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From time-to-time the legal IT industry hits a tipping point when almost overnight a new paradigm sweeps into the market and permanently disrupts the previous status quo.

One of the best know examples was in the mid-to-late 1990s when the industry standard of green-screen Unix systems was challenged by the rise of Microsoft Windows and SQL Server. If they were to be honest, there are many legal software vendors could look back to that era and identify the start of their decline to a point where, instead of embracing these new technologies, they went into full King Canute-mode. They know who they are and they tried to hold back the tide of innovation by arguing why Unix databases would always be more secure and scalable than SQL Server. And why secretaries didn’t need mice and legal cashiers would always prefer a non-Windows interface.

This is just another replay of the “why Betamax is better than VHS” (or more recently why Blackberry is better for lawyers than the iPhone) argument. The key issue is the merits of the argument really don’t matter, because eventually the emergent technologies gain such a critical mass behind them that they become the New Normal and the Old Guard suddenly find themselves reduced to the legacy system guys nobody wants to talk to at parties.

So, is the legal IT industry now heading for a fresh tipping point over Software as a Service – or at least the different definitions of what constitutes SaaS?

Ask any user what they want from SaaS and they will say a service that can be turned on and off like a tap. Need to add more users to a project? Just sign on the dotted line and there is your extra capacity. Need to cut back? No problem – and certainly no lengthy minimum commitment contract (monthly deals are the norm) periods, no big install fees, no ongoing support contracts, nor any per-seat versus concurrent licencing debates. In fact exactly the same way many consumer sector software applications and online services are now offered.

However, ask any legal software vendor why they can’t offer this and they will say it is because they are offering a niche product and the rules that apply to consumer/horizontal market applications do not and cannot apply to them.

With consumer products, so the argument runs, the customer is in a take-it or leave-it position, whereas with professional systems designed for the legal vertical market, there is always an element of ongoing product development and user/vendor collaboration to ensure the software meets the latest regulatory needs or industry trends. Alternative billing arrangements, ABS and legal aid (a perennial thorn in UK legal IT sector’s flesh) are just some of the current R&D issues vendors must address if their software is to remain relevant.

The net result is that while there may be some good SaaS deals out there for sole practitioners and very small firms, after about 10+ users the pricing models (let alone the long term contractual commitments) still make an installed system the more commercially attractive approach.

But does this permanently preclude a more flexible approach to SaaS pricing and delivery models?

Traditional vendors say ‘yes’ but I’m encountering more vendors (and not just starry-eyed start-ups who haven’t yet burned through their initial cash pile) who say ‘no’ and suggest the real sticking point is not the need to provide ongoing R&D but a reluctance to risk current revenue models.

Vendors know where they are with an installed deal – nice upfront lump of cash and five years plus of recurring revenue – whereas with SaaS! What happens if the firm cuts back on staff or has a quiet period and doesn’t need to use the software? What would happen to our bonuses then?

Times are changing. At the time of writing this piece, I’ve just finished a webinar with one of the UK’s top 5 legal software vendors who admitted that the days of complacency were over and that if they couldn’t offer the flexibility and convenience of consumer-sector SaaS deals, “there are companies out there who will eat our lunch”.

I’ve christened this phenomenon the Campaign for Real Software as a Service. Like it or not, it is coming and the vendors who get it right will disrupt the market, while the ones who get left behind will have more than their revenue models to worry about.

* This is an extended version of the op-ed that first appeared in the June issue of Legal IT Insider.