The Era of TradTech
It’s no secret that more has happened in the LegalTech market in the last five years than the twenty five before. We have seen the rise of PropTech, IPTech, DisputeTech and MarTech, but to mention a few. It seems there are endless “techs” for everything to solve every problem presented by modern day legal work.
Some of these developments have been really good and have made life easier but it is now very apparent that the increased dominance of SaaS solutions together with the multiplicity of different solutions has not come without its own problems. Dealing with an increased number of suppliers, loss of control over data, lack of control over commercials and challenges in advancing your data strategy are core problems people are now experiencing. More can be found in the following article The Silver Lining of Cloud Software? — Hyperscale Group Limited.
And so where is this going? In recent times we have also seen the emergence of “Trad Wives” and “Trad Dads” ‘Trad wife’ influencer profits as culture warriors simmer (thetimes.com). This concept, whether or not you relate to it or not, is about a return to more historical and traditional family values but with a modern twist. Husbands and wives carry out more traditional roles but with a greater emphasis on modern day tools such as technology, social media and more. This is an interesting parallel and seems to be happening at a time when we are seeing the change in behaviour towards the management of tech which I think we can now refer to as TradTech. This does not mean going back to the way that technology has been run in the past with the server rooms and on prem systems but more perhaps a recalibration of the existing way of doing things where we bring the best practices from the past to modern day SaaS.
What does this mean in terms of practicalities and some of the trends which we are beginning to see?
1. Control of Data and Back-ups. We are seeing an increased demand from clients to have control and manage their own data notwithstanding they are using SaaS systems. For some SaaS vendors this means operating in a way where they process data and pass data through at pre-determined intervals or offer a mirrored set-up on prem. For others it means dealing with the increased pressure of clients to have some meaningful back-up arrangement which allows data to be recovered/to remain in the control of the client. Recent well publicised cyber incidents have accelerated this trend.
This has several advantages in that it means clients can advance their data strategy in a meaningful way, they have greater levels of resilience, they are less reliant upon security of SaaS vendors and it provides a more level playing field in price negotiations (i.e. if a client falls out with a SaaS vendor they may lose the intuitive interface but they know they have got their data to export into another SaaS system).
Another idea that has been muted is the concept of a data portability engine which does this on a continual basis for all SaaS vendors meaning that SaaS vendors can be swapped in and swapped out much more easily depending on need and commercial imperatives with clients at all times having a copy of their data.
2. Software Releases. In the past with on prem software we used to have a clear process for software releases and versions. Tied in with this would be test environments. Some of these practices have fallen more into disuse with SaaS. We have seen instances where changes are just made to UI without notice and where algorithms are updated halfway through an AI project resulting in different outputs. Again recent cyber incidents have also shown challenges with Saas software perhaps not being fully tested prior to release.
There is a move to change this and have much better governance. Some of the work that Litig have done on, for example, AI Due Diligence Litig releases Legal IT AI Due Diligence Questionnaire — Litig - Legal IT Innovators Group evidences a further move in this direction.
3. Cost Certainty. In the past software was purchased and then depreciated over a period of three or four years with say 18% software support and upgrade protection. This gave cost certainty. This model served software vendors very well as well as the client. The SaaS model, although originally delivering price certainty (e.g. including infrastructure), has proved to be challenging for many firms in that at every renewal the prices go up by significant amounts. For some vendors, an absence of new sales can also drive maximisation of revenue from existing customers. The most extreme example we have seen has been a 300% increase from one supplier who did some benchmarking but regularly we see attempts to increase prices at 10% to 15% per year which is a long way ahead of inflation.
Clients need software vendors to make a profit but unfortunately some of the increases are getting out of hand and it gives rise to paralysis in that firms and inhouse teams are afraid to buy a new product as it effectively means they will lose control over their budgets.
There are of course things that can be done in negotiations to mitigate this. Again, I am pleased to say as part of the emergence of TradTech we are starting to see some much more balanced arrangements in contracts. We are currently living in an inflationary world and we need to recognise this though as suppliers’ cost bases will also alter. What we can’t do however is to have a situation where a supplier can charge what they want in circumstances where it is extremely time and cost intensive to reverse out of a product. Law firms in particular don’t have time for annual pricing debates of this nature.
4. Data Cost. The rise of SaaS has meant that year after year most SaaS vendors manage more data. This process can of course be managed by the client to an extent but often this is challenging. It is only right that additional data costs should be paid by clients but equally should it become a profit centre?
If data costs go down (which according to industry trends they typically do) should you be paying the price for data that was the market rate five years ago when you did the deal? Again, I am delighted to see some better practices beginning to emerge in the market. Some of these have included open book data pass through, where there is complete pricing transparency on additional data and it is billed out cost.
We are also seeing certain vendors being much more generous with data allowances and revisiting data costs at regular intervals under the contract.
5. Exit. Moving from a SaaS vendor can be hard. We are working with one client who has recently done this, and it has been extremely painful and expensive. You will not be the vendors’ top priority; the data may not be a format in which you can use. Often this is a poorly negotiated area of contracts due to the pressure of closing a deal. Again, we are starting to see this area being tackled. The data portability and back-up trends all help with this but we are seeing much more attention being given to “how” data needs to be returned to a client. There is an increasing realisation that this is an increasingly important area that needs to be addressed.
Summary
If I were to summarise, I would say that previous on prem contracts and arrangements in many ways were too much in favour of the client. The move to SaaS brought with it many benefits but perhaps the balance of power has shifted too much in favour of the vendor? With the emergence of TradTech I am hopeful we can see much more balance in the market. Also, it is likely that this will give rise to a “best of both” approach where the market benefits from the advantages of SaaS combined with the best aspects of more traditional on prem computing. It may also give rise to better levels of interoperability and agility.
I live in hope that TradTech will raise the bar to deliver higher quality of LegalTech and true partnerships between clients and vendors.
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