Corporate Counsel recently reported on the dramatic growth of legal startups over the last two years — increasing from 412 to 1,104 today. This showed the increase in innovation targeting legal technology. While it’s valuable to be aware of this trend (noted by legal blogger and former ALM Executive, Robert Ambrogi), it is strategic for in­house counsel to understand the “why” behind it and the opportunities it presents. This knowledge will help corporate counsel make smarter decisions that can reshape how their legal teams work.

The legal market is an industry ripe for change, and is attracting startups due in no small part to the estimated $3 billion spent on legal technology annually. A new architecture fueled by the shift to cloud computing is creating one of the largest economic opportunities in a generation—an opportunity that will attract the best and brightest talent and top­tier investors.

Imagine having tools to handle complex issues without relying on outside experts. Now think of the improvements in decision making that are made possible by having information and analysis at your fingertips. Better yet, the acquisition of this technology is as simple as signing up for a subscription, no onerous RFP (Request for Proposal) process necessary. And your team can start using the software that very day. Both the acquisition process and use of the technology will become a frictionless experience, and it might just give you your weekends back.

How the Cloud Changes Everything

When Ambrogi speaks of startups, the overwhelming majority are software companies. The reason? Most software in use by legal departments today was developed more than a decade ago. Right now the raw materials of computing are fundamentally changing. The extent to which cloud computing will impact how in­house legal teams do their jobs is still not yet understood by most.

In short, computing is turning into a utility, much like electricity did in the past. Historically factories used to have their own dedicated power plant. Then the electrical grid was developed and electricity was available on demand and people paid for what was used. Those dedicated power plants of old are what data centers will look like a few years from now—antiques, irrelevant.

We are shifting to where computing power is waiting at the ready and you pay for the amount used. This shared resource model is driving down costs precipitously—making computing power virtually infinite and free. Now corporate legal teams can implement software that solves their business challenges without worrying about servers, network connections, back­up systems, security, upgrades or maintenance.

Changing the Life of Corporate Counsel

The best software in the world does exactly what you want with the least amount of effort. The best example is Google. It's one box. The simplicity of a Google search means the user doesn't need any training or support, yet it's a complicated piece of software that is doing all kinds of amazing things to serve up the most relevant content.

A vast majority of legal software in use today is bloated. It is far from frictionless which is a legacy of how companies buy it. Prior generations of software were linked to specific hardware and the total purchase was a capital expense that often ran into the millions and would be around for a decade. In order to mitigate risk, corporations typically purchased using an RFP process, which has become an institutionalized "CYA" exercise that involves dozens of people who never touch the software.

Developers design products that tick all of the boxes. The software gets complicated to use, has complex user interfaces and is difficult to do quality assurance testing (QA) resulting in frustrating bugs. Legal professionals are busy and are not engineers, so they tend to "punt" to outside providers rather than investing in weeks of training to become certified to operate the technology.

In the new world order of legal software, the power shifts to the user. Legal teams should be concentrating on the merits of the case, not the capacity of the hardware. When the hardware goes away, it eliminates all those barriers to adoption. That RFP now transforms into an annual subscription, so the risk and commitment are lower. Now IT doesn't call the shots; the users do.

This is where the innovation that Ambrogi talked about comes in. It means that the true competitive advantage is the software developers' ability to know their users and understand what they're trying to accomplish. Successful software providers of the future will be intimately familiar with what users must have in the software, and they'll prune any of the "nice to haves" out of the user interface and out of the code in order to reduce the amount of bloat.

Let me give you an example. I recently spoke with a paralegal at one of the top airlines who handled litigation support. She was spending two weeks of every month pulling multiple reports out of a complex system in order to cross­reference them for compliance tracking. After upgrading to modern software that was designed to support preservation audits, she said, "Now we're using it, and my life is so much easier. I complete the audit in two hours. So I went from two weeks to two hours and I am more than happy."

A Level Playing Field Opens Doors for Startups

When the users become the buyers, it ushers in a completely different system that can level the playing field. In the old world, the "big iron" software providers dominated simply because the buying cycles took so long that it was virtually impossible for a newcomer to survive long enough to even get a shot. The barriers to entry for newcomers are being eliminated because they can develop and deliver the software more efficiently than established players. With new lower cost architectures and short buying cycles, startups have a shot, and can challenge the old guard.

The technological forces at work have already occurred. We see this transition has already happened in our personal lives where consumers are more nimble. Corporations are slower to change, but they are changing.

Anyone who is a student of technology and investing sees the unfolding opportunity at hand. In the sector of legal software over the last 12 months, major venture capitalists such as Andreesen Horowitz, Bessemer Ventures and Storm Ventures have backed cloud­based legal software companies. Other areas are already tipping, led by companies such as and Box, which are transforming CRM software and enterprise storage, respectively.

Empowering legal teams with technology that enables them to manage the complex operations of the legal department, and removes friction from the process, will also lower cost and risk.