in the legal industry. Malcolm Gladwell once wrote “there are exceptional people out there who are capable of starting epidemics. All you have to do is find them”. Here is to the NewLaw pioneers and supporters who have started and continue to spread the NewLaw epidemic. You can follow the ongoing developments of NewLaw on Twitter by following #NewLaw.
This post was written by Eric Chin, consultant to professional service firms on strategy, M&A and Asia.