Legaltech — The Digital ®Evolution

Fintechs are present in all media thanks to their economic rise and are now widely known. Now the term legaltech is becoming more and more popular. But what exactly is behind it? Should computers take over the work of lawyers in the future? What impact does legaltech have on the legal labor market in general and on the business environment of large law firms in particular? What are the opportunities and risks? This article attempts to provide a snapshot and ventures an outlook on what further challenges and upheavals Legaltech might bring to the legal market.

Economic starting position for law firms

Law firms are commercial enterprises and as such are fundamentally subject to the same market forces as other market participants. And as is so often the case, the initiative for change comes from the consumer. Declining acceptance of high hourly rates, increased demand for alternative compensation models, higher requirements for transparency and effectiveness, and the growing willingness to involve in-house lawyers more closely or to award parts of a mandate to the most favorable provider in each case (unbundling of services) are creating a competitive environment in which increasing efficiency is not an end in itself. The U.S. legal market in particular has shown a declining demand for (classic) legal advice for years, which indicates a loss of market share in favor of alternative providers and is accompanied by a progressive fragmentation of the market.1 In recent years, law firms have responded to the challenges primarily through consolidation efforts. As a result of law firm mergers, larger and larger entities emerged that were better able to spread their cost burden in order to survive in the competitive environment. However, growth alone may no longer be enough in view of the new challenges.

Progressive digitization of the labor market

At the beginning of 2016, the World Economic Forum presented a study according to which routine office tasks in particular could be massively eliminated in the next few years. Respondents cited the interplay of socioeconomic, geopolitical and demographic factors, as well as the increasing interaction of technologies such as artificial intelligence, nanotechnology, 3D printing, genetics or biotechnology, as key drivers behind this development.