LegalWeek 2018: The Future Phase of the Legal Industry Holds Choppy Waters for Big Law

Originally published in the Legal Executive Institute

By Joseph Raczynski

LegalWeek

NEW YORK — Believe it or not, Big Law is primed to be disrupted within the next several years. At least according to one version of the future from LegalWeek’s fascinating snapshot of the state of the legal industry in 2018. Steve Kovalan and Nicolas Bruch, both Senior Analysts at ALM Intelligence, compiled statistical evidence and built a case surrounding the trends of the recent past to predict the near future.

Bruch defined three distinct periods; the pre-downturn era, the current period, and the future of the legal market. The pre-downturn was a timeframe from 1994-2006 when it was a sellers’ market. Law firms could dictate the terms to most interactions with their clients on price and product.

By contrast, the current period is an evolution of what happened after the financial crisis and ensuing recession, from roughly 2007-2017. During this period, Alternative Legal Service Providers (ALSPs) started to make serious in-roads into the legal market, impacting law firm profit margins.

The next phase, which Kovalan and Bruch pegged happening from 2018-2026, envisions a future of the legal market that’s hyper focused on artificial intelligence, the Big Four accounting & consulting firms, and what may happen to Big Law.

Since the downturn in 2008, law firms have had to rethink their business model. There has been rapid growth of the global law firm, and it continues striving to become bigger. However, while Big Law continues to endure the arms race of increasing numbers of global attorneys, they have also seen slowing overall growth and volatile financials.

The numbers have demonstrated years of extreme inconsistency, with amazing profits-per-partner (PPP) one year and a drought the next. Law firms have also been in a constant battle with the push-back they get from clients on billing and pricing issues. Further entangled in those issues are woes that are compounded by the rise of law departments, ALSPs, and rapidly developing legal technology, which is a means to an end for all parties, said Bruch and Kolavan.

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Steve Kovalan and Nicolas Bruch, of ALM Intelligence, at LegalWeek in New York.

One point they underscored how much in-house lawyers are growing as a force. The annualized growth rate of in-house lawyers is 4.7% compared to 0.4% for the growth of Am Law 200 lawyers.

As they closed their session, Bruch and Kovalan focused on a few salient points around law firms in the AmLaw 200, which are facing a period of high volatility and where over the last three years:

  • 61% have seen revenue decline;
  • 83% have revenue-per-lawyer decline;
  • 85% profit-per-lawyer decline; and
  • 67% profit per equity partner decline.

Ultimately, the take-away from the pair was that there will be three groups that bubble to the top during this future phase: specialty regional law firms; boutiques; and the largest of large law firms.

They hedged their bets and surmised that while Big Law is threatened — because much of their work can be commoditized — that in the short run their profits are still very healthy. Nonetheless, the very real threats to those profits that Big Law faces now come from AI and the Big 4 accounting and consulting companies, such as the EYs and KPMGs of the world that are rapidly engaging in the practice of tax, finance, M&A, and labor.

As Kovalan and Bruch suggested, the times ahead will be fascinating in the ever-evolving landscape of the legal industry.

Emerging Technology in the Legal Industry (Video)

By Joseph Raczynski

In this Vlog, learn about Emerging Technology in the Legal industry. I focus on the impact of the Trinity of Forces (Cloud, Infinite Processing Power and AI) on Emerging Technology in the Legal industry. The Emerging Technologies discussed are: Artificial Intelligence, Blockchain, Analytics, VR/MR/AR (Virtual Reality, Mixed Reality and Augmented Reality) and VPAs (Virtual Personal Assistants) or Bots.

Blockchain Explained (59 mins)

By Joseph Raczynski

This is a talk that I gave recently about Blockchain technology based on my engagement and understanding of the technology since Bitcoin circa 2011. I preface this with how technology is having an impact on all of our lives – exponentially. It serves as a complete overview of what Blockchain technology is today and what we might be able to expect from it going forward. I touch on legal’s impact. This goes through the history and use cases of the technology. Various slides are credited to Joe Guagliardo.

Twitter the Next Biggest Connective Development for Humans

By Joseph Raczynski

“Twitter could be the next biggest connective development for humans, bigger than TV.”

That is what someone who has been working with the development of Twitter told the audience at a legal technology conference I was at in NYC a few months ago.

Here is the rationale.  Think of Twitter as an army of millions of mobile reporters.  People tweet all over the world.  People tweet in war zones, at major events, but more importantly they tweet where an event happens and there are no news reporters available, yet.  They are the first person on the scene accounts.

The key to this whole development is the open API which allows for applications to be created by anyone so that Tweets can be gathered, processed and understood in mass.

News companies are major adopters of reading Tweets.  In fact, there is an application that categories Tweets coming from different parts of the world, or state, or topic area.  They search on key words like “Middle East” or “Bomb” or “Providence”… whatever you can imagine.  They have huge digital boards, and people can monitor all the activity of the tweets that come in, and see what those army of millions of mobile reporters are saying.  To make this all better… People can also send pictures, and I see video is not too far behind.  So think about a breakout of a mob in Southie… people would Tweet on that and send pictures far before some news crew could get there.  It is like news immediately, even more immediate that what we have traditionally thought of as immediate.

The big part that people miss is the search function.  Go to http://search.twitter.com from that site you can search on anything you like.  Look for a restaurant in your area that you wonder if is any good.  People probably have tweeted about it.  Marketing companies are finally seeing this as a way to find out what people think about good or services in real time.

When you tweet, you are actually tweeting to the whole world, so ask a question, and you are likely to get an answer.  The bigger following you have the better the response.  When I was in NYC I asked about a restaurant… I said, “What do people think of 5 Napkin Burger”?  And via my immediate responses, I got a good sense that the place is damn solid.

So from my vantage point, it is a cool app, in its infancy.  There is way more to it that some guy saying, “I just ate a whole cherry pie.”  Seriously, it will make waves for a reason, and will continue to do so.