Are there any mainstream independent suppliers left?

Thursday 26 August, 2021

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Insight Legal Chairman, Brian Welsh gives his thoughts on supplier consolidations in the legal software market.

Ten years ago, when I left the first main consolidator in the legal software market to set up my own CPL business, they were the only real consolidator that was out there. But times have changed a lot over the past decade and, over the last six months, there have been some pretty significant acquisitions in the legal software sector.

Now there are four main consolidators in the sector that are venture capital-backed and one consolidator that is backed by its own cash. The VC backed consolidators have snapped up some well-respected, high profile software companies. On top of that, there’s another VC backed business that’s also been snapping up a lot of conveyancing-based companies in the search area.

As a result, I’ve found myself reflecting a lot about the changes I’ve seen in the legal software market, and it’s given me some concerns.

What’s my issue?

Software consolidators buy companies to get economies of scale. For them, the perfect ‘utopian position’ is to have every customer of every business they’ve bought transfer to their ‘go-forward product’. On top of that, I have yet to come across a software consolidator that didn’t have a main go-forward product and an upgrade path for all the other product sets they’ve purchased.

They buy up these other businesses, create more income by inevitably ramping up the price of the products, and then get rid of the developers, support staff and trainers for the product sets they’re replacing. The bottom line? A considerable increase in profits and a huge increase in valuation.

And that’s my issue. For most of these companies, consolidation is purely a vehicle to make money. Hit hard, hit fast, and then get out a few years later with a very tasty profit.

Granted, that’s not the way it works in reality. Not all the customers of the non-go forward products will elect to upgrade. At Insight, we’re still migrating legal firms from products they bought fifteen years ago.

There’s a potential conundrum here, too: what happens if a legal firm shortlists three different products, but two of them come from the same stable?  Do the two go head-to-head, or will one of them bow out to hopefully discourage the firm from choosing the product they don’t own? That’s another major issue a consolidator could encounter.

So, what are the consolidator’s options? Do they set an end-of-life date and risk that when their customer reaches end-of-life, they’ll look for another product elsewhere? Or do they go into Care & Maintenance mode and try and keep it quiet?

Either way, it’s the customer who is losing out.

That’s because the customer’s either receiving a product they didn’t originally buy from a company they never bought into, or they’re trapped in a dilemma wherein the product they have is no longer being developed.

I can see it from the consolidator’s point of view. Let’s take Make Tax Digital (MTD) as an example. If you own ten product sets and have to develop true MTD functionality into all of them, or if you have to deal with the Windows platform going out of support when the older product hasn’t been worked on for years and isn’t compatible with newer OS versions, you’ve got a massive headache on your hands. From a pure business perspective it makes absolute sense that they’ll only want to have one product set moving forward but that doesn’t help the customer.

That’s why, when so many of these companies tell you they are committed to all of their product sets, you should treat that with more than a grain of scepticism. It just doesn’t make sound commercial business sense.

I will admit there is one very big positive to this for me. Every time a consolidator ‘end of life’s’ or goes into Care & Maintenance, Insight Legal’s inbound lead stats go through the roof! That’s great for our business, but it’s not good for all the legal industry customers the consolidator has just left high and dry.

But I’m still hopeful.

And that’s because there is one consolidator I’ve been watching with great interest that still has to nail its colours to the mast and announce their go-forward product. I hope they don’t. I hope they’ll commit themselves to all the product sets they’ve bought. But software isn’t like soap powder. It’s tough to take that Unilever approach because all you might end up with is suds on your bottom line.

I guess we’ll have to wait and see.

Oh, and by the way, Insight Legal is not for sale. Tim and I (well, Tim more than me these days) receive approaches multiple times a week, and if we ever bother to reply, it’s always with the same “thanks for your enquiry, but please stop emailing” answer. More often than not, though, we just delete the email. Rude? Perhaps. But life’s too short to keep sending “no, Insight Legal is absolutely NOT for sale” over and over…