In order to maintain the margins on their services, law firms need to sell their legal products separately from their services. In order to scale those products, law firms need to sell standardized versions with transparent pricing. This article describes the state of the market for legal services by looking at the transparency of pricing of legal products of the largest law firms in the world (the "Global 100").
This article is part of a series that looks at the market for legal services delivered with software. In a previous article, we discussed the Global 100's offer on the delivery of legal services with software. In upcoming articles, we rank the Global 100 based on their offer on delivery and transparency on price, and discuss moving from subjective to objective valuation with Innovation Intelligence and the Partnership for Innovation. So you don't miss those articles, please sign up to our newsletter, which you will find in the footer of this page below.
Transparency on Price
Law firms benefit from assymetry of information on pricing, and have historically kept their pricing strategy confidential. For legal products, however, a few law firms are pursuing a more transparent strategy which has set them apart from the rest. There are four strategies law firms pursue in respect of transparent pricing, which are as follows:
|No transparency|| || |
Kirkland & Ellis, Latham & Watkins, Skadden Arps, Wachtell Lipton, Ropes & Gray
|Large clients only|| ||Latham & Watkins, Baker McKenzie|
|All clients|| || |
Allen & Overy, Norton Rose, Cooley, Reed Smith, Orrick, Wilson Sonsini
|Product pricing|| ||Gowling WLG, Littler, Simmons & Simmons|
The distribution of the Global 100 among those types of offers is set forth in the chart at the beginning of this article. As shown in that chart, the majority of law firms do not provide transparent pricing on their products. As discussed in the article Delivery of legal services with software, most of those firms (55 out of 59) do not have an offer where they could provide transparent pricing. When you take out those 55 law firms, the vast majority of firms that deliver legal services with software only provide transparent pricing to their large clients. It is important to note that a 'large client' is determined by how much revenue a law firm makes from a client, not the size of the company. Companies with a panel of preferred law firms are not likely to get transparent pricing outside of their panel of preferred law firms.
Why is transparent pricing important for law firms?
Transparent pricing of legal products is important for law firms because it helps them pursue a sustainable business model for the delivery of legal services with software. Most law firms deliver legal services with software to market their services, but don't have a sustainable business model for updating or improving their software.
A good example of the lack of a sustainable business model is Vanilla by Cooley, which automates subscriptions for investment funds. Vanilla is a valuable piece of workflow software, which makes sense for Cooley as it brings investors and fund managers on to their platform and makes it harder for them to leave. Without a sustainable business model for Vanilla however, Cooley will be reducing its services revenue every time they add a new feature, without a strategy for increasing that revenue through the sale of their software. That means legal definitions that are currently shown as text requiring the advice of a lawyer are not likely to be automated as issue navigators. Over time, Vanilla will not keep up with offers that have a sustainable business model.
Why is transparent pricing important for clients?
Transparent pricing and information on legal products helps share innovation across companies. That means faster adoption, lower discovery costs and more revenue for the investments that are making lawyers more productive. The figure below shows a split of how value gets distributed before and after a portion of a service has been turned into a product. For a client, law firms often provide extraordinary value when they deliver legal services with software. You can find examples of calculations of cost savings for legal products here.
For a law firm, shifting to the delivery of legal services with software is risky, which PartnerVine works to mitigate with the Partnership for Innovation. As software continues to develop though, the only options for a law firm in the Global 100 are to compete with software or concentrate completely on services. Concentrating completely on services is also risky though, and a law firm executive may want to follow a classic porfolio approach, matching investment to the size of the market for each type of delivery.
The Partnership for Innovation
Through a program called the Partnership for Innovation, we help companies and their law firms optimize the delivery of legal services with software. One part of that program is called Innovation Intelligence, which helps companies calculate the value law firms deliver with software. Innovation Intelligence is based on actual use, so it requires a company to gather data on how their employees use software that delivers legal services. It is the best way to calculate the value a law firm delivers to a company, and companies have an interest in understanding that value because the savings from software overwhelmingly benefit them. When we discuss the benefits of calculating the value delivered with software, we sometimes get asked if law firms provide transparent pricing on their legal products. We did this research for companies trying to understand the state of the market.
If you have comments to this article, you can comment by clicking on "write a comment" below. If you'd like to read the next article in this series, sign up for our newsletter in the footer below. If you'd like to read our last article in the series, which was a review of the offer the Global 100 on delivering legal services with software, you can find it here. If you'd like to discuss how the Partnership for Innovation would work for your law firm or company, contact us.