- Fears of a bubble in AI legal tech are growing.
- Law firms are testing several products, which is driving the sector's revenue growth higher.
- Eventually, firms will coalesce around a few top tech performers, leaving other vendors out to dry.
The legal tech boom is reaching new heights. And just like that, a few investors and consultants are starting to whisper, "Bubble."
With a rush of funding deals, two unicorns born since ChatGPT's pivotal launch, and a rare Big Law acquisition of a startup, legal tech is undergoing a transformation.
Once dismissed to back-office use, it's now grabbing the attention of top tech talent and investors, eager to capitalize on the potential of generative artificial intelligence in the legal field.
This has raised some concern among industry watchers, like Zach Abramowitz, a former lawyer and entrepreneur, who now runs Killer Whale Strategies, a consulting boutique that helps law firms and legal departments decide which software products to buy.
He's among those warning that a surge in legal tech revenue may be a sign of an impending bubble.
He says nearly every law firm is testing out competing legal tech products. This spree of paid trials is boosting the revenues of legal software companies, which in turn is driving up their valuations from venture capitalists.
Abramowitz said the question is how "sticky" that revenue is.
"It's getting booked like recurring revenue," he said, "but the reality is it's still mostly pilot programs." He knows of law firms that have shelled out for hundreds of licenses to products like Harvey and others. In some cases, Harvey is emerging as a winner, but Abramowitz isn't convinced it's locked in as reliable, long-term revenue.
In the next 12 to 18 months, law firms will decide which vendors to commit to long-term, meaning they'll roll out solutions across their entire organization or sign multi-year contracts, Abramowitz said.
He said the legal industry will rally around the top tech performers, while other vendors will watch their revenues decline.
A "reckoning" on the horizon
Fears of a legal tech bubble are echoing across the venture industry.
This past February, Rick Zullo, a seasoned software investor, shared a conversation he had with another investor about legal tech on Turner Novak's podcast, "The Peel."
"They said, 'Rick, every single one of these companies is working.' If every single company in a category is working, that's probably the scariest thing that could happen," Zullo told Novak, "because that just means that there's no alpha in the company that you're generating."
Jake Saper, a general partner at Emergence Capital, described an exciting yet unsettling landscape.
On the "Pearls Off, Gloves Off" podcast hosted by Goodwin's chief operating officer, Mary O'Carroll, Saper said that with the rapid adoption of legal tech, law firms are starting to realize that some products aren't living up to expectations.
In some cases, only a small percentage of firm users are engaging with the tools. Other times, the tools aren't delivering their promised value. Saper warned that a frothy legal tech industry is heading toward a "reckoning," which he expects to intensify later this year.
800-pound gorilla
Long sales cycles and customer churn already put a significant strain on the legal tech market. Add in the constant looming threat of getting steamrolled by OpenAI, as Abramowitz puts it, and the conditions spell trouble for the industry.
Barely a month goes by without another story of a lawyer citing fake case law generated by ChatGPT. Yet, many lawyers are choosing the chatbot over specialized tools from legal software vendors, survey data shows.
Law360 Pulse asked 390 lawyers between November 2024 and January 2025 which generative AI tools they used at work, for either legal or other tasks, excluding e-discovery. Sixty-two percent of respondents answered ChatGPT, more than twice the share of respondents who said LexisNexis or Microsoft Copilot.
Abramowitz said the "single best legal research tool on the market" isn't a legal tech tool at all: it's ChatGPT's deep research mode, a web-based research capability utilizing advanced automation.
He shared a conversation with one attorney who believed many associates at their firm are likely using the chatbot, even though the firm doesn't pay for it. The attorney noticed their writing improved, seemingly without explanation.
"My guess is that more lawyers have probably saved nights and weekends by being able to use these tools," Abramowitz said. "It doesn't require putting in any secure, confidential information: you're just doing research."
"How is the firm supposed to stop you from using deep research?" he asked.
The future of the legal tech market may depend on it.
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