The last few years have brought forth a reckoning in legal. The once-laggard industry has pushed forward on new technology advancements and adoption since being mandated to work from home at the height of the pandemic in 2020. While transformation born out of the pandemic is here to stay, new dynamics such as market consolidation and a potential recession are continuing to shape not only legal technology itself but also this industry’s procurement and adoption habits. Legal professionals are increasingly looking for tech stacks that are cost-efficient, well-integrated, and well-used by their organizations.
This is just the beginning. Here are my predictions for how legaltech will progress in 2023.
1. Economic uncertainty will bring continued market consolidation
The previous market highs created significant opportunities and innovation, which also meant increased value for the legal industry. However, many of these startups are now facing a weakening market and are looking to boost their GTM efforts by aligning themselves with more mature organizations. I expect we’ll continue to see acquisitions and market consolidation as companies hit that inflection point.
We already saw this trend beginning toward the end of 2022. Companies across the marketplace have announced cutbacks and other protective measures amid the likelihood of a continued downturn. In fact, it was Reynen Court’s announcement that it “would be nixing its recently rolled out online stock offering and cutting staff” that was deemed “the canary in the coal mine for legaltech companies,” per American Lawyer. And it’s not just legaltech companies — law firms, too, are bracing themselves. Layoffs have already hit some of the most successful law firms, including Kirkland, Gunderson, Cooley, and Goodwin, according to Above The Law.
Canary in the coal mine? Yes. For all legaltech companies? No. I feel the future is still bright for legaltech — the industry surpassed $1 billion in investments in 2021, quadrupling from just over $200 million in investments in 2018. However, going forward, all eyes will be on profitability for legaltech as well as the broader Saas space. Gone are the days of explosive, uncontrolled growth. There will be market consolidation, but those mature organizations will be looking to acquire value, not just a debt-filled balance sheet. If you’re a startup looking for new funding in 2023, investors will be looking for a similar path to value and profitability as they evaluate where to place their investments in the coming years.
2. The need for value will unlock hidden efficiencies
There’s more recognition today that organizations need to invest in legal technology, not just to keep pace with competitors but also to unlock the potential that already exists within their own business. Young lawyers and legal professionals are increasingly of the demographic that has literally grown up with easy access to data, the use of tools, and real-time collaboration with peers. Doing it the “same old way” is a surefire way to have your business left in the dust, especially with the current conditions.
For corporate legal departments, this means the need to solve for managing both internal and external work, including legal service requests, matter management, document management, and more invoicing accuracy. The legal department can no longer be a black hole, so sharing of data, faster response times, and driving better outcomes (faster and together) are taking on new forms each day. Enterprise Legal Management providers are also being called on to equip lawyers and their staff to be effective “procurement officers” of legal services: choosing the right outside counsel, working with them effectively, and giving them access to analytics that inform best practices.
In the firm-client relationship, clients across the board (corporate, commercial, government) are demanding performance from the firms that support them. The firms that can demonstrate why they’re different and provide real-time reporting and relevance are winning business. There’s also a burning need to review processes and procedures that may be slowing down this collaboration. It’s a “spring cleaning” of sorts, and societal shifts — such as those prompted by COVID, when remote work was mandated — are exposing antiquated processes that are ripe with opportunities for change.
For more on this, check out our Chief Revenue Officer Terry Dohrmann’s commentary in LTN’s 2023 Predictions series.
3. The shift to “value center” rather than “cost center”
Legal is increasingly being seen as a business leader. They’re not just being asked to operate more efficiently — they’re also expected to proactively contribute to the broader business.
A huge development we’ve seen and will continue to see is legal professionals rising in the ranks to take on non-legal roles within the C-suite. Corporate leaders are increasingly realizing the value that the legal ops function provides to the overarching business, its strategy, and its execution. Therefore, they are promoting legal professionals to get involved in and/or oversee core departments of the business. Seeing this degree of growth and leadership opportunities for the legal function is a remarkable shift that sets the tone for a need to transform how you do business so that you create the space to show up in a whole new way.
Read more from my own commentary in LTN’s 2023 Predictions series.
4. The talent war will continue — and be joined by a war on rates and spend
This year’s recession-related cost pressures will give mid-market law firms an opportunity to break out. Using best-in-class matter management technology can help these firms punch above their weight, helping them retain talent by allowing lawyers to do more meaningful work and scaling operational efficiencies to better service top-tier clients. Real-time reporting and dashboarding capabilities can further highlight firm performance and drive client engagement.
In 2023, corporate legal departments will work with a wider variety of law firms, and more mid-market law firms will pick up steam by competing effectively on rates. We’ll also see an exacerbation of the legal talent wars as mid-tier firms pick up talent and headcount.
The entire world right now is reorienting itself around value – not projected value, but real value and value-add. That will be reflected in what companies want to pay lawyers. I predict a Big Law shakeup as a result.
5. Cybersecurity isn’t just a requirement for clients, but a business driver for firms
With volumes of sensitive client data, law firms can be a significant target for ransomware attacks, data breaches, and other information security incidents. The average cost of an information security breach in the US soared to $9.44 million in 2022.
In response, companies are increasingly mandating tougher security protocols for all vendors. According to the ABA’s 2022 Tech Report, 33% of surveyed law firm respondents said that a client or potential client had asked for the firm’s security requirements. Better cybersecurity practices can help firms partner with large clients and onboard more easily. Luckily, the tools law firms use to make themselves more efficient can also help improve data practices.
All roads lead to technology
Efficiency, value-add, security, spend. At a closer glance, the biggest legaltech trend in 2023 will be the benefits of the technology itself. That’s why I remain bullish on this space, despite some of the challenges and cutbacks that have occurred. There will be a reckoning as the industry and its technology companies reorient themselves around value, but enterprise platform technology will drive the efficiency and value that legal teams and law firms need to prove themselves and their work’s worth.