Surge in LegalTech Prices
It may be cheaper than building your own.
Many legal technology companies are facing pressure from their venture capitalists and private equity founders, resulting in a significant increase in prices throughout the industry. This unfortunate consequence is not uncommon in emerging industries. Moreover, it is concerning that only a few law firms can afford legal technology software in their current state, and this number is expected to further decline as investor pressure is passed on to lawtech clients. While greater investment is needed for industry development, this situation seems counterproductive to the purpose of the industry itself. In this article, we will examine the factors driving this trend and discuss its implications.
This increase in pricing has been observed across the industry. The funding drought that persisted for several months was alleviated earlier this year, partially due to the appeal of generative artificial intelligence. However, the influx of venture capital and private equity funding has brought more than just financial resources to the legal technology sector.
Factors Driving the Price Spike
Venture Capital and Private Equity Influence: Legal tech companies are facing mounting pressure from their venture capitalists and private equity founders. These investors expect substantial returns on their investments and often push for aggressive pricing strategies to maximize profitability.
Market Demand and Competition: The increasing demand for legal tech solutions, coupled with a competitive market, has provided companies with an opportunity to raise their prices. As the industry expands and more players enter the market, providers seek to differentiate themselves by offering unique features and services, leading to price escalations.
Research and Development Costs: Developing cutting-edge legal technology requires significant investment in research and development. Companies must recoup these costs while also accounting for ongoing innovation and maintenance expenses, which can contribute to higher pricing structures.
Implications for the Industry:
Affordability Challenges: The spike in prices may pose challenges for law firms and legal professionals looking to adopt legal tech solutions. Higher costs could deter some potential users from embracing these technologies, limiting their accessibility and potential benefits.
Consolidation and Market Share: The pricing dynamics in the legal tech industry could lead to consolidation as smaller providers struggle to compete with larger, well-funded companies. This consolidation may result in a concentration of market share among a few dominant players.
Innovation and Value Proposition: Legal tech providers need to ensure that their increased prices align with the value and innovation they offer. Customers will expect enhanced functionality, improved efficiency, and tangible benefits to justify the higher costs.
The Solution......
My two cents: As you know, I would like to end the article by giving my unsolicited opinion on the matter. The obvious solution would be to build your own legal tech software and avoid legal tech providers altogether. The only problem is that it may cost you more money in the long run. There is the obvious cost of hiring experienced software engineers in the legal industry and finding someone with such a niche skill will be difficult and they will likely charge you an arm and a leg because they know how rare they are! You may also need to hire a full-time in-house IT team to maintain your newly built software, which will likely have plenty of bugs as it takes years to build a great product. You may also have to deal with other problems you would rather not spend your time on, like data protection issues.
Even if you do decide to develop your own software. It's impractical to develop more than one software and we lawyers often use different software providers for different needs. For example, we use one company for our case management and then use another for research.
Are you willing to collaborate?
It's possible that the solution could still be to develop your legal tech software. But you will need to collaborate with others. If you are considering developing your own custom software you could collaborate with other law firms and software developers (possibly experienced freelancers) to develop your own. If you have the time and some money for a one-time investment, or if you are looking for software that isn’t on the market yet or that’s in a very niche area or law, then this could be the best route for you.
I firmly believe that it's a waste of time to build something that already exists! You are better off finding out-of-the-box ways to raise money and seeking volume discounts from legal tech providers than creating your own legal tech software in order to save a few extra dollars. Unless you are a major law firm that has that kind of budget and can take advantage of economies of scale.