In business literature, commoditisation is defined as the process by which goods that have economic value and are distinguishable in terms of attributes (uniqueness or brand) end up becoming simple commodities in the eyes of the market or consumers. It is the movement of a market from differentiated to undifferentiated price competition and from monopolistic competition to perfect competition. Hence, the key effect of commoditization is that the pricing power of the manufacturer or brand owner is weakened: when products become more similar from a buyer’s point of view, they will tend to buy the cheapest (Wikipedia, n.d.).

As consumers we are immensely familiar with how new products establish themselves. Often new products initially come with premium pricing, however, over time, standardisation and commoditisation increase choice to the consumer, driving down prices. Inventors and creators benefit due to the establishment of larger markets as products develop into the mainstream, however, it is not always the “original” creator of the product or service who gains the most.

For most products and services evolving technology has been a disrupter since the dawn of man, as we make new discoveries existing products evolve and new products are created. Market position can be protected through intellectual property rights, copyright, patents etc. but even with these protections they must continue to innovate or disappear.

The legal services industry, by and large, has no copyrightable/patentable raw material (clauses cannot be “owned” or the industry simply wouldn’t work) and it doesn’t own the net product (the executed contract) either. In essence the legal services industry uses shared core components (clauses), derived, maintained and accessible by market participants which each lawyer has no explicit rights too! This industry is reasonably unique in this way.

In any other industry, the open-source nature of the raw material would drive an explosion of innovation, leading to rapid commoditisation, however, the complex unstructured nature of these clause building blocks have ensured technology has so far played a supporting role at best. The core expertise of the lawyer has been beyond the reach of technology providing a protective “moat” from high tech. However, technology is now starting to challenge this, putting the industry and the role of the lawyer at particular risk from disruption as the capabilities of computers finally catch up with the core competencies of a lawyer.

INDUSTRIAL REVOLUTIONS AND THE JOURNEY TO COMMODITISATION

Using the automobile as an illustration of the journey to commoditisation; these started off as bespoke inventions by visionary engineers. Once a market was formed, scaling these handmade (and often unreliable) products to satisfy customer demand required the introduction of ever greater technology or risk the ultimate demise from crippling costs of additional skilled resources. The implementation of the modern production line by Henry Ford in 1913, created a step change in both efficiency and quality, something that even the most bespoke automotive manufacturers must now have or risk ruin.

Commoditisation does not mean that there is no room for customisation (something legal services pride themselves on). Again, using the car as an example, almost all new modern cars can be tailored to your personal tastes with some vehicles having many thousands of possible variations, but with the same underling engineering, quality, branding, image etc. with a menu-based set of prices.

To date there have been 3 complete Industrial Revolutions and we are now in the 4th. Revolutions 1-3 saw the increasing complexity of technology through to the development of the modern computer. The 4th is where we see the fusion of physical, digital and biological technologies to create ever more human like solutions.

Historically the evolution of products from bespoke to commoditised has taken significant time, however, in our increasingly technology driven world the journey to commoditisation is taking significantly less time. This creates an arms race of those who best adapt to technology being those in the strongest position to survive and thrive.

For legal services specifically, Industrial revolutions 1 through 3 general required little change to the mechanisms in which these services were delivered, meaning time and materials and per hour pricing remained largely unchallenged due to no real alternatives to the expertise of those delivering the service.

Unlike the 3 prior revolutions; Industrial revolution 4.0 is certain to have a much more significant impact on the way service industries deliver their products. New technologies are being developed at an astonishing rate, not only facilitating the identification and standardisation of the core building blocks that go into contract creation but Artificial Intelligence (AI), Machine Learning, Natural Language Processing (NLP), Generative Adversarial Networks (GANs) and ever more sophisticated technologies are enabling commoditisation of more than just the contractual output from the Legal services profession.

The historically well-trodden path to commoditisation, is well underway within legal services, driven by ever more demanding clients, who need price certainty and less complexity, desiring ever more standard products but with customisations needed for these specific niche/deal requirements. This change has enabled new entrants into the marketplace with these alternative organisations embracing commoditisation, giving them advantages over more traditional organisations. In house lawyers also have more technology options than ever to optimise their role within an organisation.

CURRENT POSITION ON THE ROAD TO COMMODITISATION

Automated contract creation is something that has long been possible with numerous products serving this requirement, however, the ability to identify and define the elements that feed this technology takes so much human effort that these tools provide the best return on investment where high volume and low complexity exist, limiting their full potential.

The power of AI and Contract Analytics will drive both standardisation of clauses (even if these are de facto standards, not set by industry bodies) and standardisation of negotiation. The Human condition, whilst on the one hand is infinitely adaptable, on the other we seek to reuse, recycle and repeat what we know works, driving us towards commonality even if we aren’t striving to do so. Over time, this means that all but the most bespoke legal products, across all market sectors will become largely or completely commoditised.

Technology advancements are enabling the ever-increasing scope of Alternative Legal Manager Services (ALMS) providers, who are adapting to technology much faster than many traditional law firms. Over time legacy firms will continue to find increasing parts of their businesses disintermediated by these alternative firms, who will be able to offer ever increasing complexity of services powered by technologies now possible as part of Industrial revolution 4.0.

All legal services firms, from Magic Circle to small town conveyancers will have to adapt to this 4th industrial revolution and face significant disruption to existing business models. History is littered with examples of how, once the technology had developed the necessary components, those slow to adapt are often eliminated. This equally applies to high end brands as it does to not so premium brands underscoring the importance of not just relying on brand and positioning to ensure an organisations survival.

FUTURE LEGAL TECHNOLOGY LANDSCAPE, THE RISE OF THE ROBO LAWYER

Today, consumers of legal services are not only paying for the quality of the legal offering but more and more the ability of the law firm to complete the deal quickly and effectively. Anyone who has purchased a house will know that often the most stressful element is from the conveyancer’s lack of ability to connect with the other side in a timely manner. Overworked professionals are juggling many transactions at once, meaning most of the time is taken up waiting for responses from one side or the other. A large proportion of the fees are effectively for the lawyer to badger the other side for progress, not necessarily for the legal insight (which can be provided very quickly once the deeds are available).

As technology improves, there will become a day when the “Robo Lawyer” becomes a reality, in, fact this is something that is technically possible today, at least for the first few turns of a contract. By combining sentiment analysis and the latest in deep learning language prediction modelling (GPT3 from OpenAI as an example), the Robo Lawyer has most of what is needed to negotiate at a near final version of a contract in much less time (and no human effort) than the traditional back and forth that takes so much time in current contract negotiation. With such technology, virtually instantaneous responses would be possible, vastly improving the customer experience. Lawyers still have a role to play but wouldn’t have to focus on the grunt work that comes with so much of the transaction and can focus on the exceptions or the softer side of customer engagement and higher use of their specific expertise.

Whilst the end to end of this process is not quite there today, it’s only a matter of time. GPT3, to date has been trained on conversational language and not the more specific legal ease used in contracts, however, it is not going to be long before this gap is filled and the Robo lawyer concept becomes a reality. It will start with simpler services but without any boundaries to its capabilities, other than feeding enough raw materials into the learning process, increasing efficiency gains will undoubtedly drive adoption up the legal complexity ladder putting pressure on all types of legal organisation.

Legal services providers have largely been untouched from prior industrial revolutions; however, Industrial Revolution 4.0 will certainly change all of this, with complex, human touch service-based industries now falling within reach of what computing power can replicate with increasing sophistication. These ongoing developments will continue to advance, moving ever more towards standardisation, commoditisation, and automation of the core of what lawyers provide.

Contract Genetica’s “Analyst” solution provides insight needed for commoditisation using your prior contracts as the basis. It provides statistical certainty on what clauses should make up the building blocks of your journey to commoditised contract creation and negotiation. With this “no training required” solution you can immediately get the insight needed, driving efficiency, cost savings and game changing opportunities for your legal services professionals.

Contract Genetica’s “Assistant” solution makes use of your existing documents and clause information while you are drafting in MS Word. Unlike document creation tools, it requires no specific template setup or logic to be programmed, augmenting the lawyer’s capabilities without changes to existing business processes. This ensures your legal professionals can further drive standardisation whilst also giving them the customisations needed to ensure the contract suits client requirements.

Contract Genetica’s advanced technical solutions ensure your legal professionals are at the cutting edge of their ‘cost’ performance, always working with the correct data needed for your organisation to thrive – and be profitable as we continue to advance through Industrial Revolution 4.0.

For more information or to discuss how CG can enhance your service offering, please contact Contract Genetica through our website www.contractgenetica.com or email enquiries@contractgenetica.com