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State of the Legal Industry: Live from Legaltech

Created on February 1, 2019

E-Discovery Market Analyst at Exterro

As it did last year, Legaltech kicked off not with the keynote (which was fascinating, with past Attorneys General Alberto Gonzales and Loretta Lynch sharing their thoughts on the law, justice, career development, and more), but with a presentation from Nick Bruch and Erin Hichman of ALM Intelligence on the state of the legal industry. And as it was last year, the presentation was informative and interesting… at least for someone who, like me, considers themselves a bit of a data nerd.

Looking at the industry from the 35,000 foot view, in-house law departments are looking to achieve savings in similar ways. They have cut costs, increased efficiency, insource more and use more alternative legal service providers (ALSPs), as well as using law firms less.

Despite that, Big Law is doing well. The AmLaw 100 reported (on average) 5.1% growth. 81% of the firms reported increased profitability, and 25% reported over 10% gains in profitability. All the key metrics (revenue per attorney,  profit per attorney, and profit per partner) were up. In short, big law firms have had their best year in the decade since the 2008 downturn roiled the legal marketplace.

Big news, right? Well, maybe not. After all, these storylines are very similar to last years. That’s why the rest of the presentation focused more on getting at the “why” behind the story, rather than reciting more and more evidence of an established trend. What were those key takeaways? Here are a few.

From the client side, law departments will continue to take on the role of a general contractor. This metaphor has been around for a little while, at least, and it seems to be accurate. They will have to evaluate the cost and value of both in-house and external solutions and then choose appropriately. Interestingly, ALM estimated those costs at $840,000 for using a law firm attorney and only $280,000 for in-house!

When they do choose to outsource, law departments’ top reasons are cost, focusing on core services, and solving temporary capacity issues. When they insource, law departments are solving a temporary problem with a temporary solution, primarily because there is a lack of options in the marketplace. The majority of legal providers still fall into full-service law firms, specialist law firms, and ALSPs. Further diversification is needed—and expected—over the next 10 years.

Heidi Gardner of Harvard (and the ALM presenters) feel that the market may separate into an “hourglass” shape, with bet the company” type firms competing for the most specialized, expensive work, and solid ALSPs and law firms that “run the company” by efficiently providing fundamental services. Where “bet the company” types will shed basic work to focus on high value services, “run the company” types will leverage scale and efficiencies (in process and technology) to thrive on lower-end transactions.

Finally, the presenters concluded with a call to action, in this case collaboration, at the conference. As they said, “everyone is here” at Legaltech. Wherever you see yourself moving, chances are you can meet valuable connections here in NYC to propel your legal team to a successful 2019 and beyond.

If you’re here in New York, remember to stop by Exterro’s booth at Legaltech—we’re at #130. And for more on the State of E-Discovery in particular, check out Exterro’s 2018 State of E-Discovery Report.