competitionA couple of years ago Apple announced the revolutionary iPhone. Beautiful. More advanced than anything else on the market. And so easy to use.

Frankly, it left the other cell phone manufacturers in its dust. In short, a giant leap for cell phone technology. Today, a couple of years later, the competition has caught up, and there are a number of iPhone-like offerings out there. But if Steve Jobs hadn’t upped the ante with the iPhone, the market would still be producing old-fashioned cell phones! “All very nice” I hear you say, “but what has that got to do with the South African legal technology market?”

It is no secret that seven or eight years ago, South African legal software led the world in terms of sophistication. Local legal accounting software was way ahead of the rest of the world – offering all-in-one solutions where the rest of the world offered separate systems for each aspect of practice management. Our conveyancing/case management software was also way ahead of the rest of the world, and our mortgage switches between bank and law firm were at the forefront of the industry.

But since then the UK has left us in their dust. Their accounting systems have caught up, and surpassed our level of sophistication. Their case management systems are more sophisticated. Their document management and document automation/assembly solutions are better than ours, and their electronic mortgage instruction switches are in a different league. And the UK is not alone – the USA too has left us behind. There are also a number of countries which have electronic property registration systems, whereas we’re still talking about it. So what happened?

Firstly, the UK legal profession is much larger than the South African profession, which means that vendors earn more revenue. This allows them to spend more on developing and enhancing their products. It also means that there are more vendors focusing on the legal market. The first-world markets are also much more regulated than we are in South Africa, which increases the demand for technology solutions.

Secondly, in the UK, Pound Sterling pricing of legal software is much higher than the converted amount in South Africa – again, creating wealthier vendors, and attracting more players to the market. Given the high returns from selling software to the legal profession in the UK, funding for startups is also more readily available than it is here. The UK is also a first world economy, which means that legal fees are higher, so law firms can afford to spend more on technology. While this might not be the case in the current UK economy, it certainly has been the case up to now.

But there is another reason why the UK market is so far ahead of us these days, and that is because South Africa only has a handful of large vendors, which is stifling competition. And with software being so expensive to develop these days, it is very difficult for new entrants into the market to make any headway against the established players. Add to that the substantial cost of sales and marketing, and the incumbents are likely to retain their dominance for many years to come. But this secure position means that innovation takes a back seat, since there are only a few competitors putting incumbents under pressure.

It is likely that the South African legal software market will consolidate a bit in 2009/10 as some of the vendors find themselves in financial trouble, and this will further slow innovation. At some stage this is going to mean that overseas vendors are going to bring their products to South Africa, as ADERANT, Thompson Reuters Elite, and Interwoven have done. But having said that, it will be difficult for these vendors to make real headway in South Africa for two reasons: Firstly, our weak exchange rate makes the international products unaffordable for most South African law firms, and secondly, local resellers just don’t make enough money from each sale. For the international vendors, the South African market is so small that it almost isn’t worth considering. It is also worth noting that international legal-tech powerhouse Lexis-Nexis hasn’t really promoted its large array of products in South Africa, rather sticking to its highly successful local publishing focus.

When it comes to case management systems such as conveyancing, our complex property transfer process means that international systems don’t meet our needs – so local vendors are well protected against international competition. Added to this, there is so much sophistication in today’s conveyancing software that it is near impossible for a competitor to enter that market. It is no secret that two of the three local conveyancing vendors have tried to rewrite their conveyancing software without success, and last year startup Law Studio attempted to release a conveyancing software system, but didn’t reach commercial launch. L@W has also been developing an online conveyancing system for some three years now, and has only now released a transfers module.   All of this seems indicative that innovation in conveyancing isn’t going to be a priority for some years to come.

One factor that might change the status quo is if conveyancing documents (and the process) can be simplified in South Africa – as is the case in a number of other countries. Perhaps electronic deeds registration (E-DRS) will make that a reality, if and when it is finally delivered by the Deeds Office. And that’s another reason why we lag the rest of the world in conveyancing technology: The first world Land Registries have spent a massive amount of money on IT, whereas the South African Deeds Office has been restricted to a tiny IT department and been forced to make use of the State Information and Technology Agency (SITA) for its technology needs. However, with the recent tender for E-DRS, and the Deeds Office’s bid for independence (along the lines in which the South African Revenue Services functions) we may see some progress in that area. Having said that, with the carnage in the property market, the Deeds Office could have a problem with funding new ventures such as electronic registration – so it may still be a number of years before e-DRS becomes a reality in South Africa.

The transactional search market is only now starting to come alive, with some new entrants attempting to earn a share of the market. The challenge for these now search vendors will be to find a compelling reason why firms should change to their product. But while there hasn’t been much innovation in how searches are performed, search vendors have introduced a number of new search types to their products in recent years, which is a positive move. And since it is unlikely that the Deeds Office and CIPRO will be in a position to enhance their search software, it is likely that privately owned vendors will continue to on-sell government owned data for many years to come. But competition is good for the market, and another spin off has been the re-awakening of the incumbent supplier as it works harder to protect its market share.

So how do we stimulate innovation in South Africa, given that the financial reward for most of the local vendors doesn’t warrant the high cost of software development and commercialisation? Perhaps the banks need to bring change to conveyancing through simplifying and standardizing their mortgage documentation. In the UK some 130 banks make use of the same mortgage documents, so surely the same can be achieved by only a handful of banks in South Africa? And the Deeds Office needs to simplify its documentation requirements for property transfer. While the temptation might be to postpone this until e-DRS is launched, it could be argued that this too far into the future, and that the simplification should happen sooner than that.

Another cause of the lack of innovation in South Africa is that the Law Societies and the LSSA do little to promote the use of technology in law firms – preferring to leave that responsibility to the technology vendors. In the UK and the USA, the Law Societies are actively involved in promoting technology for the profession. Given the benefits that technology has brought to the profession, it would make sense for the LSSA to appoint a dedicated team around the country to advance technology usage among South African law firms.

Law firms themselves also have a part to play in the transformation to a more vibrant and innovative legal technology marketplace, and this is by using technology more effectively. Right now, a large proportion of South African lawyers are extremely tech-averse, using only the technology that they are forced into using. But if lawyers truly started getting more out of technology, as their first world counterparts are doing, not only would their bottom line improve but they would be energizing the legal technology industry at the same time.

Law firms can also make a difference by spreading their technology-spend between more vendors. Of course, in practice this is easier said than done, since the choice of a supplier is usually determined by three things: price, the suitability of the product, and the service levels offered. In South Africa, many vendors have a long way to go to bring their customer service up to speed, and if they want to be real contenders, they are going to need to address that aspect of their business. In terms of the suitability of the product, most offerings on the market these days meet the needs of local law firms. And as far as pricing goes, firms that offer cut price solutions often don’t make enough money to enhance their products or to offer top-rate customer service – which ultimately will result in their demise.

In conclusion, the South African legal technology industry faces some serious challenges in the years ahead. The industry is controlled d by a handful of vendors, which leaves little scope for smaller vendors to compete, and as a result stifles innovation. And the profession is tech averse – further limiting prospects for vendors. Pricing doesn’t create much profitability, and as a result, investors aren’t lining up to put money into new legal-tech initiatives.

 

 

 

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