Advantages of cloud versus on-premises solutions
1) Security
When the cloud was in its infancy, security was a significant concern. The cloud was new and having someone else host and manage your data with the firm’s IT oversight seemed like a frightening concept. The perception of the cloud and its security has changed as evidenced by the high cloud-adoption rate and the amount spent safeguarding security.
The global cloud computing market is expected to reach $623.3 billion by 2023 with about ⅓ of companies’ IT budgets going towards cloud services. Meanwhile, Microsoft reportedly allocates more than $1 billion a year just for cybersecurity.
In a broad sense these dollars address application security, monitoring, identity and access management (two-factor authentication, third-party authentication), data encryption in use, transit and rest, governance, network security, host and storage security, and an army of best-in-class security experts.
For example, Microsoft’s Azure has 3,500 cybersecurity experts working around the clock, 365 days a year, proactively identifying security threats. Within this group, there are 200 security experts working against one another. One group is focused on compromising their own system while the other works to defend it against their peers.
In contrast, few law firms have even one internal security expert to identify emerging security risks, let alone a team. Even among those firms actively involved in their own data security, many choose to outsource the security responsibility to a third-party security consulting firm.
The need for professional support stems, in part, from the inherent challenges of a locally hosted solution. Many on-premises systems do not have the latest security patches and updated software. Some of these systems are so customized that any update takes careful planning.
Another risk is that many firms do not have automatic data backup. Some firms still store a significant amount of data in physical files on site or on individual hard drives that can easily be lost, stolen, or damaged.
On the other hand, storing data in a SaaS solution typically entails automatic backup, security updates, and a team of cloud security professionals identifying and protecting against the latest security threats. This is because the threat of cybersecurity breaches within the cloud are a significant concern among customers, including law firms.
Security breaches
The vast majority of law firm security breaches involve ransomware attacks with on-premises systems. Many cybersecurity attacks are phishing emails designed to trick lawyers and legal professionals into opening malicious email attachments.
In February 2020, 5 law firms were victim to a ransomware attack with 3 of them targeted in just 72 hours. Very few ransomware attacks are reported, so we do not know the full extent of this significant risk. In 2019, it was reported that over 100 law firms, some of them global firms, were victims of ransomware attacks.
These attacks illustrate that the weakest area of cloud security remains with the end user. Even the smartest lawyers and support staff can be manipulated into sharing sensitive or revealing data that creates an opening in an otherwise secure system. Preventative training for lawyers and staff on the dangers of ransomware—especially email phishing attempts and malicious attachments or webpages—is needed whether your systems are on-premises or in the cloud.
If security breaches do occur, having your data in a secure cloud with automatic backups in various geographical locations helps mitigate issues like infected laptops and compromised programs. The end result is a law firm that gets back on its feet faster than their on-premises counterparts.
Client cloud resistance
Understandably, there will always be a few clients that do not want their law firms to put their data in the cloud. This need not be a barrier towards cloud adoption within the law firm, however. Some SaaS solutions allow the firm to bifurcate its data. Many firms have a hybrid solution where they utilize a private cloud system with a public cloud option depending on the requirements of each client.
2) Cost
One perceived barrier of a SaaS solution is the anticipated cost. Indeed, there are 3 types of costs to consider when exploring cloud-based legal technology: hard (or fixed), variable, and opportunity cost.
Hard costs
From a financial accounting perspective, on-premises systems involve an allocation of capital expenditures, whereas having a cloud solution is an operating expense.
For on-premises systems, a firm must invest in numerous hard costs:
- Initial servers to host the data, along with maintenance, performance monitoring, and backup
- Additional servers as the data grows and for storage and backup
- Network bandwidth and administrative costs
- Real estate costs, including utilities like climate controls or security for dedicated server space
- Security experts or third-party security consultants
One on-premises cost issue for law firms is that as your data and firm grows, a firm ends up buying more IT infrastructure resources including servers, storage, cabling, routers/switches, and operating system and application software. If there is not enough hardware, computing, or storage resources to meet the demand, the firm receives errors, performance issues, or lockouts.
Capital expenditures are often large, and almost always increase. Even when demand for on-premises services decreases, the firm still has the fixed capital expenditure of hardware, computing, and storage—resources that go under-leveraged, or possibly even unused.
Cloud solutions carry their own cost considerations, many of which are beneficial to the firm:
- Reduced IT costs for setup, maintenance, and backup of the system.
- Flexible costs allowing firms to purchase only the amount of subscriptions needed, and to adjust according to planned—and unplanned—needs.
- Eliminated hardware purchases due to obsolescence.
- Training expenses when onboarding staff to new SaaS solutions.
One of the most attractive features of a SaaS solution is the scalability. As the firm and data needs grow or recede, the firm can alter its subscriptions. SaaS providers track usage analytics which can be used to predict or anticipate changes in need—either by your law firm or your SaaS provider.
This pay-as-you-go approach helps insulate law firms from the risk of overbuying or (in the case of an on-premises solution) paying for technology that isn’t being used. In effect, your firm is renting the solution for its current needs.
Studies from as far back as 2016 show the Total Cost of Ownership (TCO) of the cloud is less than continuing with on-premises. Some cloud companies, like Microsoft, have online cost calculator tools as do some of the SaaS solution providers.
Variable costs: On-premises
Variable costs are, by nature, difficult to generalize, with each law firm and service provider having their own needs or solutions. That said, some of the variable costs associated with on-premises solutions include continual server maintenance along with the additional hardware purchases for storage, server backup/redundancy.
Calculating comparison costs for cloud offerings is a bit trickier still. The costs depend upon the type and volume of systems a firm wants to move towards the cloud. Also in play are the price of subscriptions, whether legacy systems can be eliminated, and whether any costly manual processes can now be automated.
Shut down/migration costs
Independent of the ongoing expenses of both on- and off-premises solutions are the costs to transition your data to or from the cloud, and the various financial implications of shutting down your previous environment. These can vary from firm to firm but are something that must be accounted for in addition to the forward-looking expenses listed in this paper.
Opportunity cost
This is analyzed in 2 ways. First, there is looking at how a solution investment will return value over time. When a firm reaffirms its commitment to its existing on-premises solution, the firm has committed significant dollars for a 5- to 10-year period.
This is a capital expense for an asset that will depreciate over time. Firms need to ask if the choice to keep the existing on-premises environment is a long-term strategic solution, or a short-term tactic. How long will this purchase last before another upgrade is needed? How long until the services the firm needs are cloud-based anyway?
Second, there is the potential cost of not having some of the most innovative legal SaaS solutions that exist. What new opportunities could a firm miss out on by sticking with what they already have?
3) Performance
Some firms believe the performance of the cloud SaaS will not be as good as the on-premises system. The answer depends upon the SaaS solution and the provider the firm chooses. In the last 5 years, an abundance of companies with new cloud-based legal solutions have emerged.
Choosing between these vendors requires firms to consider:
- Is it a reputable company, one that has been in business for many years and one you can trust to survive in a bad economy?
- Is there a detailed Service Level Agreement (SLA) indicating levels of performance metrics and tracking?
- Is this SaaS software solution part of an integrated portfolio set or platform?
To really understand performance, let’s look at some other aspects of a software product.
Implementation
SaaS products have a much quicker, less costly implementation with configurable settings rather than fully customized ones. Configurable settings are options a firm can choose that are built into the standardized code of the application.
Customization means a programmer works outside the application to add novel code, which takes extra time and makes future support more difficult. In addition, the SaaS vendors should have training materials, onboarding experience, and existing customers that can provide you with best practices during implementation.
Updates
With SaaS solutions, the updates are periodic, regular, and often seamless. Many SaaS updates are small, intuitive software modifications on the backend of the program, so users do not see them. In contrast, on-premises system updates are often disruptive as they can contain numerous, large updates.
Many times, these updates need to be scheduled far in advance, especially when the application is highly customized, as the customizations could result in update errors. Some on-premises system updates might need to be made on individual computers as well.
Integrations
Many SaaS products have their own application programming interfaces (APIs) that enable flexible connections to numerous legal applications or platforms. APIs provide a set of definitions and protocols for building and integrating application software.
Data analytics
SaaS options tend to offer better data analytics because they can draw information from multiple databases and analyze them in a unified system, no matter where they originated from. With on-premises solutions, many times the firms are limited to the system they are stored in.
Disaster recovery/continuity
For SaaS products, if there is a computer failure or natural disaster, team members can get back up and running on a new computer as quickly as you can provide internet access to it. The leading cloud service providers operate from geographically distributed data centers protected with backup generators and equipment providing redundancy and high availability.
This reduces the need for classic backup and disaster recovery/business continuity functions. With on-premises, some mid-sized firms lack an off-site backup that can protect their data in the case of an emergency.
4) Accessibility
Many would argue accessibility is the number one reason why law firms are increasing their investments in cloud solutions. The jobs of lawyers and legal professionals are no longer confined to a physical office. They need to be able to work anywhere: in court, before a client, in another city, at home, at a café. They want to work with their laptop, tablet, or smartphone in any location that has a working internet connection.
Lawyers want the convenience of sharing documents and status reports with their clients or other lawyers remotely. In contrast, with on-premises solutions, the lawyer or legal professional is limited to working only within the law firm’s office.
5) Innovation
Cloud adoption acceleration has been helped along by the innovative cloud software alternatives that work better than existing on-premises solutions. Most companies creating legal products are migrating their existing on-premises solutions to the cloud and developing new solutions as SaaS-only products.
It is much more difficult to innovate with on-premises systems unless you have a strong IT development team and the budget to customize the system however you may need.
Additionally, many on-premises systems were developed for different segments, with some capabilities remaining out of reach for mid-sized firms. Cloud-based systems democratize legal technology and close the innovation gap between mid-sized and large firms. By sharing the same features and functions, cloud solutions level the playing field for previously outmatched firms.
Becoming a client-focused law firm
After the 2008 recession, corporate law departments changed the way they viewed “value.” Some asked for deep discounts on existing matters and rate slashing on future matters. Others cut back on rates, set role permissions for certain tasks, and created lists of activities that could not be billed.
At the time, many corporate law departments did not have detailed, robust budget management and monitoring systems in place that could determine if the discounts resulted in an actual savings or just a rebalancing towards additional hours billed.
Given that many engagement letters and contracts between the law firm and corporate law department memorialize matter budgets and that most larger litigation matters have budgets, budget management processes, and even legal project managers in place, corporate law departments may leave existing matter handling agreements alone.
Now, corporate law departments will be analyzing outside counsel expenses and making data cross-comparisons between law firms and lawyers for future legal work. Corporate law departments will ask the pivotal question, “Do we have the right firms handling the right type of legal work in the most efficient matter?”
They will also analyze whether the firms are client-focused in their legal delivery model. Being client-focused entails, in part, using the best technology to create the most productive legal service delivery model possible and passing these efficiencies on to your clients.
Clients are accustomed to conducting global business online, collaborating with remote colleagues, and having real-time data through tech portals. They notice the firms whose lawyers consistently reply, “I’ll have to get back to you on that after I check in with Finance or the senior associate.” Clients are impressed with lawyers that can immediately answer questions of when a hearing is, what the next major matter task is, and where they are with budget-to-actuals.
These accurate, timely answers come from law firms that employ collaborative and transparent cloud solutions. Corporate law departments are willing to shift new work from large law firms to mid-sized firms. But in order to do so, they must be confident that a mid-sized firm has the same legal technologies as its larger counterparts. Now is the time for mid-sized firms to increase their adoption of the cloud and modernize the way they deliver legal services.
About the author
Colleen Scimeca
Colleen Scimeca is a legal industry thought leader and strategic legal operations expert specializing in the business of practicing law. Colleen has worked in the legal industry for over two decades, including working at various Big4 firms as a consultant to over 60 corporate law departments and law firms. She’s worked on transformative programs aimed at driving improvements through legal department/law firm operations strategy and technology, streamlining processes, and cost optimization. She currently works as a senior product strategist at Thomson Reuters.
