The competition for law firm customers for legal specific AI tools is, to say the least, intense. Virtually every legal tech player almost daily touts enhancement and upgrades designed to give them an edge. From Clio, whose user conference takes place this week, to NetDocuments, whose users conference takes place next week, to legal research vendors like LexisNexis and Thomson Reuters, all are trying to gain market share. Add to this the fact that almost all of these vendors’ models run or are built on OpenAI or similar models and you have the makings of a potentially interesting competitive upheaval.
It was this very upheaval that the founders of Harvey, the new 100-pound gorilla in the field, noted in a recent interview published in Business Insider (subscription required). Winston Weinberg and Gabe Pereyra built Harvey seemingly by magic and almost overnight into a big player, lapping the competition as I discussed recently.
They launched a stealth player by evaluating the field and needs of law firms, and by understanding law firm needs and motivations. In essence, they figured out how to beat their competition before the competition even realized what was happening. Beyond their success, they have a proven ability to understand and anticipate market dynamics.
When Weinberg and Pereyra Talk…
So, when Weinberg and Pereyra talk about competition in the market, it’s worth listening.
As most now know, Harvey was founded in 2022. Within three years, it grew in value to $5 billion and now has over 50 law firm clients in the Am Law 100 according to the article. Harvey offers domain-specific AI tools for law firms and works off the firm’s internal data. It has also entered into a recent partnership with LexisNexis to seamlessly provide legal research capabilities.
What, Me Worry?
So why are Harvey’s founders who built such a powerhouse in such a short time worried? Harvey is built on OpenAI’s infrastructure. Indeed, OpenAI is one of Harvey’s financial backers. But Harvey’s founders now see OpenAI as both a partner and an indirect competitor.
According to the Business Insider interview, they’re less concerned about legal tech vendors and more about competition from OpenAI itself. Somewhat candidly, they admit that OpenAI could enter the legal tech space directly and cut out the middleman legal tech vendors. Moreover, even if OpenAI never targets the legal field directly, it very well could release general tools offering the strong privacy protections, enhanced accuracy, and stronger security lawyers and legal professionals crave. In fact, OpenAI recently mentioned a contract review tool it developed and is using internally.
And all that would threaten Harvey’s value proposition and differentiation. Add to this the fact that many lawyers already use tools like ChatGPT to do all sorts of legal-related tasks. Lawyers and legal professionals are already used to using these tools, which could make for easy future adoption.
All these things keep Weinberg and Pereyra up at night. They realize that OpenAI is already its biggest indirect competitor. They realize that Harvey must continue to up its game to try to stay ahead of what entities like ChatGPT offer. While they believe that Harvey offers value by deeply integrating legal domain knowledge, law firm workflows, and firm specific customizations, as OpenAI develops stronger and perhaps less expensive advances, it also may make it easier for big players to encroach.
The threat is real.
Why Now?
Historically, legal tech vendors have been somewhat immune from this kind of upstream competition. Microsoft, for example, has dipped its toe in legal tech for some time but hasn’t gone after the downstream customers like law firms. It has been content to offer services and products to legal tech vendors that can be wrapped and sold to their customer law firms.
The reasons Microsoft and so far the LLM players haven’t gone head-to-head with legal tech vendors likely stem from the uniqueness of legal market needs. And also from the fact that the upside profits haven’t appeared to be enough to invest the time and energy needed to compete directly with the vendors.
But that may be changing. Various reports confirm the amount of investment capital going into legal has exploded exponentially recently, signaling there may be profits for the taking. And AI and GenAI make mastering the legal needs and unique issues much easier than ever before.
So, it stands to reason that the big players may start jumping in. Why let the legal tech vendors skim the profit when you can cut them out and charge the downstream customers for services directly?
The Irony of It All
Somewhat ironically, I recently wrote a piece on the possibility that legal tech vendors might make a play to sell their services directly to clients and take a chunk of the law firm profits. I say ironically because the legal tech vendors themselves may end up being subject to the same phenomenon if the ChatGPTs of the world decide to compete directly. It’s ironic too that the very AI tool responsible in large part for the increased investment and explosion of products in legal tech may itself enable and encourage the bigger players to try to cut out current legal tech providers.
So when Weinberg and Pereyra who built an empire on evaluating and outmaneuvering their competition are worried about an existential competitive threat like OpenAI, the rest of legal tech better listen.
Stephen Embry is a lawyer, speaker, blogger, and writer. He publishes TechLaw Crossroads, a blog devoted to the examination of the tension between technology, the law, and the practice of law.
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