New data from Thomson Reuters shows that the expenditure on tech products at US law firms is rising considerably each year, with increases of 6% or more per annum often the norm, with spending leaps in some recent years hitting 10%. Why is this?
As can be seen in the table below, the increases are also usually far above normal inflation rates. The data, which is part of a TR Institute report with Georgetown Law on the US legal market, suggests that firms can expect to face an ever-increasing general tech tool and legal tech bill, which perhaps with the expanded use of more AI products may increase even more each year.
But why are the costs going up?
Are law firms using more legal tech tools? Broadly, yes, they are. So, that will add to the bill. That said, much of a law firm’s core tech stack, e.g. a DMS, legal research tools, plus general tech tools like the Microsoft suite, likely constitute the bulk of any firm’s spend.
Overall, this suggests that vendors are upping prices above and beyond inflation simply ‘because they can’.
And of course, what is the value of something? The answer: what someone is willing to pay for it. I.e. law firms really value their tech tools, and can’t live without them. (Or perhaps they don’t actively want to value them, but accept that today they can’t live without them…..?)
For inhouse teams the equation is different. The increase in tech costs simply comes off the bottom line of the company they work for and can’t be passed in a direct way to consumers in the same way a law firm can pass any increased costs immediately to their clients via a higher billable hour rate. Contract solutions that are 6% more costly each year are harder to justify inside a legal team that may have a tightly controlled legal tech budget, perhaps managed via a central procurement team.
Then we have the issue of AI, or genAI more specifically. Has this pushed prices up? Well, genAI tools that help lawyers at scale have only really gained notable market share in the last 18 months or so, in which case these annual rises have little to do with that….yet.
However, as legal AI tools become more and more vital, and more and more part of the core work that law firms do, then overall legal tech spending may increase even further each year. I.e. legal AI, and generalist tools such as MS Copilot, simply get into a wider range of work flows and become vital to that process, thus total tech spend increases hand-in-hand.
Of course, competition between vendors may help to steady prices, but that said, we rarely hear about legal tech companies locked in a price war. The main selling points – for now – remain the capabilities of the software. But, that could change if the average of 6% annual increases goes to 10% annual increases, and then even higher each year.
Plus, one can only have a price battle if real competition is possible. If a handful of large legal tech companies dominate one area of the market, and consolidation has removed many smaller, more affordable alternatives, then it’s hard to prevent price rises.
That said, legal tech buyers inside law firms in the UK that this site has spoken to recently, specifically mentioned they were getting a bit annoyed already by price increases that didn’t seem justified. So, perhaps this will become more of an issue?
Overall, what this tells us is that legal tech is seen as part of the ‘cost of doing business’, and that law firms for now will keep paying those increasing costs.
In short, although selling into the legal market is far from easy, this remains a receptive sector with an appetite for ever-increasing spending on tech.