Legal tech firms “will go bust as app stores take over”

Katz: Massive consolidation

There will be massive consolidation in the legal tech world as two or three “legal tech app stores” take over in the next few years, a US academic and entrepreneur has predicted.

Daniel Katz, professor of law at Chicago-Kent College of Law and vice-president at global law company Elevate, said the “2020 story” would involve a “roll-up” of the legal tech firms that had blossomed in the previous decade.

“You can’t have 17 people doing the exact same thing, without a dime’s worth of difference,” he said. “The products are not that differentiated in most instances.

“You’re going to see acquisitions, you’re going to see bankruptcies and you’re going to see platforms. The idea of platforms is matching buyers and sellers – the key idea of the post-internet economy.

“Platforms move towards monopolies at the platform layer. There’s lots of competition below. You can have a lot of competition among apps, but there can’t be 50 app stores – you can only have one, two or three.”

Speaking at Artificial Intelligence in Legal Services Summit in London on Tuesday, Professor Katz said a number of big players in the market, whether it was LegalZoom or the Big Four accountants, were already moving towards a “one-stop shop” or “app store for legal tech”.

Professor Katz said the app store would have minimum standards, and would enable new products to come to market much more quickly than they do now, in return for a fee.

He said it was “pretty hard” to justify the valuations of legal tech start-ups in the USA. Professor Katz said if he could “collectively short” all of them, he would, but not on an individual basis.

“Some of them are going to come out of this. Some of them are going to make it. Most of them aren’t. Most of them are going to burn out in the next 24 months.”

Professor Katz said the total number of legal tech start-ups providing what were “purported to be” AI products was “pushing 2,000”.

He said that “what began as a US-UK phenomenon is now an ‘everywhere phenomenon’”, including European countries like Finland, Russia, Germany, Denmark and Switzerland, along with Israel, Brazil, Mexico, Africa and Asia.

Professor Katz said many of these companies claimed to be offering a “platform”, but were really offering a “point solution” – a specific solution that would not work once it was taken out of the “sweet spot” for which it was designed.

“We’ve had these two thousand point solutions bloom, which is one of the hallmarks of this period.”

However, he said the real challenge was to develop a “product services bundle”, to provide a more complete solution.

Meanwhile law firms, led by Dentons more than four years ago, had created “engagement frameworks” through tech accelerators.

“Some of these are just a glossy brochure – I’m not going to say which ones – but some have substance.”

Last year, an international consortium of law firms launched Reynen Court, which looks like the type of platform the academic has in mind.

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