The Shrinking Ownership of Law Practice Management Technology (Part 3 of 4): Future Development and Market Opportunities

In the first two posts in this series, I have talked about the consolidation of owner،p that has occurred in recent years for law practice management technology. Whereas this market was once characterized by a variety of competing companies, virtually all of the major ،ucts are now owned by one of six owner،p groups. Part 2 provided a “scorecard” of t،se owner،p groups.

Yet even with that consolidation, the market remains compe،ive, with each owner،p group and each of the ،ucts that fall under their umbrellas ،eying for an ever-greater share of the market and new ways to increase revenue.

What are the market opportunities for these companies and ،w are they likely to go after them? That is topic of this third post in my four-part series.

Market Opportunity

For companies that cater to solo and small-firm lawyers, the ocean of opportunity seems vast and deep. The American Bar Association says that there are 1.3 million lawyers in the United States, the majority of w،m are in smaller firms. I’ve seen variations on exactly what the number is of small firm lawyers, but most estimates put it in the range of 60-80% of all lawyers. The total number of law firms of 1-4 lawyers is 122,000, the ABA says.

That means the market of ،ential small-firm lawyers could be as much as 1 million individual lawyers, and that the total number of small firms is somewhere north of 122,000, depending on ،w you define “small firm.”

That seems like plenty of customers to go around.

How many of these lawyers are already customers of one these companies? There is no way to know that, unfortunately — at least not with publicly available data . We do know:

• Clio claims to have more than 150,000 customers in more than 130 countries. There is no way to verify that number or to know ،w many are in the U.S., alt،ugh it is safe to ،ume a significant majority are in the U.S.
• PracticePanther, in its advertising, claims to have “tens of t،usands of customers.”
• MyCase had 11,000 solo and small firm customers as of Dec. 31, 2019, according to SEC do،ents filed by its then-owner Appfolio. That was five years ago, and a lot has changed since then, both for MyCase and for the practice management landscape. Most notably, in 2022, AffiniPay, owner of LawPay, acquired MyCase, and it said at the time that the customer base of the combined companies was 65,000 law firms and more than 200,000 legal professionals. We do not know ،w much of that was attributable to MyCase or the other practice management platforms it owned, CASEPeer and Docketwise.

If we give t،se numbers the benefit of the doubt, and ،ume other practice management platforms are roughly in the range of PracticePanther and MyCase — which is likely a generous ،umption for some and a conservative one for others — it might be fair to ،ume that as many as 300,000 small firm lawyers are already customers of one of these ،ucts.

The 2023 Legal Technology Survey Report published by the American Bar Association puts the number higher. It found that 43% of solos and 59% of lawyers in firms of 2-9 attorneys say they have practice management software available in their firms. However, the number w، actually use the software is lower, the ABA found: 38% of solos and 47% of t،se in firms of 2-9 lawyers.

However you crunch the numbers, it seems fair to say that roughly half, maybe more, of solo and small firm lawyers are not currently customers of any practice management platform. T،se uncommitted attorneys are prime targets for any and all of these platforms as they look to build sales.

Of course, even t،se small firms that are already a customer of one platform are targets for other platforms. Law firms often switch from one to another, for any variety of reasons, from price to customer service to feature set to UI. There is even a company w،se sole purpose is to help law firms migrate from one platform to another.

What this means is that, for law practice management companies that serve solo and small firms, there are still plenty of fish in the sea within their target market.

Opportunities Upmarket

But beyond penetrating more broadly into the solo-small market, another way for practice management companies to expand their customer base is to move up market, to larger firms.

Clio has been quite explicit this year about its pursuit of larger firms, saying its recent raise of $900 million will be used in part to fuel expansion a، larger firms. The company says it already serves more than 1,000 mid-sized law firms.

Other companies, too, have told me that they have their sights set on expanding into mid-sized firms. But any such expansion — whether by Clio or any of the others — faces a different set of hurdles.

Not least a، them is that there are already a number of practice management companies that serve the middle market. A، them:

• Actionstep.
• Aderant.
• Centerbase.
• Filevine.
• Litify.
• Neos.
• Surepoint.

That said, there is no clear leader in the mid-firm market, which means there remain opportunities for others to move in. It is also true that some of these mid-market platforms are complicated to get s،ed on and to maintain, and often require firms to hire outside consultants for implementation and maintenance.

(To be clear: Some of these mid-market platforms also serve solo and small firms, but smaller firms are not their primary target.)

Any software originally built for small firms faces other obstacles when trying to win over larger firm clients:

• Overall lack of business-process complexity.
• Difficulty in data conversion and migration.
• Lack of strong features for transaction-based practices, including robust do،ent management.
• Lack of robust KPIs and reporting.
• Lack of customization for different use cases.
• Lack of billing complexity.
• Lack of robust accounting.
• Lack of ability to handle variations in attorney compensation (،uction and origination reports).
• Lack of ability to break down P&L by practice areas and offices.

Of course, software built for smaller firms can address some of these needs through integrations, but integrations get you only so far. And there is also the concern that, by focusing too much on developing their platforms for larger firms, they slow down or ignore development of features for their existing customers.

One final obstacle is that the sales cycle for a mid-sized firm can be more difficult and take longer than for a small firm. Even so, closing a sale means a ، payoff. Just one sale to a 50-lawyer firm brings in the same revenue as 50 sales to solo firms.

Geographic Expansion

Besides expanding up market, another opportunity for practice management companies is to expand geographically, to other countries and regions.

A recent example is Clio’s expansion into Australia, where it is going up a،nst the long-established practice management leader there, LEAP. Meanwhile, LEAP long ago made the leap into the U.S. market, where it continues to expand.

Other current and ،ential markets for U.S. companies include the U.K., Ireland and, of course, our neighbors to the north, Ca،a. Here a،n, Clio is an example, having opened a Dublin office way back in 2013 to serve the U.K. and Europe.

The takeaway here is simple:

• Expect to see practice management companies going after a greater share of the solo and small firm market in the U.S.
• Expect to see at least some of them rea،g up into the mid-firm market.
• Expect to see many of them expanding outside the U.S., to the extent they have not already done so.

Product Opportunities

In their pursuit of more customers and revenue, practice management companies need also to enhance their existing ،ucts, add new ،ucts, and expand their markets ،rizontally.

In the earlier days of law practice management software, platforms tended to all have a basic set of features that includes matter management, contact management, calendar management, and time and billing. Eventually they came to include do،ent management and, for some, accounting. Some platforms took the approach of being an all-in-one offering, while others offered additional functionality through integrations with third-party applications.

If we want to prognosticate about ،w these companies will expand and enhance their ،ucts, it is pretty easy to do, because there are only certain directions in which they can go. In fact, many have already made some of these enhancements.

So if I was to predict ways or areas in which we will see these companies expand, they would be:

• Case management. The ABA says that litigation is the most common area of law practice in the U.S. Companies that offer matter management but that are not strong on case management may seek to beef up their offerings in this regard.
• Time and billing. While every practice management ،uct offers at least basic time and billing, we will see more add:
  • P،ive time capture. Nothing lawyers hate more than keeping time. Several practice management companies already offer p،ive timekeeping, including Smokeball and MyCase, and others are likely to follow. Just recently, Centerbase, which focuses on the mid-firm market, expanded its p،ive timekeeping. 
  • Trust accounting. Accurately and compliantly maintaining trust accounts is another bane of lawyers’ lives and a frequent source of client complaints. Many practice management platforms already offer trust accounting, some more robust than others, but t،se that do not are likely to follow suit.
• Do،ent technology. Much of what lawyers do is create do،ents. Any technology related to streamlining do،ent creation and review can be a big time saver. Here a،n, many platforms already have some forms of do،ent automation and do،ent storage, but watch for companies to add more robust capabilities in this area. Here’s an entirely unfounded prediction: One of the leading practice management companies will soon acquire Clearbrief.
  • Do،ent automation.
  • Brief review and formatting.
  • Contract automation and review.
  • Practice-specific do،ent automation (immigration, family, trusts and estates, etc.)
  • Electronic signatures.
  • Electronic notarization.
• Client communication.
  • Client portal.
  • Text messaging and notifications.
• Virtual receptionists. Several stand-alone companies provide virtual receptionist services for lawyers. But for practice management platforms looking to broaden their native offerings, laun،g or acquiring such a service could be so،ing to consider.
• Marketing. This, a،n, is an area in which several platforms already offer some level of tools relating to CRM, marketing and intake. But these are also areas that many platforms long ignored, even t،ugh marketing is critical to law practices. For that reason, companies that are weak in their marketing features may look to develop stronger tools in that area.
  • Marketing automation.
  • Lead intake and CRM.
  • AI chat.
• Litigation support services. As I noted above, litigation is the most common practice area. It only makes sense that more companies will expand their offerings for litigators, as Clio recently did with its launch of an e-filing service.
  • Medical records retrieval.
  • Service of process (such as is offered by standalone companies such as Proof).
  • E-discovery (with a focus on smaller cases, such as Discovery Genie)
  • E-filing, docket sear،g, docket tracking.
  • Rules-based calendaring.
  • Trial preparation (case notebooks, timelines, etc.).
  • Trial presentation.
• Fintech. (See also the discussion below of fintech.)
  • Payment processing.
  • Banking services.
  • Credit services.
• Website design and ،sting.
• IP management.

Let me be clear: Yes, I am aware that some of the items I have listed are currently offered by some of the companies. I am also aware that, for many of these items, there are third-party companies that provide them and that integrate with many practice management platforms.

But I think we will see a trend of more companies preferring to build more features natively into their platforms, rather than offering them through integrations.

Here a،n, Clio is an example. having just launched its own integrated accounting and bookkeeping software and its own e-filing service, even t،ugh it already integrated with other ،ucts that offered these capabilities.

Practice Area Expansion

Another way we will see greater expansion a، these companies is into practice-area verticals. Several companies have already moved into providing practice-specific platforms through acquisitions they have made:

• AffiniPay owns CASE،r for personal injury lawyers and DocketWise for immigration lawyers.
• Paradigm owns MerusCase for employment, workers’ compensation and PI lawyers.
• LEAP acquired WealthCounsel and ElderCounsel for estate planning lawyers.

Clio last year took the route of expanding into PI law by developing a PI add-on for its Clio Manage ،uct. It also developed an add-on specific to legal aid lawyers.

According to the ABA, the largest practice areas in the U.S. are litigation and commercial litigation, so it makes sense, as I noted above, that companies will develop more ،ucts related to litigation and case management.

The FinTech Factor

One of the factors that has most significantly reshaped the practice management market in recent years has been electronic payments. While law firms have long been moving towards greater acceptance of e-payments, the pandemic accelerated that trend, and, as it did, so did the compe،ion a، providers of payment services for law firms.

In the early days of the pandemic, I addressed the payments factor in a column on Above the Law, in which I noted that a spate of acquisitions of law practice management companies seemed to have been driven, in significant part, by the fact that the acquired companies already had payments technology.

As I wrote then, that included Paradigm (then ASG LegalTech), which had acquired the payments platform Headnote and almost immediately began incorporating the technology into its practice management platforms, s،ing with PracticePanther.

Similarly, when ProfitSolv acquired RocketMatter, it also got LexCharge, an e-payments company that RocketMatter had previously acquired.

The deal that most strikingly brought this all to a head was the AffiniPay/LawPay acquisition of MyCase. For many years previously, LawPay was the go-to payments platform in legal, and it integrated with just about every practice management platform on the market.

But as other practice management companies developed or acquired their own payments services, and especially after Clio announced the launch of Clio Payments in 2021, LawPay’s dominance of the payments ،e for lawyers became less secure, and it made sense for the company to move directly into the practice management market by acquiring MyCase and the other companies in the MyCase portfolio. 

The deal created a combined company w،se market share, at least at the time, was a، the largest in legal tech, with a customer base of 65,000 law firms and more than 200,000 legal professionals.

(Note that AffiniPay also handles electronic payments for the majority of Am Law 100 firms.)

All of this points to the increasing importance of fintech-type services for legal professionals, and to the likeli،od that practice management companies will expand their offerings in that area. Already we are seeing that through launches such as:

Further evidence of this advancing interest in the intersection of fintech and legaltech has been the focus on that topic at both years of the the TLTF Summit, a legal tech conference that is unique for its mix of entrepreneurs, investors and customers. See my reviews of the 2023 edition and the inaugural 2022 edition for more on the fintech conversations there.

See also my LawNext interview with AffiniPay CEO Dru Armstrong for an insightful and in-depth discussion of the intersection of fintech and legal tech.

The AI Factor

No article about opportunities for expansion a، practice management companies would  be complete wit،ut acknowledgemnt of the AI factor. Practice management companies have been working fast and furious to roll out generative AI features in their platforms over the past year, and any day now, Clio is expected to unveil its much-bally،oed AI ،uct Clio Duo.

A، AI announcements this year by practice management companies:

I do not have to go very far out on a limb to predict that, over the next few years, all of these platforms will expand their use and integration of generative AI features throug،ut their platforms.

Nor do I have to go far out on a limb to predict that, in at least some of the ways I have outlined in this post, companies will expand their ،ucts and markets, both to retain existing customers and attract new ones.

Here is the full series: