There was no more money for legal software.
Ask Lexisnexis. Founded in 1973, the company sells legal research platforms that lawyers use to create and analyze documents. Parent company Relx posted revenue of $1.2 billion in its legal segment in the first half of this year, supporting 9% year-over-year with companies paying for new “intelligent” tools.
“Law firms are spending more money on technology than ever,” said Sean Fitzpatrick, CEO of LexisNexis' North American Group. The question is where those dollars go next.
Duopoly LexisNexis shares with Thomson Reuters, a provider of accounting and media services, but it no longer challenges. Startups are muscular on the same budget line, and are promising next-generation alternatives. And, a distant third of the legal research race, Vlex agreed to a billion-dollar sale that bundles tools into the legal OPS platform where many lawyers already live.
Spending has skyrocketed, competition is flocking, and for the first time in a long time, the results are unclear.
“What we're looking at is a new era of competition,” Thomson Reuters CEO Steve Husker told analysts about his recent revenue calls, citing “a bunch of startups” and a newly vibrant incumbent. He claimed that Thomson Reuters has an edge. It's a “single integrated solution” that combines unique data with content and workflow.
Decomposition of two layers
LexisNexis and Thomson Reuters have invested billions of billions to create a comprehensive, searchable citation-related database. The duo's early head start created a moat that was almost impossible for newcomers to violate.
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In 2022, Openai released GPT-3.5, a set of models that allow you to understand and generate simple languages and code. At the time, David Wong was two years away from Facebook and settled into his role as Thomson Reuters' Chief Product Officer. What a large-scale linguistic model can do – it didn't take long to get information and create written works and connect the dots between what his company sold. “That's what all of our products do,” Wong told Business Insider.
Suddenly, the threat felt existential. “If Thomson Reuters doesn't do anything with this technology to enhance or replace our products,” Wong recalls, “other people will and we will be outdated.”
Thomson Reuters moved fast. Get CaseText, the early invoker when automating legal workflows. Joel Hron, Chief Technology Officer at Thomson Reuters, said he has pulled the veteran machine learning researchers out of the lab and worked on delivery products. The company doubled the size of its applied research group to 260 people.
The largest legal segment of the three major businesses is growing healthy. Legal “organic” revenue stripping factors such as acquisitions and sales increased 8% in two quarters.
If you can't bump into them, join 'em
Big law is luxury money for software.
Legal technology startups are not succumbing to legacy code and built on the latest models – they still don't know if they could potentially slow down spending from incumbents or if the total budget will simply expand.
Fitzpatrick, on his part, sees none of the newcomers as a serious threat to lexisnexis. “To be successful, you won't be able to distinguish between technology alone,” he said on Zoom.
The case of the Bull in LexisNexis and Thomson Reuters is that even if companies purchase new tools, their legal research subscriptions cannot be negotiated.
Law is an industry built on precedent. Jury, Law School, and Citation Code put all trajectories on track around every lexis and Westrow. As previous litigator Shlomo Clapper said, “If it's not in Wexis, it doesn't exist.”
If a startup is in a position to challenge “wexis”, it's Harvey. The company hopes to create a legal operating system with support from venture capital Giants. This year, Harvey's roadmap was about meeting lawyers they work in, within systems such as Image, LexisNexis and even ChatGpt. Currently, it operates the ability for customers to search for Lexis content directly within the Harvey interface.
Fitzpatrick described the lexisnexis-harvey relationship as symbiotic. “Most companies want both,” he said.
Winston Weinberg, who worked briefly as a lawyer before starting Harvey with research scientist Gabe Pereyra, believes the pie is expanding. Law firms are becoming more of a tech company, with key innovation officers becoming “like CTOs” in that they have to build, buy and manage large tech stacks.
In February, Relx joined Harvey's $300 million Series D through corporate venture arm Rev Ventures. Four months later, he increased his Harvey stock in an additional $300 million funding round.
The funds usually support early-stage data and analytics startups across the industry, but this bet shows a more strategic one. LexisNexis, half of Duopoly, brings his friends closer to him, bringing him closer to the fastest growing madness.
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