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State of European LegalTech

Whenever participating in any of the multiple LegalTech and Legal Innovation events throughout Europe, one could get the impression that the market and its players are fully committed to change and that things are really moving forward now.

No more futile discussions on whether Digital Transformation will change the market of legal advisory services or not, no more pointless questions on whether technology will kill the legal profession or at least one’s individual job. Even the most stubborn Crusaders against progress seem to have fallen silent. As Jim Leason from Thomson Reuters put it at this year’s ELTACon in Madrid: We are moving up the "slope of enlightenment."

Nonetheless, the positive atmosphere soaked with optimism at these events should not hide the fact that the circle of supporters may be growing eventually, but there is still a vast amount of people in the European legal market caught in a state of mind somewhere between innocence and ignorance.

Maturity of LegalTech markets

When looking at the status quo of the various national European LegalTech markets in terms of maturity, you would expect to find that some regions are more and others less developed. Interestingly, ELTA found that there is no clear regional preference in terms of maturity throughout Europe. No Scandinavia leading the pack, no Western Europe being overall more mature than Central and Eastern or Southern Europe. Market surveys such as Wolters Kluwer’s most recent confirm these findings that the challenges of Digital Transformation and a changing market environment are common phenomena everywhere.

But naturally, some individual markets in Europe are more advanced than others. In fact, the overall share of LegalTech markets which already are considered quite mature has risen to almost one third, now taking second place behind the ones that still are somewhere in between and just before the more immature markets. A picture that would have been very much different just a couple of years ago. Also, with only few exemptions, the speed of adoption of LegalTech generally is considered higher in markets which are more mature. If this finding consolidates over time, it would mean that with growing maturity the speed of LegalTech adoption in the respective market will also accelerate pushing even harder towards a more digital future.

Reasons for lagging behind

Still, almost 70% of the markets are lagging behind more or less when it comes to the adoption of LegalTech. The reasons for this predominantly are not external factors like regulatory roadblocks or lack of competition keeping stakeholders of the legal market and industry from adopting LegalTech in their working environment. It is rather internal, human factors which stand in the way of progress: a general resistance to change, as well as fears of lawyers from getting marginalized by technology. Studies show that two thirds of law firm leaders feel uncomfortable having to manage Digital Transformation. And an ILTA survey proves that even the best LegalTech solution will have no impact, if nobody uses it due to (mostly) human restrains.

Also, it is not the lack of suitable LegalTech solutions in the various markets that proves to be a major obstacle for the adoption. It rather is a widely spread confusion about which LegalTech solutions are available and a common lack of guidance on what these solutions can do and don’t and which business problem they address. This finding is also confirmed by a survey from Bucerius Law School.

To make finding the right technology even more complicated, there obviously is no one-fits-all solution for a wide variety of problems and many lawyers have no idea how to prioritize and lack a clear picture on which specific (business) issue they might want to solve. Hence, ELTA’s former president, founding and board member Hariolf Wenzler stressed in Madrid that the search for suitable LegalTech solutions these days can sometimes feel like a quest for the holy grail.

In addition, it is not only a question of finding a suitable LegalTech solution. Change needs fuel and with an overall detectable lack of resources (human, budgetary and technical), the adoption and implementation of LegalTech solutions in day-to-day processes becomes a real challenge when you permanently feel the fully packed desk in your back.

Furthermore, less than a quarter of firms prove to have a specific budget for innovation in the legal space. But there is an upside to becoming a so called “technology leader”, as Wolter Kluwer's recent survey shows. According to this, “technology leaders” are overall more profitable, better prepared for coping with the challenges of a changing market environment. As they understand the value created by technology and gain practical knowledge on the implementation of such solutions, they become less likely to fail and will most probably continue investing even more in the future, thus further increasing the distance between them and the laggards.

Drivers of change Almost still like at the very beginning, progress in the various LegalTech markets is widely driven by individual LegalTech pioneers and LegalTech firms rather than by the traditional players in the legal industry. Although law firms, legal departments and especially the Big4 are catching up in adopting LegalTech. But according to Marcus M. Schmitt from ECLA, inhouse legal departments are the fastest-growing group within the legal community at the moment increasing their impact on the adoption of LegalTech day by day. In some countries even governments and public administration have already started pushing for the adoption of LegalTech. Interestingly this is rather the case in the more immature markets.

Even though many law firms might understand the necessity to change and adapt but have no clear strategy how to deal with this, the Big4 already are a few steps ahead. As Sebastian Hartmann from KPMG highlighted at ELTACon in Madrid, the business model of law firms (and other PSF’s) relies on keeping their consultants busy. Unfortunately, managing change also includes a lot of non-billable work, which no one will perform without an explicit buy-in and support by the firms’ senior management setting the respective incentives.

Driving trends

The strive for further efficiency and also a growing competition for law firms by LegalTech companies and Alternative Legal Services Providers (ALSP’s) are the over-whelming drivers for the adoption of LegalTech all across Europe and beyond. But in the end, it is probably not a specific technology and automation that matter, but rather the properly mapped processes that form the solid basis of success, as more technology doesn’t necessary lead to more efficiency.

Especially the LegalTech companies and ALSP’s are also looking for ways and opportunities to enter new or previously neglegted segments within the legal market. But this approach increasingly also seems to play a significant role in the strategic reflections of law firm leaders, as the adoption of technology facilitates the provision of services formally considered too costly for clients and technology-based stand-alone legal service products promise to lever even the limits of human headcount. Finally, neither access to justice nor consumer needs seem to be relevant drivers for a faster adoption of LegalTech in Europe. This also counts for an easier access to funding, technology and data.

Main activities in LegalTech

As the strive for efficiency is one of the main drivers in LegalTech markets, consequently, we see the most activities and the economic focus for solution providers in helping to increase efficiency in the B2B middle volume/middle complexity core business of legal advisory services.

Not so much activities can be detected in the “rocket science” area, where technology solutions are being implemented do further boost intellectual legal expertise in B2B low volume/high complexity work, and even less in the commodity space, where technology is only gradually replacing lawyers in B2B high volume/low complexity work. Both, using technology in high complexity work, as well as replacing lawyers in commodity work either requires access to still privileged and thus limited data or to larger amounts of empirical data from law firms which these naturally hesitate to give away to LegalTech companies to fuel their own solutions. Some more significant activities of providers of LegalTech solutions are nonetheless to be seen in a more basic area, delivering B2C legal advisory services to private individuals.

Future hot topics

Being asked about future hot topics, eventually the usual suspects (or should we say “old friends”) pop up: It’s still AI, automation and smart contracts. Nonetheless, we see more and more regulatory approaches and also first court decisions on LegalTech solutions and offerings of ALSPs, LPOs, and Manged Legal Services (MLS) in Europe and beyond, cautiously reflecting the change in the market. And finally, besides all the fuzz about Digital Transformation, the human factor to managing change, the future of lawyers’ monopoly, productification of legal services, as well as new, data driven business models come into focus. Let’s see, where this will take us...


About the Author

Tobias Heining is founding member and current President of the European Legal Tech Association (ELTA), as well as Director of Business Development & Communications (BD&C) at CMS in Germany. The BD&C department at CMS also comprises a Research & Development unit which is responsible for developing technology-based legal advisory products and launched its first product in 2015. Prior to becoming BD&C Director at CMS, Tobias has been working as Consultant at a PR agency, as Marketing Manager at US law firm Gibson Dunn & Crutcher, joined CMS as BD Manager and headed the BD unit at CMS for a couple of years. In his various functions, Tobias Heining has been dealing with product development in law firms and its effects on the legal market as well as business models of the future since 2007. This also includes the greater digitization strategy of CMS Germany. Tobias studied History, Politics and Communications at Freie Universität Berlin, as well as Business Economics later on.

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