All too often, we think of the legal market, especially for law firms, as being composed of BigLaw or at least lawyers that bill by the hour.


The truth is, though, that today’s legal marketplace is composed of various segments. These segments have business models and goals that are so different that they might as well be thought of as separate types of businesses entirely.


The trend toward increase diversification and segmentation in legal was brought home to me in a couple of conversations this week. The first was with Kris Satunkas. Satunkas is the Director of Strategic Consulting for CounselLink.

The CounselLink 2022 Report: The Rich Get Richer


I talked to her about the new LexisNexis® CounselLink® 2022 Enterprise Legal Management Trends report. LexisNexis CounselLink is a cloud-based enterprise legal management program for corporate law departments.


According to CounselLink, the Trends Report, now in its 9th year, provides insights into seven metrics. These metrics all impact corporate legal decision-making. The Report leverages data based on more than $49 billion in legal spend across 350,000 timekeepers, 8 million invoices, and over 1.2 million matters. CounselLink collects and analyzes this data from the invoices it processes. The most recent CounselLink Report examined 2021 data on billing rates and growth.


The key findings of the recently released Report, according to Satunkas:


  • On average, 2021 hourly partner rates of those in the 50 largest law firms (those with more than 750 lawyers) increased by 3.4%, compared to 3.5% growth in 2020. This growth was despite in-house legal’s often professed interest in controlling legal spend and holding down costs.
  • The Largest 50 firms (those with more than 750n lawyers) continue to account for the largest share of legal spend. In 2021, 46% of outside counsel spend was paid to these firms, which is consistent with results from prior years.
  • The three categories commanding the highest partner rates: M and A, Finance, Loans and Investments, and Regulatory Compliance. Combined, the largest firms had a 61% share of billings in these categories in 2021. They also grabbed almost 3/4s of IP Litigation and Corporate Antitrust work.
  • In-house legal continued to show interest in alternative fee arrangements (AFAs). The 2021 results continued a ten-year trend of growth. Last year, 14.8% of matters had at least some portion of the work billed alternately. 9.6% of all fees were non-hourly
  • In 2021, nearly 60% of companies consolidated 80% or more of their legal work with ten or fewer law firms
  • Looking at these findings, you might be tempted to conclude that it’s a great time to be a lawyer, at least financially. And that’s true for the very top end of the market. But rates for firms of between 500 and 750 lawyers did not see the same rate increase. Firms with between 200-500 lawyers saw even less of an increase. According to the data, these firms receive some 20% of the overall legal spend. And some 25% of the spend went to firms of less than 50 lawyers.


As can be seen, a significant portion of the legal market is not getting big rate increases. Presumably, this is because the perceived value of their work is not as great as that for the high-end work done by the largest law firms. Presumably, these firms are also under increased pressure from their clients to hold down rates and overall fees. These firms are thus looking at a completely different picture, challenges, and pressures when it comes to the legal work they provide.


Integrated Law: the Factor/BT Partnership


I also recently talked to Chris DeConti, Head of Strategy of Factor, about the recently renewed and expanded partnership between Factor, a high-end ALSP, and BT. BT is a UK telecommunication and network provider. It also provides global communications services and solutions. DeConti told me that the expansion is part of Factor’s plan that he calls “integrated law.”


Here’s the idea. Like most ASLPs, Factor historically provided commoditized eDiscovery type services. According to DeConti, Factor realized that to continue to grow, it had to provide more sophisticated legal services to in-house clients. Says DeConti,” you have to focus on the center, not the fringes” of legal work to grow. DeConti observes that in-house counsel are today called upon to devote lots of time and attention to high-end, high-value legal matters (like M &A matters, for example). This pressure leaves them with little time to deal with and advise the business about more repetitive but still very important business transactions.


This kind of advice requires a sophisticated knowledge of the business and its goals and vision. It also requires sophisticated legal knowledge. In-house counsel are uniquely qualified to do this important work, says DeConti. Factor wants to do more transactional and repetitive important work to free up in-house counsel. To enable them to do what they do best: advise their business. Doing more of this transactional work at times requires sophisticated lawyering, which Factor wants to provide.


It is this type of repetitive transactional and litigation work that mid-size law firms (those with fewer than 750 lawyers) have historically provided


Great idea. But it’s just this type of repetitive transactional and litigation work that mid-size law firms (those with fewer than 750 lawyers) have historically provided, albeit often not as efficiently as ALSPs.


So these smaller firms are being pushed on rates by clients and have new and sophisticated competitors—ASLPs. Management of these firms has a whole different set of problems that require different strategies and perhaps even different business models than the very largest firms. Apples and oranges.


And let’s not forget an even more divergent business model used by plaintiffs’ contingency fee firms. To lawyers in these firms, less time spent on a matter means greater profit, not less. It’s like the difference between General Motors and Apple.


To think of the legal marketplace as a one size fits all, a monolithic market is a mistake


So to think of the legal marketplace as a one size fits all, a monolithic market is a mistake. More and more, legal vendors, to be successful, must tailor their products to the precise market segment they want to serve. Vendors need to understand the increasing differences in the market segments and the nuances of each. They need to be sensitive to how different lawyers in the different segments view the world.


And those of us who comment on the legal market? Now more than ever, we need to be careful about generalizations on the impact technology, and innovation might have. That impact will rarely be the same across all legal business models.