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Predictions for the future of the CLM market

01/11/2024 By

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While 2023 was not necessarily a transformative year for the typically innovative area of contract lifecycle management (CLM), it did lay the groundwork for the market’s future. Of course, much of this is due to generative AI (GenAI). Many CLM providers unveiled GenAI-based chatbots throughout the year, with some also developing or releasing more advanced features.

Accordingly, decisions that are being made behind the scenes today are greatly impacting the long-term outlook for the CLM market. Between GenAI, changing end-user dynamics and resulting shifts in vendors’ roadmaps, it is universally understood that the next five years will bring major changes to the market. Nevertheless, based on conversations with vendors and practitioners, it is also clear to me that people don’t quite agree on how CLM should serve customers going forward.

Microsoft Word monopoly

CLM vendors have long been faced with the challenge of enticing end users, especially legal users, to author contracts natively in their solutions, instead of Word. Congruently, one issue I heard from many vendors (aside from best of breed and suites) in 2023 was that it remains difficult to lure practitioners from the Microsoft Word and email ecosystem. CLM solutions do usually support this practitioner preference via plugins, but it would sometimes be easier on other departments if the processes were to all occur within the CLM solution’s ecosystem.

Vendors are responding to this hesitancy for adoption in different ways. Some are making stronger efforts to encourage in-platform editing or improving Word integrations. Others, specifically suites and vendors for which CLM is an ancillary module, are planning to move away from authoring altogether. This may include changing roadmaps to de-emphasize or remove authoring capabilities and even clause libraries. They would either rely on integrations with other tools or on customers solely using Word, with the CLM solution itself becoming more of a system for contract analytics, obligation management, etc.

While this may seem drastic, it can make sense for mid-market or smaller vendors that do not want to compete with best-of-breed CLM providers. Nevertheless, focusing purely on specific CLM areas, such as obligation management or contract risk, may not be enough for some customers.

Vendors’ roadmap decisions are based on a variety of factors, including weighing the features and capabilities customers are most likely to use. However, citing the Word/email ecosystem as a primary reason to abandon clause libraries and negotiation capabilities may be short-sighted.

Authoring and negotiating are the crux of CLM. While it may not be as important for a smaller vendor or non-CLM point solution to include them, suite providers and those that aspire to cover the most common source-to-pay pain points should consider that even if legal users may prefer Word and email combinations, strong Word integrations with enough advanced features that represent a true addition of value, such as AI-enabled risk detection or automated markup, should tempt even the lawyers most loyal to Word.

Generative AI takeover?

Another reason vendors may be wary of building out robust CLM modules is GenAI. Of course, GenAI used effectively can complement CLM software, but some believe that in the long run, it will become strong enough to effectively replace CLM for some organizations.

Once again, while this is possible, it may simultaneously overestimate the promise of GenAI and underestimate the complexity and breadth of CLM. There are certainly areas of CLM, including authoring, that generative AI can impact. To an extent, it already has in the form of additions to Word plugins that allow users to request the AI to write a new clause, change language in the document to be more favorable, etc.

However, if the needs of lawyers are indeed central to the product decisions vendors are making as described above, then it is important to state the obvious: most lawyers will never fully rely on GenAI to draft a contract. It will always be a supplementary tool — perhaps to draft or review specific language, but not to completely write a contract. Thus, vendors should not use GenAI as an excuse to avoid building CLM modules or adding new features. Instead, they should see it as a supplement.

The opportunity is there

Ultimately, end users will have plenty of CLM options. If native authoring and negotiation features become sparse apart from best-of-breed and suite vendors, then opportunistic providers will see the gap and capitalize. Ideally, though, this gap should not even materialize.

Some may see GenAI as a CLM headwind instead of a tailwind or view Word/email ecosystems as insurmountable hurdles to broader system adoption. But the CLM market overall is still growing steadily, and approaches that incorporate — but do not rely too heavily on — GenAI while emphasizing other advanced capabilities in Word plugins/online editors can add tangible value and appeal broadly to different organizations.

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