The impact of COVID-19 on the legal tech market is clear: The future of work is now. Technology is no longer a promise (or threat) of an automated future. It is a lifeline.
The Global COVID-19 pandemic works a bit like a photographic developer. It makes certain latent structures visible for everyone to see: our leaders reveal their true nature, global inequalities become evident, and the moral qualities of people are suddenly exposed for everyone to see. In this universal state of emergency, we learn valuable lessons about ourselves and the lives we live. And our new, socially distant ways of life show us that we hold dear and what we can, do without.
Consequently, the pandemic is not just a looking glass. It is also a catalyst for change: social structures will we reshaped, our cultural dynamics will develop, the economy will respond, companies will go out of business, and sadly, more people will die. No sector or industry will be left untouched, and nothing will ever be the same again - whether we find a vaccine or not.
The legal industry and the legal tech industry has also experienced radical changes already. Conference calls have replaced conference rooms, courts are closed and law firms see a drastic deceleration of new matters.
Much has already been written about the development and state of legal tech during the COVID-19 pandemic. Still, sometimes it is hard to see the wood for the trees, and it is hard finding the time to read that many articles when you also have a brand new sourdough to take care. Therefore, Legal Tech Weekly has ploughed through all those articles and distilled the conclusions into a summary.
The crisis has forced lawyers and other legal professionals to leverage technology like never before. Technology is no longer a promise (or threat) of an automated future. It is a lifeline. As Richard Susskind puts it: “If law firms and court systems cannot find a way to work remotely in the coming weeks, Covid-19 will rapidly run them into the ground.” One of the reasons why digital innovation is moving so slow is that it is hard to change habits. But now that law firms are forced to innovate; the old routines will most likely not return. Some of these digital products will have proven their worth, lawyers will become more comfortable with digital products, and some law firms might even get hooked in the legal innovation.
This innovation is forced and artificially induced by a crisis, but it is just the acceleration of a process that was coming anyway. Law firms will now have a much better idea of what they should invest in, and since their clients are now online, law firms are forced to find ways that make the clients loyal to the firm. Here, digital platforms will be essential, and law firms will also look into data-driven practices and self-service offerings.
These new digital ways of working will do damage to the billable hour. Law firms will be able to predict the scope of tasks to offer their services for a fixed price. Also, as technology makes lawyers more productive, they will be able to do more in less time. This productivity should be rewarded. When people work more from home, they suddenly see the value in out being trapped in an office building all day. Therefore, lawyers will demand a better work-life-balance where they are paid for the value they add and not the hours they spend.
The last months have proven that many legal processes can be handled online by people working from home. Remote work has been enforced on lawers, and it turns out that it has worked out great. As Joanna Goodman writes in The Law Gazette: “there will be no excuse for maintaining a culture of presenteeism - or paper.” According to Global Workplace Analytics, two years from now, up to 30 % of workers could be working from home multiple days per week. The Global pandemic has only accelerated that process.
It has become clear that the office building is largely redundant for modern work. Law firms will now have to take a closer look at how they can reduce their real estate footprint. “Does the firm really need that thirty seat board room that is used once in a blue moon as the signing of large deals no longer requires acres of physical space?” as Paul Smith from Eversheds Sutherland write. Is an expensive trophy real estate really necessary? Or will it, on the contrary, be regarded as a decadent and wasteful form of urban manspreading: taking up too much space and flashing a phallic symbol of power.
It is hard to find reasons why a tech-savvy digital company would accept to pay for law firms’ fancy designer furniture, partner offices with seaside view and fountains in the hall when they know that law firms can perform and deliver most of their work digitally. Especially since only 20 % of legal consumers prefer face-to-face meetings to video calls according to til Clio. Another positive side effect is that the death of the office building will free up space in the cities and help to solve the affordable housing crisis that especially young people are suffering under.
All of this will, of course, also affect the legal tech vendor market. Prism Legal posted an interesting interview with the investment banker Scott Mozarsky about predictions on the legal tech market pre - and post the COVID-10 crisis.
He says: “Deals are slowing down and will continue to slow down during the crisis, especially for businesses that lack scale and/or subscription revenue.” Also, sales cycles will be longer in many cases. For some, especially larger, projects, customers will delay decisions to conserve cash, while certain types of software will experience a boost. However, any company that depends on a strong sales pipeline or are in urgent need of new cash and investor backing is at risk.
There will be less money in the VC-market, but there will also be fewer companies doing well, which ultimately balance things out. As Mozarsky noticed: “a few legal tech funding rounds and acquisitions have closed during the last two weeks, and a number of sponsors/strategics have told me they see an opportunity to make good investments during the crisis while others are distracted, and company valuations are lower.”
Tech companies are pretty good investment objects in a time of social distancing, so tech might end up doing well. And those legal tech companies that do well in this situation will look very strong on the other side of the crisis. We are, therefore, most likely going to end up with fewer legal tech companies around, but the surviving ones will look stronger and be more widely used in the legal industry.
Again, the current crisis will accelerate a process that was already underway since the market was already going to converge around fewer, stronger players.