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LexisNexis and Interwoven: An Odd Couple

The for fee legal information sector looks like a consistent winner to those who don’t know the cost structures and marketing hassles of selling to attorneys, intelligence agencies, and law schools. Let’s review at a high level the sorry state of the legal information business in the United States. Europe and the Asia Pacific region are a different kitchen of torts.

Background

First, creating legal information is still a labor intensive operation. Automated processes can reduce some costs, but other types of legal metatagging still require the effort of attorneys or those with sufficient legal education to identify and correct egregious errors. As you may know, making a mistake when preparing for a major legal matter is not too popular with the law firms’ clients.

Second, attorneys and law firms make up one of those interesting markets. At one end there are lots and lots of attorneys who work in very small shops. Someone told me that 90 percent of the attorneys are involved with small firms or work in legal flea markets. Several attorneys get together, lease a space, and then offer desks to other attorneys. Everyone pays the overhead, and the group can pursue individual work or form a loose confederation if necessary. Other attorneys abandon ship. I don’t have data on the quitters in the US, but I know that one of my acquaintances in Louisville, Kentucky, gave up the law to become a public relations advisor. One of my resources is an attorney who works only on advising companies trying to launch an IPO. He hires attorneys, preferring to use his managerial skills without the mind numbingly dull work that many legal eagles perform.

Third, there are lots of attorneys who have to mind their pennies. Clients in tough economic times are less willing to pay wild and crazy legal bills. These often carry such useful line items as “Research, $2,300” or “Telephone call, $550”. I have worked as an expert witness and gained a tiny bit of insight into the billing and the push back some clients exert. Other clients don’t pay the bills, which makes life tough for partners who can’t buy a new BMW and for the low paid “associates” who can’t buy happiness or pay law school loans.

Fourth, most people know that prices for legal information are high, but there’s a growing realization that the companies with these expensive resources are starting to look a lot like monopolies. Running the only poker game in town makes some of the excluded players want options. In the last few years, I’ve run across services that a single person will start up to provide specific legal type information to colleagues because the blue chip companies were charging too much or delivering stale information at fresh baked bread prices.

Folks like Google.com, small publishers, trade associations, and the Federal government put legal information on Web servers and let people browse and download. Granted, some of the bells and whistles like the nifty footnotes that tell a legal eagle to look at a specific case for a precedent are missing. But some folks are quite happy to use the free services first. Then, as a last resort, will the abstemious legal eagle pay upwards of $250 per query to look up information in a WestLaw, LexisNexis, or other blue chip vendors’ specialist online file.

Google’s government index service sports what may presage the “new look” for other Google vertical search services. Check it out in the screen shot below. Notice that the search box is unchanged, but the page features categories of information.

Now run the query , district court decisions. Sorry about the screen shots, but you can navigate to this site and run your own queries. I ran the bound phrase “district court decisions”. Here’s what Google showed me:

Let me make three observations:

1. The number one advertiser is LexisNexis. Imagine that! One of the two leading for fee legal information vendors advertising on Google to get customers. What’s that tell you about the growing power of Google and the inability of the giant legal publishing companies to get traffic to their own sites? What this says to me is, “We need to give Google money to appear in its free government information index or we won’t get qualified leads for our own for fee service?” Wow, paying the upstart to get new customers. That doesn’t look like a recipe for keeping the bakery open to me.
2. The Google hits point to specific state documents–for example, Maryland–and to the US district court opinions. What’s remarkable is that three of four years ago I would have paid lots of money to get these data from a commercial service. If I didn’t have the money, I would have slogged to the local law library and tried to weasel a few minutes on the “free” or “low cost” services the big boys provide aspiring attorneys. If the data I needed were not in the WestLaw or LexisNexis system, I would have used books. My goodness. Reference books!
3. Google is not doing much more than listing sources. I have written extensively about Google’s interest in dataspaces, janitors, programmable search engines, and containers. Over time, the GOOG may use these powerful information lasers to leap frog the traditional online legal information providers. When I look at these two pages, I see information string theory quivering, ready to move instantaneously into a new sphere of interest. Thomson Reuters, Reed Elsevier, hello, are you listening?

The Odd Couple

Now we have some reasons for LexisNexis to look for new types of partnerships; namely, content management outfits like Interwoven. I have been a long time, unyielding critic of content management systems or CMS. I thought the wackiness of software that made companies skilled in trucking and farming adept in writing a joke. If you want to read an interesting history of this weird niche in the enterprise application market, look at CMSwiki here. Microsoft jumped into the fray with its $36 million purchase of NCompass Labs in 2001, converting Site Server into the silly putty system we know as SharePoint.

Interwoven was a content management company that morphed into a content management solutions firm. The company inked an OEM deal with search vendor Vivisimo in 2007 and promptly rolled out “universal search”. Founded in 1995, Interwoven went public in 1999. You can download a profile of the firm’s “universal search”, data management, work flow, and archiving systems here. The company asserts that it has more than 4,200 customers and annual revenue in the $225 million range. This works out to an interesting revenue per customer figure of $54,000 per year. At the end of 2007, the company reported 888 employees which means that for each full time equivalent, the company is generating about $250,000 in revenue. The current $13 per share price comes at the end of a gentle drift downwards over the last few weeks after a rebound from the January 2008 NASDAQ notice of non compliance with an annual meeting request.

LexisNexis, as stated, is a traditional online vendor. In the last few years, the company has beefed up its Web presence and moved into “services”. These range from eDiscovery to law firm management to text mining. Reed Elsevier, like its arch rival Thomson Reuters, does not disclose fine grained revenues for its legal unit. Based on the bits and pieces of information available to me, I peg LexisNexis as having revenue in the $1.5 billion range.

So what’s a $1.5 billion dollar outfit with somewhat similar capabilities (eDiscovery, work flow, and search) doing with a CMS company that is tiny by comparison?

According to Information Today here, LexisNexis is integrating with the Vivisimo search engine as part of a deal with Interwoven.

I’m Baffled

I thought that LexisNexis was a search engine? I mean when I go to the LexisNexis commercial service I have to run a query to find information. Is LexisNexis saddled with technology that cannot perform search and retrieval in organizations? I recall hearing LexisNexis professionals in the firm’s Washington, DC, office tell me about the wonderful search technology that LexisNexis had. Furthermore, LexisNexis hired a squad of glossy MBAs to analyze how the company could leverage its technology. A local LexisNexis professional regales me with anecdotes about the cutting edge technology LexisNexis possesses.

Now, LexisNexis wants to team with Interwoven to get access to the Vivisimo search system. Then LexisNexis wants to play nice with other search engines.

If LexisNexis needs search, then I must conclude that the PR, marketing, and conference presentations the firm has delivered contained a larger amount of smoke than I originally saw.

No, I’m Not Baffled

In my opinion this deal reveals quite a bit about the state of the legal information sector. Here’s my interpretation of this odd couple tie up:

1. LexisNexis, Thomson Reuters, and other legal publishers are looking for revenue. The best way to get that money appears to be moving away from the firms’ core competency. The allure of providing value added services is too great. In my experience, LexisNexis may be trying to compete in the decathlon but is only good at the long jump. I’m not saying that LexisNexis can’t win the gold, but it will be a tough training regimen to make the effort work.
2. The core customers of LexisNexis and its ilk are obviously not interested in one trick pony solutions. The old LexisNexis operated on the carnival ride model. Buy a ticket. Take a ride. Don’t like it? Move on. Now LexisNexis is obviously trying to deliver a solution, not a service. This shift requires a different business model and maybe a different sales approach? I will watch this aspect of the deal.
3. The notion of LexisNexis managing a flock of ducks in the search and content processing business is amusing. LexisNexis tried a research deal with Microsoft that few know about. LexisNexis is not perceived as a bastion of management excellence on a par with General Electric. Management, not technology, will be the key for these tie ups. In fact, I ask myself, “How will LexisNexis avoid channel conflict?” And, “Will LexisNexis ink a deal with the GOOG?”

The net net is that I think we are watching a big trout swimming in a tank with too little oxygen and food. The trout is desperate to get out of its small tank. The trout is trying to jump to safety, not realizing there’s no water outside the tank. Will the trout survive? It’s too soon to tell. Will the trout find a solution the way Greek tragedies relied upon deus ex machina? Stay tuned.

Stephen Arnold, September 6, 2008

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