Comment: What Goes Up – Consolidation in Corporate Legal IT
by Jeff Hodge, Chief Marketing Officer, Quovant
The corporate legal technology sector has found itself wandering in a desert, unable to see a way forward and with no way back. Legal publishers and VCs have been investing in the corporate legal technology space with fervor, and the consolidation that this represents is not good for the marketplace or for corporate legal departments. The bright side is that consolidation and the dysfunction that it represents have provided fertile ground for the seeds of innovation already changing the landscape for legal spend and matter management.
This continuing consolidation does not represent a vision for the future of corporate legal departments. Let’s view it for what it is: a desire to drive direct revenue from the purchased companies or a need to use the purchased product as a lever to push other products to the GCs desktop. Neither strategy has its roots in what’s best for the legal department. If that were the case, then consolidators might have an argument for positing a vision rather than strategy in pursuit of profit.
To be clear, for any software provider there is absolutely nothing wrong with a strategy to drive profits. Every company must be profitable in order to survive. But when those strategies are not connected to a vision in support of the customers represented and when this logical disconnect leaves the customer ill served, change will not be far behind.
Any vision for corporate legal technology should be based on what is good for the consumers of that technology and not only what’s good for the providers. Vision in this context is about:
1. Understanding where GCs and LDOs want and need to go,
2. Understanding where global technology trends are and where they are moving, and
3. Understanding where the legal marketplace is generally and where it is going,
Once a provider understands something about these things, then it can use imagination, experience and keen listening to create a picture of what the future might look like. That’s vision. Some providers lead with vision while some lead with a tag line, and increasingly the marketplace understands the difference. Trying to sell and explain how a piece of technology is a bridge to the future and calling that vision is nothing more than used car economics: “Picture yourself in the front seat of this ’92 Firebird with the wind in your hair.”
The vision and the promise that attracted me to the corporate legal technology space in the 1980s are shadows of their former selves. The vision to make corporate legal better and the drive to make change happen have been lost as consolidation has consumed great ideas and great companies. What that consolidation has left for general counsel and law departments is a set of disaggregated solutions, sunseting brands, decrepit technologies, poor service, failed implementations, weak leadership and no vision. To quote a well-known LDO on the West Coast, “Everyone knows there are no good options. We’re left to pick the lesser of evils because they are all the same.”
How did we get from the great promise of CompInfo and Data Clearinghouse (arguably the first matter management and ebilling technologies circa 1995) to a market dominated by legal publishers and venture capitalists? (I can’t believe I just said that.) I’ve concluded that the history is only mildly important, but the motivations of the consolidators are increasingly important as those motives don’t appear aligned with the needs and the vision of GCs and LDOs.
Consolidation began in the early 2000s, albeit slowly at first. By the time 2010 had arrived, consolidation was in full swing as long-term prospects for legal publishers and search providers began to show cracks. When is the last time you bought a legal book or a CD? For book and CD makers, corporate legal software was a way to diversify into technology as a hedge and a vehicle to get at legal departments which were never big consumers of legal books and CDs. The strategy was to acquire corporate legal technology as a lever for getting more product in front of GCs with a vague, almost passing expectation that somehow general counsel would benefit. Publishers didn’t/don’t know how to build software, so they had to buy. For VCs, one idea seemed to dominate: let’s get in while we can before legal publishers buy up all of the assets.
It’s hard to argue with the strategies, and who knows, maybe these goals are meeting publishers’ and VCs’ needs. But what about the needs of the legal departments who now bear the frustration of having to live with “the lesser of evils”? Those needs are increasingly unmet by consolidators, and the problem is getting worse for GCs because there is little reinvestment in the legal spend and matter management system they bought. “I waited seven years for two pieces of, what I thought, were pretty basic functionality,” one prominent GC (and a client of one of the consolidators) recently told me. “I retired and still didn’t have it.” Still, the best some of these systems can offer is a reworked user interface, in green, eco-friendly pastels.
But why? Why wouldn’t a consolidator invest in what it has bought in order to complete the quasi-strategy that supported the purchase? First, consolidators had and have no vision for where they think GC offices want or need to go. They only have a vision for their sales trajectory. Second, the cash being thrown off by these very profitable systems is needed to offset declining revenues elsewhere—at least that’s my guess. In any event, a marketing tag line is not vision. Continuing to consolidate, while it may make the bottom line look good, is not vision in support of the future of corporate legal. If bigger, more consolidated is good, why are GCs and LDOs so frustrated?
What will be the outcome? The most obvious outcome is a period of change that will disrupt the status quo. That period of change is well underway, facilitated by confusion, poor leadership and a lack of vision inside the consolidators. GCs and LDOs see the confusion and are increasingly unwilling to tolerate weak software and inconceivable pricing. Support and services remain weak, and so buyers are leaning toward innovative replacements outside the reach of legal publishers and VCs. Buyers are taking risks with innovators because the alternative, the same old same old, is fairly certain to be unsatisfactory. Unable to respond to the changing needs and the new thinking coming from legal departments, old-line providers now sitting under consolidator brands seem unable to respond to the reality that they themselves created. They keep selling the same old thing, and the same old thing is increasingly older. More curious is that the consolidators don’t even seem to recognize the altered reality. They continue to buy and consolidate, simply making the market’s problems worse.
But there is hope. Innovation is occurring, with new offerings energizing a stagnant field. Innovators can’t believe their good fortune. As a competitor and fellow innovator told me last week, “All of this consolidation is happening just as the market is souring on the old-line providers that are getting bought, and yet they just keep buying their stagnant peers. If I were to dream up a scenario better suited for disruption, I couldn’t have seen this set of events coming, and I couldn’t be more thankful.” With the confusion and frustration caused by consolidation in full swing, new entrants are taking full advantage and moving quickly.
“Those being disrupted are usually the last ones to know and the first ones to go.”
Innovation in the corporate legal technology space is taking many forms. Natural language processing (NLP) (unsupervised and semi-supervised learning algorithms), an innovation that has made huge leaps thanks to Google and the NSA, is revolutionizing searches, which in turn has implications on intelligent workflow, predictive analytics and beyond. Increased sophistication in SaaS models and SaaS Integration Platforms (SIPs) and security is making it easier for systems to talk and thus enabling new integrated software and business models. The next generation technology upon which new solutions are built lets these providers develop, test and deploy new features in days or weeks rather than the months and years it still takes old-line providers. And having seen the failure by old-line providers to understand the differing capabilities of legal departments to adopt software and change, next generation providers are layering in services to bridge those gaps, some in incredibly creative ways.
The landscape for corporate legal technology will look vastly different in five years. Consolidators, burdened by aged product, frustrated clients and dwindling revenues, will have begun divesting. Next generation providers will be the benefactors, buying portfolios of clients from consolidators at bargain prices, and in the process giving those clients superior software, services and support. Having bought high, but failing to invest in their investment, consolidators will find that the collection of assets they hold will no longer be relevant in a world reinvented by next generation providers. But what about the customers, corporate GCs and LDOs?
For many, the damage will have been done. Recommending an overly complex, high-priced solution for a legal department is one thing, surviving that solution is another. Long term, the disruption in legal technology ushered in by market consolidation will greatly benefit the law departments, GCs and LDOs still on the field. The market, once it struggles through the pains of rebirth, will emerge stronger and better for having survived. Next generation providers and their clients will enjoy a period of prosperity. But inevitably some new market force will make an entrance, and the cycle of disruption, death and rebirth will begin again.