(with Frank Manning)

There is now a wide variety of options available to law firms in the UK, to move away from the pain of managing servers and extensive IT on their own premises, whatever size of firm they are. Legal practice management system suppliers are still mostly at some stage on the journey from supplying dedicated IT systems on the firm’s premises (on the decline) to delivery of their software from a remotely hosted and secure (perhaps shared, making them “true cloud”) servers in a data centre managed by the supplier, the firm or a third party depending. All the firms that we work with are heading in this direction.

One size does not fit all, as firms have different requirements, concerns (sometimes unfounded) and limitations in what they feel they can and should do at this stage. For suppliers, the transition from traditional suppliers of on-premise solutions in the legal sector to deliver “cloud” solutions at maximum profit challenges their business model fundamentally; so some new entrants are likely to make an even more significant impact in the UK market soon.

True cloud computing for smaller firms

For smaller firms – up to 50 people – there is an attraction for both the system suppliers and their customers to deliver a solution that can be managed, updated and developed centrally as that keeps support costs down. Some suppliers (or their hosting partners) can host the core software on shared servers (multi-tenanted) to further reduce costs, with savings that can be passed on to customers. They can still protect margins and generate more revenue by winning new business with easier access and implementation of their systems at this level.

In these situations, each law firm customer can adapt the top layer of functionality to their needs without interfering with the underlying core software and all data is stored securely in the law firm’s own area of the cloud so absolute confidentiality is assured.

This is a true cloud solution that enables suppliers to resell their solution to many customers at very competitive recurring fees. It also provides users with the real benefits of cloud computing as costs vary with the number of users, there is no limitation on IT resource available and updates are applied to their core software in the background with no disruption to business, whilst giving them tools to customise their own use of the application.

Private cloud computing

In a conservative business sector like legal, it has taken lawyers time to react to the potential benefits of cloud computing and for the legal IT suppliers to adapt their software, support and pricing to fit. However, with early teething problems resolved now and still some way to go for some suppliers who have preferred to continue on-premise, early obstacles have been just about addressed by major suppliers with some being more enthusiastic and proactive than others.

It has taken a drive from law firms keen to take a lead in requiring suppliers to deliver their solution through a third party hosting solution provider to demonstrate that there is demand and that there are significant benefits from following other business sectors in this area. However, we don’t see the new PMS supplier entrants here that have impacted on services to smaller firms as the demand is different.

True “public cloud” doesn’t feature in relation to practice management systems (PMS) for mid-size and larger firms. Suppliers here still generally provide a dedicated private cloud solution either themselves (for example, DPS and Advanced Legal) or through a specialist third party which then adds other business components such as Microsoft Office, CRM, digital dictation, scanning etc. Examples of third party suppliers with a significant involvement in the legal sector include Converge IT, eknow.net, C24 and Accesspoint, which all have very close working relationships with some suppliers of legal practice management systems. In these situations, PMS pricing and maintenance components have changed from a capital outlay to PUPM (per user per month) payments with initial set up costs still an upfront cost.

That’s no surprise as cloud computing implies profound change for suppliers. Not only does it force them to deliver their solutions via the internet and to replace their software license model with service fees; it also requires them to rework their solutions to become fully web-enabled, which older legal PMS applications have not been. We can see these being phased out to enable suppliers to focus on technology more capable of being delivered via the internet; capable of serving multiple customers with the same instance, whereas traditional applications are installed and often extensively customised for a single customer.

In terms of competencies and resources, delivering cloud applications also implies that software suppliers operate or partner (and share each law firm’s investment in IT) with operators of data centres; also requiring them to manage applications in addition to their traditional software development activities. However, more strategic relationships are being established between PMS suppliers with third party specialists who also host the rest of your applications.

It is relevant that traditional legal IT suppliers are focusing their development on a smaller number of solutions with consolidation carrying on apace so you can expect to see investment in more cloud capability in the fewer options available from here. For example, Advanced Legal have settled on their system ALB as their solution to replace AIM, Videss, Mountain etc. Thomson Reuters have just announced that they are due to retire Envision (the Pilgrim LawSoft solution they acquired) in 2019 – so there won’t be much development of that system going forwards; with users helped to move across into other TR systems like Elite, where investment will continue to focus. Australian PMS supplier LEAP with around 7,000 customers in Australia and Asia has also acquired (and will probably retire) Peapod’s traditional systems to deliver their cloud based solution to law firms with up to 25 people.

The shift in this sector is for PMS suppliers to now routinely offer their solution – actively managed and updated by them, installed at a data centre that you access securely online from your office – equally or in preference to the traditional set up where you install their software on your servers on your premises.

Where will we go from here?

From feedback we get from both the law firms we deal with and suppliers bidding for new business, the demand to move to securely hosted, proactively managed environment – whether true cloud or privately hosted cloud (as with most medium sized and larger firms) – is increasing rapidly.

We have been mapping the move of law firms to the cloud in this Newsletter since early 2009. There has been little let-up in that shift to the cloud since then, with new online and hosted solutions being introduced and new suppliers entering the UK legal market.

Offering hosted options has led practice management system suppliers to operate new business models; some to a greater extent than others. At ends of the spectrum, we see a variety of suppliers to small firms offering a hosted desktop as an all-in-one solution; and users of large firm systems hosting some or all of their applications, including PMS, on dedicated servers in remote data centres as the norm.

As suppliers to mid-size practices do more to enable their software to work more effectively in a shared cloud environment (with all the security that is needed) and restructure their support and pricing, their model will continue to develop provided they can afford to invest in this fundamental area of system development.

It is a challenge for them to really commit to true cloud style pricing models. Consider for example the impact of including support and maintenance revenue – previously built into every contract – in PUPM, when maintenance contracts have long been the lucrative revenue in any legal software business. You can also expect some of the new entrants, such as LEAP, currently servicing smaller firms to aim for larger practices before too long, having established a Cloud model that works for them.

Why are law firms moving to the cloud?

The fundamental factors and potential benefits for users to move to the cloud remain the same:

• Scalability, so the practice can grow or restructure as appropriate
• Availability of systems from anywhere and support 24/7
• Predictable cost of security and support
• Early and reliable access to upgrades and new releases
• Turn firms’ capital expenses (CAPEX) into operational expenses (OPEX)
• Convenience – releasing management time
• Release internal resources to focus on application development

The risks continue to be:

• Dependence on 3rd parties for reliability and sustainability to guarantee continuity of services, but quality of suppliers and solutions is improving all the time.
• Loss of control over some IT services, but access to manage this can be agreed, so this depends on the nature of the relationship between law firm and the solution provider.
• Questions about access control or security, which are also being resolved now with better understanding at, for example the SRA and with suppliers themselves of what is appropriate in the legal sector.
• Compliance, but we believe all the concerns about compliance – confidentiality, access etc. – can be adequately addressed by backing up data to an additional location if there are any real concerns in this area and by getting the contract right. The most recent guidance in this area from the SRA is in their publication Silver Linings – Cloud Computing, Law Firms and Risks, November 2013 which requires some common sense interpretation in practice.

Cloud is not just about PMS

There is more use of true cloud solutions in other areas across most legal practices and these are certainly on a dramatic increase. Examples include Management Information Dashboards, automated time capture, performance and project management, e-newsletters, conveyancing searches, e-surveys, digital dictation, telephone and teleconference facilities, video and many more – all require easy, fast online access.

Gear up to superfast broadband

You are going to need fast and reliable access with enough bandwidth for every user if you move your practice management system at the core of your practice to any form of cloud, and the signs are that you will make that move some time within the next 3 to 5 years. In the meantime, your use of cloud services across the practice will climb as you continue to add new online services, so get this dealt with now so you have one less decision to make when you decide to move PMS to the cloud. It will feel
like a much smaller step if everyone is already comfortable on the internet.

You may qualify for a £3,000 connection voucher from the government to help take this step now but there are time limits that mean you could miss out as superfast broadband is being rolled out across the country. To check whether this grant is available in your area, go to www.connectionvouchers.co.uk.

In summary

Reliable cloud computing is available now for your practice. If you can see how it might benefit you now, you don’t have to wait until you change practice management or other systems.

Smaller firms of up to 50 people probably have more (and more flexible) true cloud options.

Get internet access up to speed so this is not seen as an obstacle and can help improve the operation of your business in other areas to day anyway.

Allan Carton and Frank Manning of Inpractice UK are specialist advisors to legal practices wanting to develop a more effective and profitable legal practice. Initiatives generally focus on new business strategies, technology, client relationships and processes.

Email acarton@Inpractice.co.uk. Twitter @AllanCarton.