Earlier this week, market research company Outsell reported that the ‘information as a legal service’ market is poised for explosive growth: Law firms worldwide currently derive an estimated $98 million in revenue but will be earning a projected $176 million by 2017.
Information as a legal service refers to standardized, prepared legal information for sale. For instance, Davis Polk & Wardwell has developed an online portal that its clients can use as a guide through the forthcoming “Volcker Rule,” a key component of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
In an interview with Big Law Business, Outsell Analyst Hugh Logue, who authored the report, explained the potential consequences of growth in this market and some other key findings.
Big Law Business: Can you give a basic appraisal of what’s happening?
Logue: There’s been a massive emphasis on the need to commoditize legal services, but there’s been very little practical advice on how law firms can do this. I looked at some law firms that have done this.
Baker McKenzie, for instance, has a subsidiary called LawInContext. It provides clients with the context that they need to make early decisions. Say a company is looking to expand into a new geographic market. They don’t need legal advice, what they need is information about the local tax laws, maybe the health and safety regulations. That’s all legal knowledge, it’s not legal advice. Now, lets say those rules don’t necessarily fit with their goals, they may decide to go somewhere else. Law firms certainly don’t like charging and clients certainly don’t like paying Baker & McKenzie’s rates for this very basic information. With LawInContext, they’re only paying an annual subscription fee rather than for advice. So that’s the thing we’re looking at.
Big Law Business: What are some key findings?
Logue: One of the key findings of this report is that this is really a very young market. We estimate it’s only worth $98 million. It’s very tiny. That’s the annual revenue that law firms are generating from information as a legal service, services like Baker & McKenzie’s LawInContext. There’s Allen & Overy’s Aosphere; DLA Piper has something called Blue Edge Lab, Knowledge Sites. Linklaters, they just call it online services. Clifford Chance is the same. Freshfields they’ve got something called bribery watch. It’s all those sorts of solutions.
We think that’s going to be growing by about 15 percent over the next five years, each year. By 2017, we’re estimating that this market will be worth $176 million, so it is growing. At some firms, like Allen & Overy and Baker, they’re going to grow much quicker. Allen & Overy they’ve seen growth of like 20 percent. Other law firms will say they don’t want to go there.
[Editor’s note: The report estimates in 2014, Allen & Overy derived $15 million; Baker & McKenzie derived $11 million; DLA Piper and Linklaters each derived $10 million; and Clifford Chance derived $4 million.]
Big Law Business: How do you envision this market growing?
Logue: The biggest area where I think there’s potential for this is with the accountancy firms. They could really benefit because they’re not interested in the high-end work. They’re not interested in litigation. They’re interested in doing the end-to-end service where they don’t have to send their clients out to law firms just for some very basic advice because that slows the whole process down and it’s expensive for the clients.
We’ve seen all the big accounting firms develop these information services into their due diligence process, into their mergers and acquisition process into any accountancy process. These are multi-billion dollar accounting firms. They have strong brands. They have experience developing these solutions. They dwarf the law firms, so if the law firms don’t go into this, they will. Of course, the accountancy firms are playing down how much they’re moving into this sector because they have very good relationships with law firms. They don’t want to rock the boat by undermining how good their relationship is.
Big Law Business: Did you draw any conclusions about whether law firms will need to adopt this to survive?
Logue: If law firms want to increase their profit by taking out the lower value work that doesn’t make them very much money, if they want to take out that work so their lawyers can focus on the higher profit work, then this is the way to do that. I wouldn’t go so far as to say any law firm that doesn’t have this is doomed, but it’s definitely a delivery model that will increase profitability.
Law firms need to look at their legal services and split those into two categories, advice and information. When they’ve identified the ones that are information, at a very basic level, they can be simple repository systems. But in a more advanced level they can be cognitive computing systems … that monitor all the various legal sources for any updates that are relevant to the client.
Big Law Business: Where specifically do you predict this will affect the legal market?
Logue: I think you’ll see this technology first deployed in the courts. Judges will have software that support decisions. There’ll be huge cost savings here for government because there’ll be efficiencies and there won’t be as many as appeals, because there will be fewer errors. It won’t replace a judge but it’ll allow them to make better decisions. I can see providers targeting government for that reason. And I would say in the next couple of years, we’ll see it more. We’re seeing governments now invest in court technology across Africa and America.
Cognitive learning will be the next innovation in this market. I think in Texas now all courts are using mandatory e-filing systems, so you can’t do paper. That makes the data solutions richer on which these systems can be built. The data solution is there that IBM can seed into.
IBM’s Watson really allows law firms to take this to the next level.
Big Law Business: What is IBM’s Watson and is it ready yet for law firms?
Logue: IBM provides relatively cheap powerful technology that information providers could build upon. Even if law firms could build their own proprietary solutions, it wouldn’t be better than IBM. It’s making the technology accessible.
It’s ready for law firms that are a bit more adventurous and are ready to employ a team of developers. But it’s not ready as an off the shelf product. That’s why I think the opportunities there are for bigger law firms. I don’t think any law firms are developing cognitive computing solutions, so no is the short answer to that. But DLA Piper has its own research division where they’re developing more advanced, more sophisticated solutions.
Big Law Business: There’s talk about artificial intelligence replacing lawyers but will computers be giving advice anytime soon?
Logue: Yeah, its not going to be advice. The idea of a computer providing advice — I think we’re very far away from that. Because when these computers make mistakes, they are very serious mistakes. You only have to look at the Jeopardy game, Watson won the game but it made huge mistakes. Even if it’s 99 percent accurate, that one percent inaccuracy is too much of a risk at this stage; so perhaps the cognitive systems are providing overall statistically significant more accurate advice, however, when it makes mistakes, those mistakes are just way too off, too risky.