7/10/12

Is The Legal Market Flat?

In my role, I am fortunate to see the various market updates on demand, productivity and other key legal market stats. One fairly consistent stat over the past few years has been flat market growth (a.k.a. no market growth). Although there have been minor ups and downs on this stat (most recently a slight up-tick), the overall demand has been and continues to be predicted as … flat.

But is it?

The market intelligence is taken from law firm financials. In the good ole days it may have been safe to assume this data captured a relatively complete market picture. However, I question that wisdom now. If market share is going to providers outside the scope of data captured, then the data is incomplete and not an accurate measure of the market’s activity.

Now Why Would I Think That?

In a recent interview, the co-founders of Pangea3 stated they are experiencing growth of 40-60% per year. Recent market stats on e-discovery services show positive growth there as well. Wait a tick? How can their market be growing while law firms' is not. Usually these complementary market providers have their business wax and wane with that of firms.

The simple math of 50% market growth suggests LPOs are taking market share from firms. And it’s likely other non-traditional providers are doing the same. Ron Friedmann points out the likelihood that Axiom must be doing just that. As a counter-example of regulatory authorities not noticing this behavior, the DC Bar issued an opinion calling out e-discovery vendors as their offerings appear to be crossing the line in to the practice of law. 

What Does That Look like?

My view: law firms used to provide the complete stack of legal services to clients. Consider seven years ago, first document review in discovery was performed by associates in law firms. Now that rarely happens. This work is going to non-law firms.

So perhaps the market for legal services is not really flat. Instead, whatever growth is occurring is being siphoned off of the bottom of the market by new competitors. Law firms appear to be ceding this market space, since 'if it can be done by non-law firms, it must be a commodity and beneath our services.'

Forecasting this trend in to the future would likely have non-law firms moving up the stack of legal services, taking on more sophisticated work as they gain market share and experience. But like the DC Bar, I’m just guessing at all of this based primarily on the marketing materials of non-law firms. A big problem for law firms is that whatever is happening is occurring in the shadows since the market data we rely on does not include it.

Real Market Data Would be Nice

So – to all of the legal market intelligence vendors – please start looking past law firm data to a broader, more realistic snapshot of the market so we actually know what’s going on. GM wasn’t just watching domestic auto competitors in the 70’s and 80’s. GM actually watched what the overseas vendors were doing as well. (Although many argue this didn’t help GM that much.)

Part of my job is watching the market. My growing concern is that our market data is not giving us the full picture. And I’m just guessing that picture would further accelerate the impetus for change.

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4 comments:

Greg Lambert said...

I like the comments on Twitter and thought I'd share them here:
If Axiom were counted as a law firm, they would be the 178th biggest in the AmLaw 200.
If Pangea3 were counted they'd be the 34th largest…
To quote George Beaton's tweet: "Who is kidding who?"

Basic Biz Law said...

Interesting points.

Robinsh said...

Hi there, thanks for posting this information here that why the legal market is looking like a flat market.

I would always be connected with this blog because I think it is full of potential to learn something or many thing on the daily basis.

Keep writing !

Craig Raeburn said...

Toby,
You make an excellent point regarding the growth and complexity of the legal service market, to get a complete picture we do need to look at all alternatives and where corporations are spending their dollars. Making predictions on the full legal services economy requires access to accurate data that represents the complete market. The good news is that data such as this exists and is becoming more available in the market (our LegalVIEW database alone has $29B in legal spend dispersed across many different legal service providers). Perhaps the challenge we face is that the market itself is primarily focused on what is occurring within law firms, as they always have and remain the dominate player in this market. With that said, your call to action is another reminder to us all that we need to reimagine the business of law and support the current phase of our markets evolutions.

 

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