The Reason Why Legal Tech Remains the Domain of the Legal Elite: It’s All About The Money

For those who regularly follow my blog, you may have noticed that it’s been a long, long time since I’ve written critically about legal technology trends.  Several reasons for that. For starters, whether it’s because I’m a woman or write about the solo and small firm space or actually practice law or don’t tow the party line on tech, few people bother to read or comment on what  I have to say — and though I thought it impossible seven years ago, blogging by myself no longer has the thrill it once did.  Second, as I observe the rapid advancements in medicine that have taken place since my husband’s death from brain cancer — from AI generated brain scans  to aggregation of big data to facilitate precision treatment of tumors to development of non-invasive biopsies, all of which without a doubt, would have prolonged my husband’s life —the announcements of yet another AI-powered e-discovery platform or cloud-based transaction war room that ultimately help large corporations and laws firm shareholders earn more profit don’t really hold much interest for me. 

But today,  I was moved to write by Bob Ambrogi’s recent column, Legal Tech for the Legal Elite: Observations of Two Conferences in which Bob expressed disappointment that last week’s Legal Week and Inspire.Legal conferences both focused on technology and innovation primarily at big law to the exclusion of  notably “the roughly 90 percent of lawyers who practice outside the large firm/large corporation ecosystem” as well as “those the legal system is failing.”   Spoiler alert: no surprise here. As   I’ve written before ,  legal tech — even the tech that purports to focus on serving consumers — is all about the money. Always has been, always will be.  And the truth is that if you want to find the big money, you find it at big law.

Take a step back. Today’s focus on techno-powered innovation finds its roots in Richard Susskind’s prescient classic, The End of Lawyers? . Though Susskind is channeled by everyone in the legal industry  from bar presidents to DIY legal service providers, those who actually read the darn book (as I did ) understand that Susskind focuses primarily on how technology is changing the economics of once-leveraged biglaw practice and advises on how  large corporate firms can re-position themselves to retain clients and stay competitive.  Now, a decade later, big firms are finally taking Susskind’s advice to heart – hence, the newfound interest in AI solutions, big data and substantial investment in technology innovation. 

Meanwhile, entrepreneurs are discovering that in contrast to big law, there’s not much money to be made from A2J and consumer-facing legal tech solutions. The proof is in the data.  Take a look at Legal Zoom, a company that is the undisputed leader in the DIY legal services space. I wrote about Legal Zoom’s business model nine years ago in the wake of its unsuccessful IPO – pointing out that :

Legal Zoom’s $156 million in revenues are paltry in comparison to the $1 billion+ take of the 15 top firms in the AmLaw 100. And while big law attorneys work hard for their money, Legal Zoom works even harder.  According to this site, in 2011, Legal Zoom’s SEC filing said that it had 490,000 in 2011 – or 1300 a day.  Moreover, LegalZoom spent $41 million on ads to lure them in a cost of around $81/lead. All for a measly $12 million in profits – which is the equivalent take home pay for  three partners at Quinn & Emmanuel.

The economics of Legal Zoom haven’t changed. Though valued at $200 billion  following expansion into the UK market, Legal Zoom’s annual revenues as of 2014 remain  around $200 million – barely enough to squeak into slot 198 on the AmLaw 200 revenue scale, and pocket change compared to the $3 billion in revenues collected by top firm Kirkland Ellis.  

So not surprisingly, the bulk of recent investment in legal tech is flowing to companies that serve corporate clients or biglaw that can afford the tech investment and promise strong returns and offer high payouts. The legal tech arm of Justin Kan’s #alt law firm, Atrium  lured $65 million in investment in just a year. Meanwhile the law firm portion of the firm helped 250 clients raise over $500 million – a handsome profit if the firm is taking a piece of the equity and an attractive investment if the ban on direct outside investment (as opposed to the workaround used by Atrium and Clearspire before it) is ever lifted. 

Meanwhile, Shark Tank star Mark Cuban invested an unreported amount of dollars in Paladin, which developed a platform to make it easier for large firms and corporations to coordinate pro bono services. To be sure, Paladin, a woman-owned company with a noble mission deserves support – but I doubt that those characteristics alone attracted Mark Cuban. Rather, because Paladin serves biglaw, it’s a sound financial bet for private investment – even though the jury is out on the extent to which voluntary large firm pro bono activities go towards solving the A2J crisis. 

 For a time, many lawyers-turned-entrepreneurs believed that there was money to be made from technology that expands A2J.  Now, many are discovering that’s not the case. Consumer markets depend on volume, and even if wills and divorces and DUI defenses only cost $99, most folks still won’t have need to purchase those services more than a handful of times over the course of their lives. By contrast, think of how many times you took an Uber or made a purchase off Amazon in the past month.  Compared to the consumer space, biglaw has money to burn and once one or two firms begin to embrace technology, it’s only a matter of minutes before the others fall in line lock step.  For legal tech entrepreneurs consulting or building products or founding companies, big law is an attractive market – far more so than A2J. 

Bob’s post about the recent legal tech conference and its echo chamber is spot on – the question is, will things ever change? Technology alone hasn’t been enough – so far – to make a dent in the A2J problem – though to be fair, technology has made solo and small firm practice more viable and opened the doors for women by giving them more options for worklife balance. Yet at the end of the day, history has shown that time and again, money and power can buy justice.  Tech alone isn’t going to change the course of history unless we change our priorities.