Every market has both supply and demand. But law is unusual in the degree to which the vast majority of attention has been paid to the supply side. I’m willing to wager that at least 80% of everything that’s been written about legal services has concerned lawyers and law firms — and most of the remainder that’s been written about clients has shown up in just the last 10 or 15 years. Maybe that’s what monopoly markets produce: a certain amount of navel-gazing by the people and institutions that call the shots. “Whither lawyers?” and so forth.

It’s past time we began paying more attention to the demand side of legal services, given that the law is a buyer’s market and all. I don’t write as much anymore about the consumer and small-business legal market, but we’ve already seen a significant power shift towards buyers in this sector, thanks to services like LegalZoom, Rocket Lawyer, and Avvo. Once somebody develops a truly reliable and accessible chatbot for everyday legal questions (and that shouldn’t be too much longer), this process is going to rapidly accelerate. Regulators that are even now trying to push the genie back into its bottle will be left struggling to catch up with reality on the ground.

But in this post, I’m focused mainly on the corporate and institutional legal markets — specifically, on how the demand side of these markets has shifted through three distinct phases over just the last decade or so. I decided to classify these phases according to naming conventions for obsolete software products, because that’s how I roll.

Legal Demand 1.0. In the beginning, there was the client and the law firm, one buyer and one seller, side by side in perfect symbiosis. When the client encountered a legal issue that was too complex or resource-intensive to handle internally — and a lot of legal issues fell into that category — the client threw it over the wall to the law firm. The firm tackled the issue in the time-honoured way — handed it to a lawyer, gave the lawyer a clock to record his or her hours, and let nature take its course. In the fullness of time, a resolution of the issue was tossed back over the wall, along with an invoice for lawyer time spent, photocopier ink consumed, and so forth. The law department signed off on the bill — not necessarily with glee, but signed off nonetheless — and the cycle continued.

The remarkable aspect of this system was its longevity. It stretched from the murky beginnings of the legal services market right up to the early 2000s — and in some sheltered jurisdictions and sectors, continues to this day. In fairness to its participants, it’s true that this was the only model available for anyone’s consideration — but it’s also true that it met the basic needs of all the parties involved. Law firms received regular streams of (not particularly demanding) work, law firm lawyers pulled down massive annual profits, and in-house lawyers spent the corporation’s money on law firms that in many cases, they hailed from and in some cases, would eventually join as partners.

That’s not to say this was a perfect world. In-house counsel complained regularly about inefficient firms, outrageous rates, and arrogant outside counsel. Articles appeared in the legal press, seemingly in a regular rotation, decrying the billable hour and calling for something better to replace it. CEOs grumbled about the “cost center” that Legal had become. Lots of talk, but little action. This steady state would continue until something broke in from the outside to change it. And starting in 2007, something did.

Legal Demand 2.0. The antecedents of this stage can be traced back five or ten years before the collapse of Lehman Brothers and the onset of the Great Financial Crisis. Primordial substitutes for lawyers and alternatives to law firms had already begun to emerge at the edges of the market: LPOs in the late 1990s, flex-lawyer platforms in the early 2000s, technology-assisted review in the mid-2000s. But when the Great Recession swept through the world in 2008 and brought many companies almost to their knees, this growing array of legal service alternatives met an urgent corporate impetus to corral costs, reduce risk, and entirely rethink the notion that Legal was a world apart.

Phase 2.0 of legal demand involved one buyer and multiple sellers of legal services. In-house counsel had a mandate from upper management to get more done with less money, and they quickly realized they could never achieve that goal by relying on law firms for all their outside needs. But now they didn’t have to: there were multiple sources available to them for different types of legal services at different price points. Non-firm options included contract lawyers, flex platforms, LPOs, and managed legal services companies; non-human options included powerful software programs, burgeoning AI platforms, and efficiency-enhancing process improvements. They could even find a few boutique and NewLaw firms to do outside counsel work differently and better.

This was, and still is, the multi-sourcing era in legal services. It kicked off in earnest in the late 2000s and is still accelerating today. It’s the rare general counsel who believes she can still get all her legal needs from traditional law firms without facing hard questions from the CEO, and it’s the rare law firm that hasn’t experienced a significant diversion of its corporate client revenue stream into other channels. And the least expected alternative option to law firms has turned out to be the client itself: insourcing its own legal work, taking back or keeping ab initio straightforward tasks that previously had been routed to outside counsel as a matter of course. Demand 2.0 launched in 2008, and it’s still going strong; but it’s about to be superseded by a third stage.

Legal Demand 3.0. Up until now, true to the tendency I identified at the start of this article, we’ve been focused on the supply side, first with law firms as the sole providers of legal services and then with an array of new suppliers competing with them. But starting a few years ago, and accelerating rapidly right now, we’re seeing multiplicity on the demand side as well. It’s no longer just the Legal Department calling the shots for corporate buyers; there’s now a trifecta of players on the demand side. Legal has been joined on the one side by Procurement, and on the other by Legal Ops.

Procurement professionals are pricing experts. They are very good at ensuring the company pays as little as it feasibly can for the products and services it purchases. They have sophisticated pricing models and mechanisms, they have wellsprings of data on law firm billing rates, and they are skilfully trained in the art of negotiating price; in most cases, they are up against law firms lacking all three. Following some initial tensions between Procurement and Legal, during which each side scouted out the other and jockeyed for position, there’s now an increasingly common front, as Procurement accepts that buying legal services is not like buying pencils, and Legal accepts that Procurement can help the law department achieve the cost certainty now demanded of it.

As important as Procurement is, I suspect that the other new player on the demand side, Legal Operations, will prove to be even more impactful. Whereas Procurement seeks to lower the price of legal services, Legal Ops is interested in lowering the volume of legal services, reducing risks and eliminating unnecessary or inefficient activities. Legal Ops, it seems to me, would like to re-engineer corporations’ entire approach to their legal risks and obligations. Can we act in ways that reduce our legal exposure, streamline our legal processes, standardize our legal activities, and minimize our overall legal spend, both inside and outside? These are important questions, and as companies begin to answer them under Legal Ops’ leadership, the whole corporate legal market will be shaken to its roots.

One interesting dynamic to note here is that there are fewer lawyers in Legal Ops than there are in the Legal Department itself, and fewer still (possibly none at all) in Procurement. This is one of the main reasons why Procurement and Ops are getting so much done so quickly: they’re not hamstrung either by lawyers’ general change-aversion or by the habitual tendency in many law departments to mimic the habits and behaviours of law firms. Many in-house lawyers started their careers in law firms and carry with them the unconscious cultural assumption that law firms are the center of the legal universe. That is not the way Legal Ops and Procurement think, and it is not the way they will act. That could have implications, down the road, for just how much authority and jurisdiction the Law Department will retain by the time this process sorts itself out.

Demand 3.0 is just getting started, and at this particular moment in the evolution of the legal market, you can find all three types of demand operating in different sectors, lending a growing sense of chaos to an already complicated landscape. Both the demand and supply sides of the market are in flux —  the three dimensions of Demand are sorting out who’s best at doing what and sizing up the increasingly diverse Supply environment, while traditional law firms are either adapting to their new competitive conditions or pulling the sheets up over their head and hoping it all works out somehow.

I can see this state of affairs carrying on for another three or four years, probably. At some point soon, the Demand side of the legal services market will have worked out its strategies and powered up its engines, and it will be a formidable player in the market. The Supply side is experiencing both the constant appearance of new alternative service providers and an over-arching process of consolidation and adaptation among law firms. Ultimately, this will produce larger, stronger, and equally formidable suppliers — but this process is likely to take longer, and for at least the next several years, Demand figures to have a very good time of it.

So where does that leave law firms? As I mentioned, several prominent firms (and many other less prominent ones) have made great strides in adapting to these new circumstances, upgrading their internal operations and expanding their external business development activities to include these new dimensions of Demand. But they are still the exception, rather than the rule. And even among the most progressive and innovative firms, there still remains one singular handicap that’s going to stymie their efforts to gain market share.

Every other player in this market, both Demand and Supply, has recognized and acted on one killer observation: You can’t succeed in this market by using lawyers alone. Alternative legal service providers combine lawyers and “non-lawyers,” professionals and technicians, machines and processes, to deliver what their customers need. On the client side, in-house lawyers are being joined by in-house procurement and in-house operations to form a multi-dimensional legal machine, accepting that lawyers alone can only get you part of the way to your goal.

Lawyers and law firms have not yet accepted this. Lawyers, through their regulatory arms, continue to beat back every attempt to liberalize the rules surrounding legal services provision and “non-lawyer” law firm ownership. Law firms, forced by regulation to restrict equity to practicing lawyers, compound their troubles by discounting the skills and perspectives of any “non-lawyer” professional or technician, continuing to pay fealty in their cultures and practices to the Cult of the Lawyer. They are on the wrong side of history.

The future legal market is multi-dimensional and multi-disciplinary. Today’s legal market, thanks to Demand 2.0 and 3.0, has already come quite some distance towards that goal. When are lawyers going to see this and act on it? Or will they?