Legal Market Consolidation? Look Again.

The only set of numbers not coming from the Law Society about the number and value of law firms, come from HMRC [i] essentially the statistical estimates used for VAT purposes. They have their problems[ii], but there are lessons on the shape of the profession which are, frankly, surprising.

Market consolidation?

Received wisdom is that the legal market is consolidating, but it really is worth unpacking that a little. Yes, the market overall is growing – but consolidation normally suggests fewer suppliers doing more work. This in turn would then pose problems for suppliers and buyers of their services alike. The problem is, however, that the market is growing both in volume and value terms over the long term – ie there are more firms generating more revenues.

Ah, the argument goes – ‘but not all sectors are growing – the large firms are growing faster than the small ones’. True, but the implication is that the large firms are growing at the expense of the small firms – and this is far from clear. Global pressures and opportunities mean precisely nothing to micro High Street law firms. In competition terms, there is a chain of substitutability – but frankly the span between a consumer law one man band and a global panel law firm is simply too wide now for comparisons this stretched to be meaningful.

So the next time someone says – firms have to spend £50k on marketing or market consolidation will kill them – ask them precisely why. If firms spend more it is not because of consolidation (although, yes, there may be other reasons). There are more mid market firms making more money than ever before – it’s just that the Magic Circle are – well – magic.

This is great news for vendors to leading smaller firms such as Perfect Software, DPS, Pracctice, Peapod and Quill – rumours of the death of the High St are highly misleading. The economic picture for firms with between £1-4m in sales is that since ‘98 (ie the beginning of the last Big recession) there has been an increase of between 869-1040 more firms. A firm with £4m in sales should have 8 partners or over 20 fee earners, so this is not so ‘small’ really. It is great news for consumers of law services - or should be - and if there is genuine disquiet about why law firms are not seen by clients as well as they should be, it means you really have to look harder elsewhere and stop trying to blame the weather.

Global expansion is a good thing for some, but not all.

The market appears to be ‘consolidating’ more through global expansion of the magic and silver circle firms than any significant contraction of the mid market or small firms. This is not a bad thing – someone doing well is good. Comparing their growth with others who happened to attend the same College thirty years ago and implying that these others are somehow wrong is nonsense. They may be missing out somewhere, but they almost certainly are not missing out on the opportunity to be on the panel to do Smith Kline’s Brazilian IP work from their 8 strong regency brass name plate in Bury.

There is a scrap, as there always has been, between the silver circle firms punching above their weight and using technology to do so, but this is not ‘consolidation’ - it is normal hostilities or intra-industry rivalry. For vendors to very large firms like Elite and Aderant, however, there is always the dichotomy of whether to embed more deeply with 25 clients or spread the risk to 250. Stretching to do both is only getting harder, especially as it increases the risk of someone in the top 25 doing something for themselves that works and spawning another credible competitor in due course in their heartland.

Micro firm market contraction is not a problem.

There is contraction both in numbers and value among the very very small part of the market. The VAT definition of this is £0-49k (effectively sub registration thresholds). These are usually small office/home office (SOHO) one man bands. At best they are retiring or ‘life-style’ solicitors stepping back to run a few favours for a handful of long standing clients – probably doing less than 1 day per week in harness. At worst they unfocused, unsupported generalists and the largest source of claims on the indemnity funds. There are 1045 fewer of them now than on 1998. Bear in mind that any self respecting individual solicitor/fee earner should be aiming at minimum billings per year of £150k, and probably over £250k (each) and you get a picture of both the size of these firms and the likely service sector they focus on. The market changing to have fewer micro firms and losing c3.6% market share in relative terms among these micro firms overall is no bad thing.

The numbers in SOHO firms probably also disguise a different trend whereby the rise in capable individuals running micro practices could well be growing, whereas the regulatory framework is stamping out high risk generalists in low growth sectors. The micro sector should be declining more than it is in relative terms – firms with £100-250k sales (ie a full timer 'going for it') grew overall since ’98 by 3% - ie there are 2.2-2.9k more of them now than 10 year ago. This suggests a growing market for experienced sole practitioners for whom the SaaS and cloud based systems from Legal IT vendors will be a God send. Reducing barriers to market entry through reduced or negligible set up costs, and enabling sole practitioners to compete with other specialist teams with comparable facilities will be a growing niche within this an addressable market of 17.6-19k individuals.

So Keep Calm and Carry On

The global race continues and is good news for those that can hack it up there.

The mid-market is growing and will continue to do so irrespective of the legal services noise around franchises and ABSs. The example to watch here is actually the Connect2Law solution – similar versions of it remains alive and kicking even in the much more consolidated accountancy sector. The acquisition of teams and firms to build scale and competitiveness will continue, and frankly would have done with or without the Legal Services Act.

Allegedly franchises (whether ABS driven or not) will consolidate the market, especially among small firms; but there is a problem with this. Law firms tend to be distributed more along supply lines than demand ones. In essence they tend to be sited near courts, not clients. The logistical scale economies behind franchised dentists, opticians and other distributed professional service providers simply do not have as much sway with law firms. And make no mistake, franchise margins can be very tight and if scale economies are not there, few succeed. It would also mean at least 3 of them succeeding on the level of firm take up they themselves project to begin to erode the number of 'firms' overall in the small and medium size categories. We'll see.

The other basic challenges we already know, and frankly have little or nothing to do with ‘consolidation’. Consumer work on the High St is not a legal services market, and hasn’t been for some time now – it is an insurance services market. The Legal Aid market is unsustainable in its current form for basic inefficiency reasons, not contraction. Ironically good firms coping with systemic governmental confusion have no option but to automate or die. The insurance led (ATE and BTE) sectors will get tougher still, and frankly the disruption of the wills and probate market is both inevitable and already well progressed.

Even the (real) sole practitioner market is growing (up 527 firms since 98). The small firm market is growing. There are 2305 more firms making £100-249k a year now than in '98 and over 1500 more firms making £250-£1m. That it’s not growing as fast as Allen & Overy is neither here nor there. So - apologies for raining on the impressive and noisy parade around legal services currently. But the HMRC statistics simply do not back up the hype.

[i] Source: Office for National Statistics: UK Business: Activity, Size & Location Reports 1998-2011

[ii] Rebasing of SIC codes in 2007 appears to have had a significant effect on the number of firms included within the definition; adjustment for this has been made, but it inevitably clouds the precision required around the height of the recessionary impact in 08 to some degree.

The High Water Mark For Regulatory Hubris

The Government spent over £1m last year finding out if there was market failure in advisory compliance services for SMEs. Nice of them; and the short answer is – ‘nope’, nada, nowt, nine, rien, no way. Having made this ‘investment’ they’ve then buried (‘archived’) their findings in the communications equivalent of Outer Mongolia, which is odd. The detailed findings are important, however, so here’s the headlines.

The research team put a big spotlight on non-lawyers doing compliance work for SMEs. A sceptical, some would say a biased spotlight, should be revealing, so what was the result?[1]. The findings are relevant for the regulatory consultancies (who come out well), and the regulators, quangos, lawyers, insurers, and banks, who, frankly get taught some lessons.

The New Labour administration set a lot of hares running in the legal services arena, and in this instance the Anderson Review[2] concluded that something should be done about compliance advice for SMEs. Quite why they asked a recruitment entrepreneur to assess an area tangential to her core competence at best is unclear, but neither the intentions of the initial reviewers nor the competence of the subsequent teams is in question. It now appears to be more of a high water mark for an administration that simply saw no boundaries to their competence or calling. Until the RSI (The Regulatory Standards Institute) intervened and put the regulatory consultancies front and centre, no-one seemed prepared to argue that Mr Browns’ finest seeking to be legislator, regulator, inspector, insurer, advisor, certifier, prosecutor, defender, expert witness, judge, jury and bailiff all at the same time could be a tad over-reaching themselves.

Two pilot projects and a nationwide research effort were undertaken delivering significant empirical results:

- From an addressable prospect base of 22,500 firms (5% of the North West SME population) one government pilot research scheme (aka ‘no wrong door’) secured interest from 447 firms, 253 of whom registered for a free trial. From these, after the 6 months free period, 12 firms took up long term contracts[3]. Take up of a ‘free’ service for 6 months was therefore notable at 1.12% of the prospects, and 4.74% of those went on to take up a full service. Overall the take up was 0.05%. Frankly no direct marketing B2B services business would find these levels of take up remotely attractive or cost effective.

- A sister project (‘Open Market Campaign’ – OMC) started with direct mail to 30,407 firms, emails to 9,700 and telemarketing to this 30k base, ie 3 hits. They were offered £50 off an existing service. They achieved 1483 registrations: 4.8% take up for a free offer. No firms took up the offer or used the vouchers, that’s right – none, zero. Not being able to effectively give away £50 notes is an odd outcome.

- The cost of the research pilots in total was £1,104,313[4] resulting in a cost per sale of £92k which should pay back in just over 30 years. Even allowing for a direct marketing cost allocation only, the costs for the pilot which generated some sales after the 6 month trial was £74,516 generating a cost per sale £6.2k; this would render each contract heavily loss making from inception on normal commercial parameters. The best that can be said is that it was nice of the Government to prove that direct marketing (as opposed to sales force led) approaches in this market are rarely cost effective. Sadly, this lesson did not need learning – not at any rate by those in the market already.

The other findings from the research are, strangely, not being widely disseminated or trumpeted, despite their relevance to the legal service debate raging currently. Here are the key lessons:

Compliance is a stress purchase: The most common reasons for not taking up even free pilot offers can be paraphrased as (a) ‘not now’, and (b) ‘maybe later’[5]. Timing is all in stress purchases for compliance. This is easy to forget, but it is absolutely fundamental to understanding the appeal of compliance, and especially outsourced compliance. Entrepreneurs simply do not get up in the morning deciding to really crack on with compliance today

Awareness among SMEs is high: It should come as no surprise surely that 81% of businesses with no employees are not aware of these services. Awareness is highest among 10-19 and 20-49 employee firms and in effect over 70% of firms in these categories know all about it. Basically those who need to know - know.

Clients want certainty, insurance is secondary. The government’s research focus on ‘insured advice’ effectively put the cart before the horse by focusing on a prescribed solution. Most SMEs want certainty and whether the advice is insured or not is irrelevant. That some respondents’ expected ACAS to offer insured advice simply illustrates the confusion.

Awareness does not predict likelihood to purchase. An important finding was that increased awareness of the solutions did NOT make the SME more likely to buy the service. None – yes, None – of those most aware, converted to pilots or policies in this research. The research is open minded about the implications of this, but there are some basics at play: (a) SMEs only very rarely buy weapons in time of peace, and (b) it's noisy out there - upwards of 200 active sales consultants nationwide backed by even more telemarketing staff cycle through over 13million calls a year at present, so even the largest estimates of SME populations mean each firm is called probably 3-4 times every year already.

Very Satisfied: ‘Overall there was a high level of satisfaction among businesses that have used insured advice with the quality of the advice they have received.’ This finding is startling. Not because it tells it like it is, but bear in mind that there were several vested interests lobbying hard behind the scenes here to prove that law firms must inherently be better than the ‘differently qualified’. Simply put - SMEs like what they’re getting from the regulatory consultancies and their choice is an informed one.

Never Mind the Quality…: ‘Amongst those businesses that were aware of insured advice but have not used it, quality was the least frequently given factor affecting their decision not to use this type of advice.’ Another startling finding. Strip away the double negatives and basically quality of advice is Not the paramount issue for SMEs – it is not even a major concern – it is the LEAST concern. Frankly this nails the protectionist arguments of the legal lobby in particular. SMEs want the ‘poo’ gone, not polished. It is this mind-set that lawyers almost always get wrong.

Timeliness First, Cost Second: The issues which are more relevant to clients include: (a) cost (and in this market perceived cost risk and fixed fee elements are writ large); (b) insurance was not seen as a primary issue for end users at all, (all it delivers is a mechanism for fixed fee pricing); and (c) timeliness is key. Basic points all – the Market is saying: ‘Get rid of the problem for a fixed fee – insure if you must (that’s your call as the supplier) – and get out of the way, we’ve got a business to run’. This is the ‘I don’t check the Highway Code when I pop into the car to go to the supermarket’ point. Compliance takes itself too seriously and regulators always confuse their desire to change behaviour with their ability to do so.

Sour Grapes? Satisfaction was ‘high’ and only 4% were dissatisfied with the quality of advice. This is important as it means the likelihood of breaking into this market by simply offering fantastic advice quality is very low. Quite where the allegations of poor quality come from is a mystery, and maybe the definition of ‘quality’ is revealing here. It is also worth acknowledging that within the regulatory consulting industry there is already much self flagellation about the advice being compromised or not by the insurance backing; they are far from complacent even about the issue the 4% may point up.

Renewal benchmarks: 8% of the sampled SMEs had used the service in the past and were not using it now[6]. This translates into a 92% renewal rate, which over a 3 year contract (the industry standard) is 78% (of renewables). These are benchmarks the market knows and polarises around. There are good reasons why the annualised renewal rate is 92% and not 97%, mostly inherent in the fact that SMEs merge, liquidate etc more than most, but also that by definition firms facing compliance growth pangs face a higher attrition rate too.

Tick Box Fatigue? Clearly the efficacy of kitemarks is wearing thin when the desirability of a quality assurance program was raised. What should have been a resounding ‘yes’ or at least a comforting ‘it can’t hurt’ was a very equivocal 50/50 ‘maybe’ or ‘if you must’ response from clients. Noticeably in relation to prospective clients the impact was that only 38-43%[7] would be more likely to use a kited supplier. Again, satisfaction with the choices already there is clearly very high in relative terms.

Pricing is Personal. Research on pricing is notoriously misleading and basically very few people do what they say they’ll do when it comes to pricing. Economic models rarely manage to cope with the emotional baggage, especially when in a stress purchase situation. So ignore the average price expectation of £450pa; the average of free and £3k skewed among firms with no employees is probably in reality lower than £450pa, but equally tackling a discrimination claim at tribunal for £450 would be nonsense – the average figure is meaningless. Average fees based on a firm’s payroll are the norm and after a determined attempt to cull competitors over several years by the market leader with price competition, if anything prices are now rising again and averages for SMEs are probably now over £175 per month.

Industry Competition: Comparing costs to other advisors, notably banks, insurers and accountants is also largely meaningless as these are often transactional and commoditised services (usually costing significantly less than £1k pa). An SME is not going to stop paying their audit fee because they sacked someone this year and got it wrong (unless it bankrupts them). Compliance is structurally different – when it happens it can kill a business, and it is inherently an ‘infrequently occurring but complex’ event[8], often disciplinary and redundancy based. The only finding of note was that “where it was found that cost was less of an issue, use of insured advice increased’. This is a backwards way of saying that an insured component simply delivers fixed price certainty for clients – something they value.

The addressable market: Having identified that awareness was irrelevant to take up, the research still maps both and usage/awareness is highest in the 20-49 employee size category, followed by 50-249 and 10-19. The only rationale for keeping the 'no employee' categories in play would be their propensity to become employers, but the take up is miniscule; clearly the vast majority of sole traders typically remain sole traders. There remains a problem with this research, however, in that 30% penetrations at best simply do not tally with empirical research on the number of organisations and the contract volumes for the 70+ suppliers in this market. Underlying confusion over what ‘insured advice’ is may account for it. Many may simply not know that they have cover through their trade associations etc, but it would be dangerous to assume that there is a massive untapped market lying in wait in the 10-50 employee sector; there isn’t.

Who’s asking? Funnily enough when asked by a government sponsored research project how confident they were in their compliance, over 97% of SMEs said they were ‘fine, thank you’.

Freebies. When the category ‘external advice’ includes everything free via Google as well as free services from government web sites, HSE, ACAS etc the resulting statistic that only 23% [9]of users of external advice use paid for services is meaningless. The fact is clients use several overlapping free services and it is not a zero sum game. People use free stuff when it doesn't matter; when push comes to shove they use 'proper' services and bin the freebies.

Industry competition: When a ‘paid for’ service is used, it replaces the need for external (often free) advice – probably because that’s what ‘outsourcing’ means. Overall it is seen as ‘better’ than other paid for alternatives. In particular, 40% saw it as directly replacing solicitors, 34% banks, 15% ACAS and 9% HSE[10]. Research stating that regulatory consultancies are seen by 40% of the market as better than or negating the need for resorting to other legal sources such as Solicitors is important. Substitutability rankings such as these on multiple options rarely get over 20-25%, so the solicitors sector is actually taking a pounding here. Regulatory consultancies are equally favoured over bank services and once lost to a regulatory consultancy the bank will lose the two most productive hooks into SME risk reduction and legal services on-selling. To be clear, banks usually do not offer employment advice, but they will be the only source of covering a perceived £3-7k unforeseen risk - so a service transmuting this to £175 per month from now is very welcome. It is notable that whereas RBS Mentor has built a top 3 market position with a full service, few of the other increasingly innovative advisory and referral services have proved sustainable. Banks may be happy to see others manage their client risk and simultaneously lose the benefits of a £2-3k pa service, but it is puzzling why only one has decided to break the eggs in this market.

Assurance, not insurance. Attitudes to insurance within the industry vary increasingly. Some view the insurance of the advice as a guarantee of quality, some see it as an incentive to actually act against the client's best interests. Significant players offer guarantees and other variants on a self insuring theme, while more and more players are extending from profit shares into captive insurance partnerships. The BIS research suggests that 29% do not see insurance as justifying a premium (which is not why it’s there in the first place, anyway) and 24% didn’t see the need for advice to be insured at all. To what extent these are the same constituencies is not clear, but arguably between a quarter and a half do not see insurance as a major positive or negative.

So what?

Simply put – there was no market failure. More to the point, the winners in this market have shown a degree of innovation, client empathy, commercial risk management and perseverance that simply could not have been predicted. It certainly could not have been designed by government as it stumped the brightest and the best from the legal and insurance industries as well. Lawyers should have won here – they haven’t. Accountants, banks and insurers should have claimed this territory as core to their risk profiling – they’re well behind the pace. Publishers and other SME brands should have diversified – they are generally doing too little and far too late.

Safety and employment law compliance is now an established market with its own internal complexities and mores. The high water mark of the last Administration’s pride revealed one of the legal services industries best run markets – probably just where they least expected it. It should be noted, however, that it was not because the FPB and Peninsula co-operated with the pilots that the project foundered. It was a credible threat of a class action from the RSI and one aggrieved firm in particular that made the Administration choose the road it should always have been on anyway. Technical breaches of EU subsidy and competition rules leading to high profile High Court litigation would ultimately have had to be resolved at Cabinet Office and wasted considerably more than the £1m already sunk here. Normal hostilities have been resumed.

The lesson for incumbents and newcomers alike are clear:

1. Offering free stuff – however erudite - simply will not work here; plenty sell it, clients discount it. There’s a glut of free advice, much of it duplicated and increasingly devalued – few dare say it, but the quality of free and quango advice is not high and usually needs double checking.
2. Of Time, Cost and Quality – Timing is key: when SMEs need help – they really Need it. Until then, you are more likely to annoy than help if you persist in teaching people what they don’t want to know.
3. Being a brilliant lawyer specialising in employment law or safety guarantees nothing and may actually be a hindrance. Professional brands have negatives as well as positives – this market thrives on ‘not’ being lawyers, regulators or insurers.
4. For banks the issue is not giving free advice on some web gizmo like the Halifax's latest pitch, or free shrink wrap software that's never used from Barclays, it is missing out on thousands of small loan opportunities for SMEs while simultaneously actively reducing the client's risk profile.
5. It’s not about cost – it’s about agreeing a fixed price to cover a lumpy risk. Insurance helps here, but it’s not essential or much of a selling point even.
6. Quality is defined by the customers’ expectations, not some legal qualifications checklist – regulatory consultancies are consistently meeting or exceeding the expectations that matter.

Competition is not about getting 'mad' or getting 'even' - it's about getting better. This latest attempt by some vested interests to hobble these legal services upstarts failed - there may well be more. For those who want to play it straight, this is a high growth, recession resistant B2B legal services market well worth the effort.

The advice and insurance components of the regulatory consultancy service are only the tip of a complex iceberg, however. You need to be able to offer on-site installations, bespoke documentation, compliance event diary management, employee administration and safety software, dispute resolution, case management and advice from experienced professionals from industry (not just law graduate 'speaking books'). You need to be able to get people in front of troubled SMEs nationwide to explain the solution at the rate of dozens a week if possible. Insurance may help you get a fixed fee for the package, but either way take the outsourcing long contract approach of 3 years as a minimum. Match that and then find how to better it in a way busy small businesses will thanks you for and it is game on.

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[1] Employment Relations Research Series No 120: Insured Advice Pilots: Evaluation: July 2011 http://www.bis.gov.uk/assets/biscore/employment-matters/docs/I/11-1080-insured-advice-pilots-evaluation

[2] The Andersen Review: http://www.berr.gov.uk/files/file49881.pdf

[3] Table 3.12 and page 37. It should be noted that the take up was with either the Forum of Private business (a white labelled service) or Peninsula – two firms which do not truly represent the range of service levels in this industry, but significant players.

[4] Freedom of Information release 21/06/10: Insured Advice Pilots

[5] Table3.11 No Wrong Door Pilot registrees by reason for not taking out a policy.

[6] Page 22: ‘Quality’

[7] Page 22

[8] Page 25

[9] Page 30 Use of External Advice

[10] Page 31 2.3; Page 32 Summary

Watch Out For The Small Print

Is there room in the UK market for a Legalzoom or is the consumer/SME legal documents sector just too compacted? Surely everyone needs easily accessible legal documents?

The US has been having a speculative frenzy around the value of LegalZoom for some time, fed no doubt by their VC backers. And to the uninitiated, cheap web-based legal documents feels like a no-brainer for legal services deregulation. But - like we keep saying in legal services and compliance - "there are no green fields".

In the UK we have a civil service that genuinely thinks every time it publishes a web site it is saving us all money (sigh). We are not short of entrepreneurs trying to make legal documents widely available - the most successful being "those guys who do shrink wrap leases and wills in Staples" (LawPack). Jordans, IQ, Judicium, Compact Law and a vast amount of free stuff from institutes and insurers all play a part. Much of it is good stuff, much of it is kept up to date well, and much of it never gets out of the actual or web based metaphorical shrink wrap.

The core issue remains: documents are only part of the "process", and the process is complicated and carries penalties for being amateurish. So professionals use their own, industrial strength sources, while end-users get hand holding elsewhere. The dominant players in legal documents (for SMEs anyway) now are the regulatory compliance consultancies, especially employment and safety based ones. This is not odd. Publishers, and even professional publishers have been underperforming the wider stock markets for some time now, while technology and professional services firms out-perform the market. This macro trend is being retold at a micro level by the "free" content inherent in the regulatory consultancy packages.

So will Thomson Reuters make much headway in the UK with their recent acquisition of Cleardocs - a successful player in Australia? If they keep it in the accountancy solutions sector - yes. If they hope to use it to radicalise the legal services sector, frankly - no. In the UK they came out of the SME documents market when they sold Gee to Croner back in '08; a shrewd side step. And frankly, until the government stops drowning the market in free web sites it will remain an intriguing but fringe activity.

Meanwhile, a highly respected UK legal publisher expressly charged with "providing free or inexpensive public access to legal texts and commentaries of all kinds" has just seen exceptionally strong sales growth from 09-10 of 27.5%. Bailii, the British and Irish Legal Information Institute, has just seen sales rise to £178k pa.

Do Not Feed Another DotCom Bubble

The last thing you need in recessionary times is a bubble. Those of us who ran large P&Ls, budgets and fought hard to keep the mortgages of hundreds and thousands of staff paid through Y2K, the Dotcom bubble and the ensuing recession a decade ago frankly take a very dim view of Wiki/Web2.0 hype right now.

The legal industry owes Richard Susskind a considerable debt in getting past the technology averse slow adoption years - but that job is done. His core concept of the progression from bespoke to commoditised drives his belief that web based information solutions have a transformational role to play in future legal services. It may be heretical - but I simply don't agree with the basic model. Having spent many years in possession days in Wandsworth county court, duty rotas in Bristol and running teams in tribunals nationwide I think he is missing a trick frankly - there is nothing bespoke about the 15th drunk in custody on a Sunday morning, the umpteenth Wages Age scrap, or the benefits cock-up behind yet another possession order. And there is nothing inevitable about a progression to standardisation or packaging either.

So forgive me - when I see exhortations to populate deserts - my advice is that it's usually a desert for a reason: think again. This is the Christmas tree market in February conundrum; usually it is a solution looking for a problem.

Consumers do need help with the law, and the solicitor profession has been uniquely poor at dealing with "justice" for the lower middle earning families; broadly speaking "consumer law". The last decade has been all about offloading much of that responsibility to the insurance industry. They've done "well" with some areas, notably conveyancing and PI, but they struggle with inherently personal stress purchases, and even wills are proving harder than they thought. Can the Co-op do divorces in bulk? It's not in their top five.

And the reasons are simple. Divorce is complex. Yes, form E can be automated, but are we really expecting couples to go on-line, share documents, questions and answers with other divorcees, use guidance from the government and lawyers on what to do when, and maybe call a law student in a Belfast call centre to double check at 3am?

Well, good luck with that. Complex consumer legal work needs a more creative solution. Web based document automation is not the right place to start. It may well be part of a successful solution in due course, but at best it is the carburettor, not the engine, and certainly not the driving seat.

The problem is that buyers of the consumer services most in need of help are inherently unstable, financially jeopardised, highly emotional and deep in denial. Faced with a maze of complex "stuff" that they really don't want to become specialists in - no amount of facebook camaraderie is going to stop them piling into anger - long before the bargaining ever calms down enough to get realistic. Very few lawyers "get" this. End users do not want to become lawyers, and God knows we have enough barrack room ones already.

The concept that there is some latent market of hundreds of thousands of consumers who will beat a path to your door for some WrongedEx.Net is misguided. You can already get "managed" divorce solutions if it genuinely is a clean break for around £250 from web savvy firms. No emotion, no decisions, no road blocks, no kids, no property? - no problem, pay and wait - but these are not where the access to justice problem lies. Government guides to all this are frankly a waste of public money; they are great at designing a web service for a new regulation, but they are uniquely bad at keeping it up to date and relevant to changing circumstances. All government achieves in this situation (and frankly Institutes are no better usually), is to suck any chance of profit out of the market and dissuade the professional information teams from bothering.

There are examples from commercial law sectors of how packages can be constructed which combine both better solutions for the advisor and the end user. Firms like Practical Law, ECA, AdviserPlus and Ellis Whittam are more likely to illustrate how business models can work well in a web environment. Lawyers should look there, not the US, before diluting their pro bono efforts, trashing document banks or throwing more costly app developer time at phantoms. Especially now, the US is in a large Wiki bubble. I'm happy to be a lone voice saying that neither Facebook or Twitter are really worth that much. Mr Susskind exhorts the profession in the Times (June 9th) to build a Wiki free, and ofcourse the publishers will donate their know-how free too. And this is "attractive". We have been here before, and it was a side show.

First Contact - Rules of Engagement in M&A

Some three and a half years after the debt markets got paralysed - that's 15 quarters now - there is a realistic chance now that the raft of VCs running around - especially in UK legal services markets - can finally stop "fishing without hooks". Trade buyers have been trundling along at a tick over level, but largely unchallenged, until now. So if a deal flow is to re-emerge, a reminder of the rules of first contact would be timely:

The problem with "first contact" is that it is usually botched, so here are some lessons from an old soak who's seen most of them (and been guilty of quite a few).

1. Do the homework first. Deals do come out of the blue, unsolicited, or from a chance meeting, but they usually only show that you don't know as much as you need to. These are the deals which typically result in "impairment reviews" a year or two post completion. If you don't know the firms you would like to acquire or be acquired by, you are effectively abdicating your strategy and enterprise valuation to strangers (to you and the market). Know what is known as your "addressable market", your role in it, and why you are better/different - and have the numbers to prove it.

2. Advisers advise, principals decide. The corporate finance world is full of experienced deal makers, rain makers, thought leaders and assorted other grand terms for commission junkies. Unless you are in the business of making dozens of deals a year, however, you are simply the next burger to them, so be realistic. These "escorts" through the maze can be charming and cost effective, but they probably won't even recognise you, let alone respect you in the morning. Its your baby, its your cash, it's your call.

3. "Who" makes the first approach is important. Everyone likes to keep their big guns until the last stages, so the initial contacts from trade players will often be from other directors. The best (and the worst) of these are line directors with a "real" job, not group special projects or business development roles. They're best when they have some humility and know what they don't know. They're worst when they are simply too rough and think running a big established business model is the same thing as entrepreneurial ability. Precisely what makes them a great executive director can make them a very poor M&A leader, especially when looking at competitor deals. Group directors and VC introducers can be good, but there is still a stage to be gone through after this where you get to know the real culture of the contacts.

4. Talking at all shouts loudest. Letting the VC telemarketer in or agreeing to a first meeting offsite, is not non-committal; it says your hat is in the ring. If you are not for sale, don't take the first step. If you are - do your homework on who buys what, how often and why. (Some smaller firms use this process as a cheap valuation exercise. It has repercussions though, as you will be seen as damaged goods or unreliable thereafter. Dabble if you must, but crying wolf cuts your multiples and/or serious bidder list when you do get serious.)

5. Mind the gap. Owner managers are usually living in the numbers for the 12 months ahead - the last set of published accounts are ancient history. For buyers the last 2 or 3 years of numbers gives a hunch of what's where, but if these are abbreviated balance sheet reports, they really are guessing. The difference can be significant, especially in growing companies in growing markets - usually the ones you try to buy into. Be patient with what is effectively a 3 year data gap. What looks like a £1m business to the researching buyer, can turn out to be a £3-4m one by the time you get there (and vice versa). It matters. Disappointment is as easy to display as excitement.

6. Forget the fag packets. The headline deal numbers of the latest super deal are almost always an irrelevance. VCs tend to forget that even if they don't use DCF valuation approaches, vendors certainly do when calculating the cash impact on their lifestyle post deal. The multiples issues is not that secret (See RBP's Briefing Note: VCs - What Are They Good For (and how much)?). So stick to realistic numbers and aim for a win/win deal. Simple really.

To see exactly the sort of information VCs and trade buyers use in assessing the M&A landscape of the Legal IT market, see RBP's "Legal IT: M&A Perspectives 2011 Q1 report

http://www.rbponline.co.uk/rbpsectors.asp?sector=LTS

Legal Qualification – Protectionism or Standards Maintenance?

Some legal services background to the new reviews in legal education may help. Three areas of statistical development are not well monitored.

First, lawyers feel they are better trained and intellectually equipped than in the past. Decades of 3A’s, A* grades, etc at primary degree entrance level, selection by 2:1 or firsts only thereafter should ensure that only the cream is selected. So it is assumed that lawyers are brighter and better than ever before. Judges may have opinions here, but no-one seems to be willing to ask the clients if they value this intellectual investment. The Chambers, Legal 500, IFLR and LBR directories provide rankings, but on no empirical benchmark. If anything the rhetoric from lawyers is that “no-one does any law anymore” and the clients are expecting a progressive dumbing down of the legal service.

Secondly, “lawyers” broadly described, ie those who have not taken pupillage, training contracts or qualified can only be guessed at, but it is clear that the output from law faculties has for some time now been generating large and increasing numbers of "lawyers" who go nowhere near the mainstream professions.

Thirdly, a number of “grey” areas are emerging in the definitions of “lawyer”. Overseas lawyers converting to UK practice are tracked, and have had a significant role especially recently in keeping numbers up in large firms, but in-company lawyers are only tracked in so far as they need to maintain a practising certificate – which increasingly many won’t.

Without an understanding of how these three issues are developing, the professions are effectively walking blindly into the future.

If clients do not want super qualified egg heads, but would be happier with process policemen tooled up with software – why is the training route into the profession so limited? And sadly in recessionary times, even more so?

Over the long term, statistics from the Law Society Annual Statistical Reviews show solicitor training contracts commenced remains broadly flat. Since 1995 trainees commencing contracts has risen 16.9% in an industry which has grown by 153% from £9.4bn to £23.7bn. The gap has been filled by significant increases in the number of admissions of lawyers from other professions and overseas.

Whereas in 1995, 8576 law graduates equated to 4170 training contracts (48%), by 2009 the percentage has fallen to 36-42%. Looked at another way – the lawyer production line has been producing as many lawyers for areas outside the professions as inside and is now consistently producing many more lawyers for roles outside the profession.

Combine this with the strongest growth in lawyer numbers being consistently within the in-company market and the profession could find that it is shooting itself in foot.

Protecting the quality of entrants to the profession, whether or not the profession’s clients require this particular type of quality, is certainly not “joined-up” thinking and could be construed as more like protectionism than unfettered supply and demand.

Supplying the market with fewer chances for equity participation makes a growth in the number of GCs and in-house lawyers no surprise.

To cap this with a ready supply of legally competent talent for firms seeking alternatives to costly legal practitioners is economically illiterate in the extreme.

Increasing prices and/or eschewing fixed fees while stubbornly putting doctoral brains on scuffed knee problems simply exacerbates this miss match. It is a miss match which has been going on since well before 2003 and for which disillusioned GCs and consumers alike are only symptoms.

See RBP's Legal Services White Paper on Legal Services Reform - White Heat or White Noise? at www.rbponline.co.uk

Legal Services - Going off the Reservation?

At the core of the debate is the concept of “reserved activities”, or activities which only a properly trained, qualified, and regulated person can be permitted to do. Only lawyers can be trusted to “do” certain things. In any other industry or process this would be seen quite simply as a restrictive trade practice, but where it is essential to the administration of justice, it is seen as a tolerable lesser of two evils.

Few would contest that a judicial system needs a process whereby the quality of advocates, the process of case management and the veracity of the testimony and documentation is kept as high as possible. The concept of being an “officer of the court” in the UK is an important one in terms of the independence of the legal system. Historically barristers were the advocate specialists and solicitors the conduct of litigation specialists, regulated by the Bar Council and Law Society respectively.

Reserved activities were extended, however, to include the conveyancing of property and the administration of probate, and on these two pillars rest much of the history and growth of the legal professions.

Conveyancing and Probate are two areas where individuals are most likely to face contentious disputes. There is, however, no commensurate need for a regulated person to be involved in buying a billion dollar warplane or buying a multi-billion pound company. Section 14 of the Stamp Act 1804 was a rather ungentlemanly compromise giving solicitors a conveyancing monopoly which is now routinely conflated with attacks on access to justice.

While defending the maintenance of historically anachronistic anomalies, the legal profession is currently uniquely slow to consider even modest extensions of legal professional privilege. The Prudential case in the Court of Appeal was an opportunity to extend officer of the court status to some types of accountant in some circumstances, but no, parliament must decide. The elision of “justice” with protectionist measures is mendacious and all too common and frankly unhelpful.

Clementi did not propose a change to the reserved activities. He could have extended them or curtailed them – he did neither. Arguably the Clementi terms of reference put the burden of proof firmly on the restrictive provision to prove its value. By the time the Legal Services Act arrived, however, it included provisions which enabled the industry regulator (LSC) to oversee insurance claims management and immigration.

The core issue is clearly closer to the one that drove Pitt in Napoleonic times – trade and taxes. Immigration is currently (erroneously) seen as one of the most volatile claims on the Legal Aid budget, and claims management is a pivotal process whereby vast calls on the public purse are in effect outsourced to the insurance industry.

The legal regulators may well see the maintenance of some reservations as an essential platform from which to ensure a viable profession. That, frankly is not their call. Any issues necessary to ensure the proper conduct of litigation - are, but they are currently insisting that only parliament can deal with these. By this logic, any extensions of protectionist reservations would require the same rigor. It is hard, however, to see how and why a £25bn industry needs protection. Perhaps it is time to remember that it was the OFT reviews in 2001 that started the whole ball rolling.

If the new regulatory regime empowers law firms to compete head to head with legal services firms from other regulatory regimes - all well and good. If they simply ramp up protectionist measures - this is predictable, but it is also highly likely to be self delusional and self defeating in the medium and long term.

(See RBP's White Paper for a fuller exploration of these issues with references at www.rbponline.co.uk)

Legal Services Reform - In Whose Name?

The theory goes that “consumers” were badly served by the professional regulation systems of the past. To keep the legal services sector fit for purpose it had to be reformed and competition introduced both at regulatory and practitioner level. The bogey man of Tesco law was promoted – interestingly not by Tesco – but the scare tactics to justify changes introduced have been relentless.

Way back in 2003 – the Clementi brief was “To consider what regulatory framework would best promote competition, innovation and the public and consumer interest in an efficient, effective and independent legal sector. To recommend a framework which will be independent in representing the public and consumer interest, comprehensive, accountable, consistent, flexible, transparent, and no more restrictive or burdensome than is clearly justified”[Our emphasis]. Taking a dispassionate view of the events over the last decade, both driven by the regulatory changes, and the market itself, it is hard to conclude that the interests of consumers have always remained at the forefront of every ones thoughts and actions.

Very few detailed analyses of the economic implications of the changes to the legal services market overall have been undertaken. Among those that have, they have identified, for example, disaggregation of legal services as a major theme. That a sea of change is happening with or without the intervention of the regulators and the esteemed Reviews and reviewers is evident.

So we have set out in this series of blogs to run through the discrete issues in turn and put the numbers and facts relevant to them in plain view. A clearer understanding of the vested interests and the directions in which they steer the debate can only help. We have no axe to grind here, and hope to present a dispassionate and independent view of the landscape. We are also prepared to say what others are not.

It may well be, for example, that some would conclude the Jackson Review is essentially about keeping big risk items off the Legal Aid and NHS budgets; that Legal Aid in the UK is probably at least twice as expensive as it should be, and that the Legal Services Act is all about tooling up to defend protectionism and established monopolies and oligopolies, not increasing competition for legal services.

That no-one is candid about these positions is a testament to the strength of the legal professional lobby. For good or bad – it is an exceptionally pervasive and effective one. It could also be that some would conclude the real money has already disintermediated the legal profession which is increasingly seen by the deeper, cannier commercial pockets as simply a cost of failure – and one that they are increasingly reluctant to pay.

Legal Services Reform - White Heat or White Noise

This is the first of a series of posts on the plethora of events in the legal services arena currently. There is a lot of hype and misinformation - having reviewed the numbers - the following (in no particular order of priority) are the headline (for some - uncomfortable) findings:

1. October 2011 will be a whimper, not a bang. The bag was 10 years ago but just as GCs are not fussed about the Legal Services Act now, no private practice lawyers were listening then. The latest reforms aim to empower solicitors to compete in a wider legal services market at the cost of minimal concessions to other professional interest bodies.
2. Personal injury work will not become legally aided, but when an access to justice issue is side tracked into automated cost arbitraging, even the MoJ has to act. Jackson reforms are a lamppost that generates more support than light in terms of the access to justice high ground.
3. Competition between regulators is unlikely to reduce the costs of regulation on qualified lawyers. It could even increase it. Forcing other legal services providers to take on the overheads of lawyers in the name of competition – levelling costs up in effect – is nonsensical. They will find other ways to disintermediate or marginalise the “reserved” lawyers, who will simply get more uneconomic.
4. As long as non-lawyer entrants to the market are forced to first get a licence through one of their competitors’ regulators, the impact of deregulation will be essentially protectionist rather than deregulatory. This allows legal lobbyists to claim increased competition and economic forces on prices, etc while delivering anything but.
5. Direct access to the Bar is a tipping point for commercial work. Barristers approving ABS’, and especially Licensed conveyancers offering this will be seminal moves, but restricted rights to conduct litigation are typical of the noise without substance that characterises this debate. Had the Bar Standards Board allowed commercial barristers rights of conduct, tanks would have been parking on lawns, but access to pupillage remains heavily constrained.
6. ABS’ from outside the profession are already thriving - not “in waiting”. Rights of audience are not as precious as lawyers think. Lawyers will not become ABS empowered entrepreneurs overnight.
7. Legal Aid is structurally unsound. 17% cuts are unlikely to fix the core problem: the £2bn budget is twice as large or half as effective as it should be. This source of legal work will not increase and will be forced to consolidate and improve efficiencies.
8. Better training, higher entry restrictions and continuous professional education – in effect all the core activities of the regulatory bodies have been ineffective in either building “consumer” confidence or equipping lawyers to deal with “unreserved” legal services competitors. Increasing the costs of being a lawyer is not synonymous with being a “good” lawyer.
9. Some firms will see listing as a viable route, but this it is not likely to come from the most lucrative end of the legal market which has no need of external equity. The track record of listed consolidators in professional services in the UK is not good.
10. Most law firms are simply not much greater than the sum of their parts (or partners). The fact that key partners can and do move firm is both a strength and a weakness. It means establishing an equity value in any given agglomeration of partners is elusive – a weakness. It also means acquiring firms is largely unnecessary when acquiring their key partners or fee earners can be a cheaper, simpler route. By now it should be clear that VCs will not be beationg a path to equity partners’ doors.
11. A mid-market consolidator is not contingent on ABS’ to emerge, although one may yet see this as a reason to try. They are much more likely to fail than to make any serious dent in the magic circle global positions.
12. ABS’ may be a useful route for firms hedging consumer focused legal services risk. Competing within a fickle government regulator environment, while relying heavily on automated scale based systems and self interested insurance drivers makes limited liability and speed of decision making essential.
13. The real debate should be the sustainability, pace and scale of fewer partners using technology and increased fee earner support ratios to maintain or enhance profits per partner.
14. A protectionist approach to restricted entry to the professions is economically illiterate and achieving the exact opposite of the intended preservation of exclusivity. Global firms circumvent it, mid-market firms are weighed down by the cost of it, and clients have access to a growing pool of talent with which they can devise their own cheaper solutions.
15. There is no shortage of entrepreneurial and clever lawyers – industry internal rivalry is keen and focused. Lawyers are not good at inter-industry rivalry and are being progressively disintermediated – cut “out of the money”.
16. Talk about the reforms being for the benefit of “consumers” is disingenuous. Legal lobbyists who do not differentiate between solutions for consumer and commercial clients, but persist with an “us” and “them” view lose the trust and confidence of both constituencies.

Private practice lawyers risk putting themselves deeper into the position of claiming to be the protector of consumers who resent being protected in that way or even by them at all – and certainly not at that cost.

Data behind the above will be spelt out in forthcoming blogs covering:
- Change in In Who’s Name?
- Reserved Activities and Restrictive Practices
- Access to Justice and Legal Aid
- Consumers, Confidence and LeO
- Jackson & Insurance Costs
- Regulatory Competition
- Consolidation
- The Problem with VCs and Listing
- Fixed Fees and Disintermediation

Six Strategic Shockers for Law Firms

1. Fixed fees are not about cost cutting; they are an arm wrestle about whether you “get” the pressures on the client’s business or not. The addressable market in regulation and compliance is growing faster than you are.

2. Academics and consultants have not yet done enough leg work to really uncover a road map for the way ahead for the partnerships. You are not entirely on your own, but it will feel like it. Sadly you still have to do it in the dark, but then so did Gates, Buffet, Dyson, Jobs – oh yes, and Farraday, Edison, Brunel, Turing, Berners-Lee...

3. If you are finding yourself forced into LPO and international outsourcing – you are in more trouble than you think. Lawyers making project management their core competence fits the white board matrices, but it is a real stretch. GCs are more likely to disintermediate you than not here sooner or later.

4. Lawyers in private practice are seen by the GC’s bosses boss as a cost of failure. Being good at dispute resolution, doesn’t mean people still basically hate disputes arising at all.

5. In commoditised legal services there’s more money in selling the shovels than panning for the gold. Latent markets are extremely rare, but solutions you don’t recognise are legion.

6. The speculative capital will not go to partnerships or anything essentially controlled by partners. They only want you for your know-how, not your clients or cash flow. And they won’t respect you in the morning.

Lawyers - you get the software you deserve

It’s not quite as simple as saying “you get what you pay for” – but it’s close. Establishing the brand of your law firm is hard – and it is every bit as hard for the software developers who want your business. The boxes all look the same, the people all have the right patter, there are horror stories and reference sites in equal measure. In UK legal practice, case and matter management software development there is a full range: some suppliers cater for early adopters, some avoid the bleeding edge, some integrate, some claim integration, some stay with best of breed. Some do hardware, some do clouds, some do document management; for some, document management is collaborative versioning across borders and jurisdictions, for others it is the size of your shredder. Some cover firms of all sizes, some only big firms, some only small and some only in-house teams. There is a bewildering choice of suppliers and competencies in legal software development – and these days that is actually a very “good thing”.

Ponder for a moment the alternative – a take it or leave it, one-size fits all, low service world? Yes it would be cheaper, but would it put your firm where you need to be when faced with top 100 US law firm competition, more GC fixed price packages, or Co-op Legal Services?

Comparisons with Accountancy Software:
Parallels are often drawn with the neighbouring profession of accountancy. They wear similar suits, send their kids to the same schools, and allegedly take to computerisation quicker and easier than lawyers. Maybe; but the shape of the accountancy professions’ software support market is radically different. The theory goes that if you can serve one profession well you know how to do others too. So what shape is the accountancy profession software support sector and why?

It is a bit of a caricature, but large accountancy firms basically have two choices: do it yourself or go see CCH; the mid-market firms largely have to either take it or leave it from IRIS’ old Transaction Technology platform, while smaller firms are at the mercy of assorted spreadsheet jockeys – always ingenious, but sometimes fragile.

The accountancy software market has played hard ball with suppliers for decades – it has been very prepared to run its own software development teams and squeeze price and external development investment accordingly. It has also had the luxury that many of its core processes are eminently automatable. The balance of power between buyers and suppliers is heavily weighted towards the buyers – so much so that the size of this market is around a third of the comparable legal one.

IRIS’ market leadership in mid-market accountancy solutions is well known and while the product has its detractors, it does what it says on the tin. They are good at what they do, and they know how to hold and defend a market leadership position.

There are a number of good entrepreneurial teams mounting rival challenges. To Thomson Reuter’s credit, they have both Digita and Abacus in harness now to build a credible alternative – arguably the Waitrose to IRIS’ Tesco style ubiquity. Smaller firms like Practice Engine, TCSL, APS and innovators like Liquid Accounts will change things in time and typically offer solutions and service that IRIS cannot match. This is a tricky market, however. Sage, for example, built a whole division here over a decade ago, and was unable to achieve many synergies given their brand. Lexis has given the accountancy and tax sector a wide birth, which is odd, considering that the Butterworth’s brand is as strong if not stronger than the CCH brand in tax.

The reasons for the apparent lack of choice in the tax and accountancy software sector are cultural as much as anything. Just as the accountancy professional information market is less than a quarter of the size of the legal one, their attitude towards software is fundamentally different. Having some experience of looking under the bonnet in enterprise systems used by their clients, accountants know that it is rarely rocket science, but they also assume the five most dangerous words in strategy: “how hard can it be?” It is a defining characteristic of the tax and accountancy software market that the larger firms have repeatedly developed solutions themselves, sold them and started them up again in a long term strategic display of major buyer power. Both of the major corporation tax specialists in the market, TSCL and Abacus started life inside KPMG and Andersen respectively. Thomson Reuters recently acquired the Abacus branded solutions from Deloitte and the cycle will no doubt go full circle again in due course.

What the accountancy market loses, precisely because of the power of its buyers, is a strong enough gene pool among independent software development firms willing to commit to excellent long term solutions. The end result is that only a few stalwarts are willing to play, and who can blame them? You can spend decades building intricate solutions for large firms with complex integration protocols and global competence only for the client to offer your core developers twice the salary and better kit to jump ship. You can get as cost effective as possible only for the client to move supplier after a long standing relationship or take the business inside capriciously, purely “because it is time”. Ironically the “we need to avoid complacency” or “we can’t afford to rely on one supplier” arguments end up delivering precisely that.

Economics in the UK Legal Software Market
So the theory goes that the legal software market will go the same way – it’s just a matter of time. It has even had some big players trying to force the pace in recent years such as multi-billion pound VCs who see the consolidation of the UK Legal IT market as a no brainer. In the noughties an impressive lady by the name of Vin Murriah did a sterling job rounding up MSS Alphalaw, AIM/Teamflow, Laserform, Opsis, Meridian Law, Mountain Group and Videss for CS Group. After the £500m take over by Hellman & Friedman, IRIS carried on picking up smaller targets in barrister’s chambers and other niches; so if that agglomeration be for you – who can be against you?

Well, Thomson Reuters – a £30bn global conglomerate – with their Elite brand for one. Lexis, a paltry £10bn global conglomerate by comparison brings VisualFiles and Axxia to the party. The home grown smaller listed team of Tikit are well known and while IT managed services is their core, the old TfB/Avenue brand came out of the recession quite well. Wolters Kluwer UK sold their legal operations to Thomson some years ago and have stayed out so far while a US VC-backed Aderant is largely doing what they would have done. Wilmington have been pre-occupied with core issues in CLT and training through the recession, while Bloomberg are looking hard for ways into the UK legal scene. EMAP and Euromoney remain more focused on the know-who than the know-how markets in legal services for now, while neighbours such as Civica (3i backed since 2008), Achilles (backed by Hg, IRIS’ former backers) and Landmark (Daily Mail General Trust backed – a £2bn group) are taking targets of opportunity in niche legal services areas already. In short, at a headline level there are 3-4 other major and global groups active, at least 3-4 others are prowling, and 3-4 other major players nibbling actively. The same cannot be said of the tax and accountancy market.

So is this a good thing? Well what the above picture doesn’t tell you is the strength of entrepreneurial and innovative talent elsewhere in the market. IRIS, Lexis and Tikit did not buy everyone and many of the remaining independents are actively showing up their big group rivals. A raft of exciting and innovative firms are offering genuine alternatives to the “big blues”. Eclipse, Flosuite, IKEN, Practicce, Pilgrim, Linetime, FWBS and Quill to name but a few are doing some really quite exciting things, as are Bar Squared for the chambers market.

The Recession’s Impact
The CS Group (as was) merged with IRIS in mid-2007, and a little matter of the legal profession heading into a recession first instead of last interfered with their plans somewhat. In economics terms the recession for Legal IT was bigger than in ’02; different in both size and shape. A £12m reverse in 2001-2 equates to a £20m one in 2008-10, a sharper and more condensed hit than the last recession.

So where was the list of casualties from the smaller developers? Thankfully it is missing. There were no comparable casualties in accountancy either, but that’s what you expect from a consolidated market run by “big boys” – the point is, the diverse market in legal IT fared just as well if not better, consolidated or not.

Bear in mind also that pre-07 many of the development teams had already invested significantly in repositioning their platforms, in some cases rewriting whole swathes of core code from scratch on new platforms aiming to launch in 2009-10. All were stretched; many were caught by the double whammy of recession and investment cash flow exodus simultaneously. That they emerged in rude health is a very heartening sign, not just for them, but for the profession.

Consolidation versus Choice
Managing partners and their CIO’s can expect this range of choice to continue. For the very largest global players, there remains Elite, Aderant, FWBS, Flosuite, Norwel, internal teams and a few more attempts to squeeze SAP or Oracle into the box. For the public sector, GCs and in-house teams players like Eclipse, Flosuite, and IKEN offer good alternatives to established services from Civica (as well as reliable top firm pitches too). Private practice has a strong choice from Pilgrim, FWBS, Norwel, Linetime and SOS in addition to the usual suspects from Lexis, IRIS and Tikit. Smaller practices have some great solution from experienced teams like Pracctice, Peapod, DPS and Meridian Legal and even LPO options, from firms like Quill/Pinpoint. Niche specialists such as ICSA Software, Business Integrity, Class Legal and Bar Squared offer variety as well as depth.

81 brands have become 64 firms over the past decade - to see the market map in full go to http://bit.ly/hgXokh for RBP's pictorial version. The respective sizes of the boxes are good approximations of the turnover of each firm. All of these firms pictured have achieved critical mass and survived a tough recession so there will remain a healthy scramble to find the elusive nirvana of matter management and practice efficiency. Yes, the profession is paying more for its software pro rata than the accountants are, but it has a healthier talent pool to call on and more choice and creativity at all levels. The suppliers survived the hardest test of 07-09 well and there are even new entrants emerging such as Peppermint – well worth a look.

Good Enough versus Critical
If anything the economic lesson from the market data is to certainly ignore any nonsense about lawyers tailgating accountants. More importantly it is probably also to stop comparing “one stop” and “best of breed”. In a sense everyone wants best of breed – it’s just that for some (usually smaller firms) the best of breed is a time and fees based single box. The real vibrancy in the market seems to come from in-house counsel needing industrial strength matter management, whereas for them time and fees needs to be very project specific rather than department generic. For private practice, time and fees remains essential, whereas case management does not need industrial strength, but bespoke tailoring. The neighbouring market of CRM systems probably still suffers too much from GIGO – garbage in, garbage out – but at least for lawyers there are more and better brains tackling the issue than in other markets.