Most clients would prefer a single, generic extranet than the tower of babel that currently prevails. whether a standard can be developed, writes Kieran Flatt, depends upon a critical mass building behind any one system.
Given the recent turn of events – with industry buzz about extranet standardisation at its highest point for more than a year, many readers will be wondering exactly why the world’s largest law firms are continuing to individually develop their own client-facing systems, at a not-inconsiderable expense to each equity partner. Why, for example, is Clifford Chance spearheading the move for standardisation by actively supporting a generic product and developing its own second-generation dealroom at the same time?
In the good company of a large number of US law firms, Clifford Chance was seen last month to be actively promoting a third-party dealroom product that will be marketed by Orricks’ spin-off legal portal, LawCommerce.com. By some estimates, clients’ enthusiasm for virtual dealrooms is turning out to be far lower than expected. Surely, by continuing to bankroll its internal development programme, Clifford Chance is pouring good money after bad? After all, it has been established that most clients would prefer a single generic system to the virtual tower of Babel resulting from each firm maintaining different facilities for collaborative working. And haven’t the large US firms all called a truce on extranet development?
A few hasty transatlantic phone calls seem to indicate otherwise. The head of technology at one of the largest firms in the world told Legal IT that there was never any question Clifford Chance, or any other large law firm, would abandon its extranet development programme.
For one thing, many of the firms that have endorsed the LawCommerce platform are hedging their bets. While most view the standard as either a good thing or an inevitability, few intend to use it for anything other than low-end, transactional work, the source said.
Paul Greenwood, head of knowledge and information at Clifford Chance, makes an interesting analogy. “It is like renting out a basic meeting room on neutral ground to conduct urgent business,” he says. “Then you take the client back to your own, well-appointed suite.”
LawCommerce is following a two-phase strategy, he explains. The first stage is to develop an accepted third party service that can become a standard solution that most people are happy to use. The next stage would allow views from this into other proprietary systems used by other
consortium members such as CC Connect so that approved users were only authenticated once and given an automatic login to the other systems. This would allow the unified view and single password that most clients would like to see, although the dealrooms themselves would still be held on dispersed systems.
However, there was more than a hint of desperation in the unprecedented move by a large group of bitter rivals, with little or no basis for trust between them, to commit even notionally to a common technology platform. Some of the biggest buyers of legal representation in the world were moving to seize the initiative of extranet development from their law firms, Legal IT can reveal.
Weary of having to use as many as a dozen different and incompatible virtual dealrooms provided by the firms on their panels, a number of clients had started to individually develop their own dealroom systems, which they planned to oblige all their law firms to use. In theory, passing the burdens of integration, compliance and end-user education from client to service provider sounds fair, or at least in tune with general market dynamics. But while client corporations might struggle to effectively use a dozen or so different systems, a law firm could find itself completely swamped if the roles were reversed.
While it may be true that some US and UK firms get the majority of their work from a handful of clients, most of them need to maintain a relationship with several hundred corporations. A general move by clients to turn the tables could have had a catastrophic effect on partners’ profits as their firms’ already increasing needs for that rare and expensive beast, the XML developer, spiralled out of control. It is undeniable that fee earners’ productivity would decrease if they had to learn their way around the idiosyncrasies of each client’s extranet system.
According to Greenwood, fears such as these had been preying on the minds of many an IT strategist or managing partner. He said the LawCommerce announcement “…was expressly designed to head that off”. He said once the clients saw some evidence of law firms making a credible move towards standardising their dealrooms they dropped the idea of creating their own systems.
However, a number of prominent firms, notably Linklaters & Alliance and Davis Polk & Wardwell, have declined to commit to the standard. Linklaters declined to comment on its decision but Michael Mills, a senior technologist at Davis Polk, told Legal IT that the issue of mutual trust had yet to be resolved. And at the time of writing, Allen & Overy, the firm that first flagged up the issue of standardisation with its failed bid for a magic circle agreement last year on a common technology platform, has been excluded from the tentative ‘alliance’. Also noteworthy is that Ernst & Young is the only large accounting firm to have bought into the LawCommerce project – perhaps for the sake of its law practice, EY Legal.
As with any standard, success hinges on adoption reaching a certain critical mass. While there is some optimism in the air, it is still early days for the LawCommerce standard. It is not yet clear whether firms will actually tweak their own extranet systems into compliance with the LawCommerce product, allowing clients to use it as a browser tool for the law firms’ more elaborate client extranets.
One of the major threats to the LawCommerce system becoming the Holy Grail may stem from a powerful group of clients declaring themselves in favour of a cheap, off-the-shelf solution. Derek Southall, the partner responsible for IT at Wragge & Co – and a budding futurologist in his own right – predicts that within the next 12 months most UK law firms that do corporate work will have some form of extranet. As far as standards are concerned, he says everyone has underestimated the influence of the document management suppliers.
Hummingbird, in particular, has enormous leverage because more than half the large law firms in the UK and a similar proportion in the US rely heavily on its products, PC Docs, Fulcrum and Hummingbird EIP.
Legal IT last month heard of a tentative agreement, by most of the big investment banks, to use another company’s virtual dealroom as the standard collaboration tool for all their transactional work. However, the company in question, Peopledoc, was subsequently acquired by Hummingbird, which is rapidly emerging as a central player in the extranet standardisation game.
Royce Murphy, the managing director at Peopledoc, last month claimed that his product was the favoured choice of “most” of the investment banks. The system, which was to be externally managed to remain neutral, with Williams Lea acting as the application service provider (ASP), was piloted by law firm Lawrence Graham. Its launch last month was met with an enthusiastic response from some of the UK’s top 20 law firms.
The Williams Lea/Peopledoc alliance was put together by Ed Wilson, then co-head of the e-commerce group at Morgan Stanley. According to Wilson, who was one of the first heavy users of virtual dealrooms and datarooms, most clients couldn’t care less about the branding aspect of virtual dealrooms – any more than they would insist on decking out a physical data room with their own corporate logos and colour schemes. The most important thing, he says, is that the information is indexed in a logical way – and that somebody else has taken on the wearisome task of managing it.
If the investment banks are still prepared to put their weight behind Peopledoc – either as a managed ASP or as a Hummingbird product, they will have put behind them a whole host of issues and vested interests. Deutsche Bank has taken a stake in Intralinks, another dealroom supplier. Goldman Sachs is understood to be biding its time on the extranet front. Morgan Stanley and Merrill Lynch have invested a considerable amount of capital in developing their own systems. Credit Suisse First Boston (CSFB) is understood to be working closely with Linklaters.
Although it has forced a re-negotiation of their original collaboration agreement, the takeover is arguably a very good thing for both Peopledoc and Williams Lea. As a small, relatively unknown company based in Edinburgh – albeit one backed by heavyweight investors such as 3i – Peopledoc would likely have faced considerable difficulties in establishing its credibility with the vital Manhattan players. According to a senior investment banker, Wall Street is all the more important because of its relative maturity as an online marketplace. Hummingbird is well known to all the major players, not only as one of the stronger IT stocks, but because its connectivity software powers many of Wall Street’s systems.
Sources from Williams Lea and Hummingbird suggest that the collaboration will survive the takeover, even though Hummingbird is known to find the ASP model unpalatable and at odds with its general strategy.
Whatever the fate of the Peopledoc/Williams Lea collaboration, everyone agrees that the technology will live on. Williams Lea is committed to running an ASP service even in the unlikely event of its having to find an alternative technology supplier. By all accounts, it is still a buyer’s market. Even if Hummingbird does merge the system with its own product line, the functionality will still be available to all and sundry. Graham Stedman, head of corporate at Theodore Goddard, says it would be a great shame if the current solution had to be scrapped, but as a Hummingbird user, he is confident that his firm will continue to have access to the technology developed by Peopledoc.
PricewaterhouseCoopers (PwC) is yet another player eager to promote its own home-built extranet as an industry standard. The system was developed under a veil of secrecy, at a cost to the accounting giant of about £2m. However, PwC is understood to be seriously considering making it freely available to a strong group of users such as the investment banks, at zero cost, to justify having developed it. A source at Williams Lea – which has good contacts in the investment banking community – did not rule out a three-way collaboration with both PwC and Hummingbird in the near future.
But some people don’t even think that standardisation is a real issue any more. Firms such as DLA, later to market with their dealroom products than most of the magic circle, have been able to ensure that the systems they have designed are fully XML-enabled. Whether or not an industry standard emerges, they consider that they have all bases covered. One senior industry source told Legal IT that, at least for the very large firms, the notion of a common technology platform was outdated and irrelevant. He said that in the bigger picture, with all sectors of commerce and industry inevitably moving towards globalisation – fuelled by the unavoidable integration of IT systems – global standards are important whereas sector-specific ones are not.
The one thing that everyone agrees on is the importance of XML.
