Could legal tech cost less, and if it did, would that help with client adoption? That is the question that Artificial Lawyer decided to ask a range of vendors across the world. The answers were illuminating.
First, Shouldn’t Tech Cost Less As Time Goes By?
There is a well-developed economic theory that once a certain product has become easier to make, that its price drops and demand rises. For example, if you wanted what today would appear to be a very basic flat screen TV, you’d be able to find one for a fraction of the cost of 20 years ago.
We have also seen this with computer memory. A PC with what looked like incredible storage in the year 2000, would today be almost given away because the components are to our eyes now ‘so basic’. (Plus, it wouldn’t run much of today’s software….)
Manufacturers improve their processes, from the factory floor, to the entire supply chain. That means what is ‘new’ and ‘expensive’ today, quickly drops in price.
But…..those products don’t plateau there. The TVs get bigger and better. The PCs get faster and have more memory. The costs stay the same or increase because there is demand for ‘better’ and the sellers are determined to give that ‘better thing’ to us. They don’t call ‘Halt!’ and then work to provide something at lower and lower costs to us. They go the opposite way.
I.e. the manufacturers keep moving forward. They keep improving the product. Although the supply chain may have improved and manufacturing techniques have also advanced, and overall demand has risen too to enable better returns via high volumes, the world doesn’t stop there.
We see the same with software. Personally, a version of Word from twenty years ago would be fine for my needs. Probably 90% of what the Word suite can do today is irrelevant – but Microsoft keeps adding to it. Web-based updates arrive every week even if the good old basic package that you bought with a disc in 1999 worked just fine. Maybe the updates help with security, but it all feels like we’re paying for features we don’t want and don’t use.
Companies like Microsoft, Adobe, and others in a commanding position in the market can keep increasing the price because….well, they’ve got the buyers over a barrel. They’ve become ‘standard’, and so many of us have to use such software, even if we don’t want to.
But, most of legal tech is not like that. In most cases lawyers have to be convinced to open their wallets to buy anything other than the most essential software.
So, could legal tech software cost less and less each year? And are there other factors at work in our sector?
Why Doesn’t Legal Tech Get Cheaper?
Vendors that Artificial Lawyer spoke to largely conformed to the thesis that software should be made ‘better’ every year and that justified price stability or price increases.
A classic example of the comments received on this subject is this one from an NLP-based company for doc review: ‘On average our prices have increased in recent years. Usually our prices increase as our platform evolves and offers more functionality.’
But that was just the beginning.
(Some) buyers want high prices
One doc drafting vendor explained: ‘We have increased pricing and we plan to continue to do so. We operate on a self-serve model, so we try to price affordably for small and mid-size firms.
‘However, we found that our pricing was too low for larger firms, who assumed there was something missing if we could give it to them for such a non-astronomical price.’
I.e. large law firms expect to pay ‘a lot’ for software and are dubious of its provenance and efficacy if it’s ‘cheap’. This may have something to do with the Big Law world overflowing with money and having got used to pricing structures that are detached from the wider market.
It may also be related to the fact that some of the first tech they engaged with many decades ago was really expensive, but it was really cutting edge, and that has now become the standard.
Moreover, the legal market does tend to believe the axiom: ‘You get what you pay for.’ Even though this position does not hold up to analysis in all cases.
Although one vendor argued that the axiom is 100% true and added: ‘Higher prices do indicate high quality. We have rarely lost a pitch on price, and if we did the other company was lightyears different, with the other tool pitching a fraction of what we cost and then that product later failing to deliver.’
Another aspect was what was seen as acceptable ‘money to burn’ in terms of trial and error with new software.
As one vendor added that: ‘I would say that beyond a $30,000 [software licence cost] careers can depend on the software being useful. Which means that people are cautious and need executive buy-in [above that price].’
‘[But]…. if you found a use case that is really helpful or urgent, then it is not about the price anymore. So it really does not matter to enterprise customers if something costs $70,000 or $130,000, it is just important that you deliver what is promised.’
Now, ‘enterprise customers’ can cover a lot of businesses, but generally this would be the very large law firms with revenues in the $100ms, or large corporates.
And another vendor of a contract management system added that: ‘Our adoption rate is higher as we have increased prices. Our customers are more committed when they are paying for the product.’
So, there you go.
Pricing depends on staffing of your sales model
As one company that works not just in the legal sector explained, their pricing was heavily related to their marketing team, which involved skilled sales people who really understood the product and are going through a sort of ‘consultative’ sales approach. I.e. this was not a simple app you can download and with one click start using.
As this vendor explained: ‘Price will determine your business model a lot. For enterprise SaaS, going lower than $7-10k (Annual Contract Value) will prevent you from sustaining a field sales force.
‘That means you will depend on self-service/low-touch selling, and this means you have to find very wide-spread adoption. This, however, is problematic in legal tech, because, well, the market, as you know, is not really ready.’
I.e. to sell you need a proper team of sales people. They cost money, so the software costs a lot. Also, sales teams will – like everyone else on the planet – want higher salaries each year. So, software prices have to go up to feed this.
So, can legal tech pricing ever go down?
One company this site spoke to was doubtful that most legal tech software would see a price reduction due to improvements in production. Again, the ‘new version’ argument was dominant.
‘With SaaS software, vendors are typically releasing new versions on a regular basis. So, for example, we put out a new and better version of [our software] most months. Some months the changes are small. Some months they can be significant.’
And this meant prices won’t go down. Also, they added:
‘Our current R&D/product development spend is quite immense – around the highest it’s ever been.’
I.e. they’re spending more on developers and engineers now, and all of that has to be covered in the price of the software, especially if it’s not a mass-market product, as most legal tech isn’t.
But, can we ever get to a point where, like with Word, most people are happy with the legal tech products they have and don’t want additional bits and bobs, and would prefer a price reduction instead? Or maybe even a budget version?
‘There are pieces of software that have hit maturity. In those cases, it makes sense that prices might go down. I wonder how often they do though,’ the same vendor noted.
And yet – and very much a minority among those interviewed – one vendor said they HAD dropped their pricing.
‘The price of our software has gone down over the past four years when comparing like with like. The fees that we charge law firms to access our platform have been flat, so effectively that is a price reduction in today’s value. The basic solution we offer to in-house legal teams has almost halved in price,’ they explained.
Interestingly, this is a legal tech company with a focus on pricing. So, maybe they are more attuned to this subject?
They added: ‘I agree that over time, legal technology companies should be able to reduce their prices as economies of scale provide efficiencies. If they are not reducing their prices, I would expect them to be actively investing in upgrades.’
The SME market
For smaller companies and small to medium size law firms, the vendors said that price did matter.
‘For us, our price point is low enough for major law firms that lowering it further wouldn’t really lead to more adoption. [But] we do offer lower price points for smaller firms, and that certainly helps with adoption by them.‘
But, as noted, lower prices means less support and a light-touch sales model. That can sometimes mean that some more complex tools cannot work in that space.
And small law firms are not massive buyers of legal tech either. In fact, many probably experiment less with new tech solutions than large firms, even if solutions made at lower costs for them in theory should open up that market.
It comes down to: do the lawyers actually feel the need for this software? That challenge is universal, whether it’s a large law firm, a small firm, or an inhouse team.
What we see from the above are several things:
- Large law firms are not slow to adopt because of price, but more likely because they cannot see a compelling use case.
- Lower prices don’t guarantee better sales, in fact large firms want high prices, (or so the vendors argue).
- The sales model has a big impact on software costs, i.e. staffing of the sales team increases software costs.
- Few vendors had reduced their prices.
- Most adhered to the traditional position of constantly adding updates and improvements, and then generally keeping up the price, or increasing it to cover these improvements.
- SMEs and small law firms did respond to lower prices – but that could limit what was on offer.
Hope that was useful. This site will be digging into the economics of legal tech some more in the months ahead.
By Richard Tromans, Founder, Artificial Lawyer, June 2021