The entire US legal market can be valued at well over $400 billion. Mind you this is when all the segments of the market are combined. So while this is a holistic approach, in practice any "legal market" aimed business will be focused more specifically on its narrower relevant market. But I wanted to be bombastic. While this is more of a “back of the napkin” approach, I have attempted to use "normalized" figures and logical extrapolation.
So how do we get to $400 billion? It is a rather simple but incomplete exercise. Early in February I was putting together my ReInventLaw talk. My focus was to be not so much on the immense size of the overall market but on the complexity of the market and all of its segments – some related and some not. I was going to begin with this slide
$274 billion basically represents the size of the practicing lawyer market – from solos to BigLaw. This number is based on revenues as collected by the US Bureau of Labor & Statistics. So this number is fairly justifiable putting aside strict economical analysis (such as breaking this down to each of the sub-markets - small law & big law to be overly simplistic). Regardless this is a good start towards the $400 billion.
No we look at how quickly the legal market gets complex. Below are a series of slides which demonstrate some of the major related markets that easily contribute to the legal market.
As one can see the breadth and depth of the “legal” market is indeed wide and deep. Most people (lots of lawyers) tend to define the market as being only what lawyers do. This is a mistake. Looking at the various and justifiable components of the legal market, one begins to see how the market value increases rapidly.
- Research: $7.2bb (Thomas Legal $3.3bb, LexisNexis $2.6bb, Wolters Kluwer $2bb, Bloomberg Law $331mm)
- Ediscovery: $5.5bb (2012)
- GRC: $5.17bb
- Legal Temp Staffing: $1.5bb (2005)
- LPO: $1.1bb (2012)
So lets move to the more challenging math. These elements of the legal industry are difficult to pin down in terms of size but with the limited data available one can extrapolate and make an educated guess on market value.
- In-house legal department costs: $5bb (salaries & operation costs for in-house lawyers.) This is likely much higher as this number is for the Fortune 500 alone.
- 50% of US consumers have at least one legal event per year but only 20% of them use a lawyer. For the remainder, there is roughly $45bb in untapped market potential.
- There are 23 million small businesses in the US. Roughly 7 million did not seek the help of a lawyer when presented with a significant legal event. Those that did get legal help, report that they spend on average $7600 per year. This creates an untapped market (the 7 million who avoid lawyers) equal to roughly $45bb.
With the combination of the above "latent" or "untapped" market along with the connected and tangent verticals - the total legal market gets to $400bb quite easily (ignoring other obvious markets like the law firm consulting market, litigation finance, and new tech - LegalZoom, Clio, WireLawyer, and ERM Legal). There are other areas that could be added to this number as well but it gets truly challenging and takes some genuine ingenuity. How much "legal related" work do the big accounting firms do? How is the massive plaintiff market calculated? What new areas of legal practice are being created that did not exist before (such as breaking cell phone carrier contracts like CellBreaker or ensuring TOS compliance as some other startups are taking on?)
Again let me repeat that this holistic number is only useful to demonstrate that the aggregated legal market is quite massive. The point is that those in (and outside) the greater legal market must understand that this is a complex and growing market overall. Opportunity abounds. While law firms and incumbent service providers are only focused on their collection of sub-verticals or markets, a growing number of others (and some firms) are digging deep and exploring these new and existing markets. It is evident that there is no shortage of opportunity or incentive to innovate within the legal economy .