The business model of legaltech
LegalTechs are erecting a new business model in the legal field. Through the digitization and industrialization of services, it is interesting to ask whether these entities are heading towards an uberization of law and what are the propensities of this sector to evolve.
From an economic point of view, uberization refers to “the substitution of an actor by a direct and immediate relationship between a professional and his client by using a system”.
- A digital and instantaneous connection
In the context of LegalTech, the connection between a professional and a litigant generally comes from search engines. This search engine can generate answers based on keywords or specific requests.
Several technologies intervene in this process even if the chatbot is undoubtedly a revolution in communication. It is a software agent that uses conversational artificial intelligence (AI) technology to interact with an individual. Thanks to the user’s answers, the chatbot identifies and refines the selection criteria of the litigant to propose a professional in adequacy with his research.
Traditional search engines give results to the user according to an algorithm. Moreover, the proposed content can be filtered by relevance, keywords, news items, etc. In this case, the match is often the result of specific criteria such as the area of specialization searched, the location and/or the price. These are important to identify and isolate in order to improve the search for Internet users.
Because of the reactivity and efficiency of information systems, the usual intermediaries are discarded. The strong fear of an uberization phenomenon in the legal profession is explained by the hypothesis of a loss of clientele to these new intermediaries. Less expensive and more convenient, they perform preliminary work to solve the problem. By answering the user’s requests and simple questions, they identify the problem beforehand for a quicker or even instantaneous handling by the professional. In other words, these tools save time and personnel in the process of connecting people. Also and above all, it is an opportunity for professionals to focus on high value-added tasks.
- On-demand services for everyone
The phenomenon of uberization assumes that the services or products are accessible to all. However, the robotization and automation of legal services leads to rapid and affordable access for a large part of the population. Contacting a legal professional, going to court or drafting a legal document are now simplified and accessible procedures. The development of LegalTech is based on the provision of global services for all and customizable to fit each individual. This the user thus placed at the center of the service. He is able to carry out legal and administrative procedures simply.
There are two concepts specific to uberization:
– Software solutions based on document generation algorithms;
– Semantic tools offering adapted answers based on users’ requests.
This accessibility to the law thanks to algorithms offends professionals. Indeed, the latter are afraid to see a part of their clientele disappear to the benefit of LegalTech. However, the digitization of services seems to be confirmed and inevitable so that these professionals have more interest in working with new technologies than in confronting them.
- An evolving market
In 2021, the legal sector market is estimated to be worth 40 billion euros, or 2% of GDP. LegalTech represents only 0.06% of this market, which is extremely low. However, the evolution of the sector since its entry on the French market as well as the figures announced for 2022 are favorable to their development.
French LegalTechs experienced a peak in development in 2015, when, out of 140 LegalTechs surveyed, 45 of them were founded that same year, compared to 24 the year before. In one year, the number of LegalTechs created has almost doubled. It is estimated that the LegalTech sector has grown by +300% since 2016.
But then again, the conquest of these companies has not stopped there as the amount of fundraising since 2017 has continued to grow:
– €12.8 million in 2017;
– €24.6 million in 2018;
– 52.6 million euros in 2019 ;
– 17.8 million in 2020;
– 52.8 million in 2021.
Although the LegalTech market was suspended in 2020, it picked up the following year with €52.8 million. On the whole, LegalTechs are small structures (51% of the LegalTechs that responded to the survey have between 11 and 50 employees). For all that, the turnover of respondents tripled in 2018 and companies with a turnover between 10 and 30 million are experiencing an increase of +183%. In addition, more than a third indicate that they will generate a turnover of more than 1 million euros in 2020.
Today, there are more than 200 LegalTech companies in France. This figure is expected to increase in the next few years, as is the turnover of these companies, which is estimated to reach more than 100 million euros, with more than 600 positions to be filled in the next 18 months.
- A structured and stimulated market
Since the rise of computer science and information systems, there has been a need to digitize in order to meet a need for productivity. Moreover, the health crisis has stimulated and accelerated this digitization process.
The health crisis has had both a negative and positive impact on French LegalTech. Indeed, 59.3% of them declared that their turnover had decreased during this period. On the other hand, the majority said that the health crisis had created new needs that LegalTech could meet, such as crisis management services for businesses.
Master 2 Droit de l’économie numérique
Faculté de droit, de sciences politiques et de gestion de Strasbourg