The Contract Analytics Fungibility Fallacy
Gartner recently opined that contract analytics is rapidly becoming a must-have feature for CLM vendors to bake into their offerings.
Gartner recently opined that contract analytics is rapidly becoming a must-have feature for CLM vendors to bake into their offerings. Many vendors already have it, and, according to Gartner, the rest are going to need it to remain competitive in the growing CLM market. So far, so good. That much makes sense.
But Gartner went a step further and argued that this would cast storm clouds over the future of specialist contract analytics companies. The reasoning was a little hazy, but the assertion was that larger CLM companies would outcompete smaller, niche analytics players, and customers who wanted decent contract AI or extraction capabilities would have no choice but to procure the functionality from a CLM vendor. Unfortunately, we’re left to speculate about why Gartner reached this second conclusion. We can think of two possible reasons.
The first is based on financial resources. There’s a growing number of well-funded, unicorn CLM vendors who (for now) have more money to throw at the problem of building effective Contract AI, and this will allow them to crack the problem and deliver quality results faster than a smaller, less-well-funded specialist. But the world is bursting with examples of smaller innovative upstarts toppling larger, better-funded incumbents.
You may have heard of a startup called Google? Perhaps, in the late 90’s, they were warned not take on bigger, established search engine players like AltaVista and Yahoo! According to legend, AltaVista rejected the chance to buy out Larry and Sergey for $1 million, and Yahoo! later knocked back the chance to buy Google for $5 billion. Today, Google is worth over $1 trillion. Those “bigger” rivals? They’re buried somewhere inside Verizon.
A second rationale is a classic bundling argument. If contract analytics is bundled with CLM and is “good enough”, then few customers will be bothered to pay extra for a specialist contract analysis product. This sounds reasonable at first, but it assumes contract AI is a fungible offering, with not much separating the various players. Respectfully, we beg to differ.
Contract Analytics is by no means a fungible commodity. True, there are plenty of players making similar claims. But scratch the surface and look closely at the offerings, and you will discover a field that varies greatly in terms of range, quality, depth and methods of extracting data.
Indeed, we’d argue that contract analytics is no more likely to be swallowed up by CLM systems than headphones have been swallowed up by smartphones. Even though many phone companies bundled headphones with their devices over the last decade, the market for headphones has remained strong. Some people happily used the bundled headphones, for sure. But many people want better performance, and happily pay extra for higher quality headphones to pair with their phone. So much so that Apple no longer bundles headphones with iPhones, and the global headphone market now exceeds $20 billion.
Just as headphones can be used not just with smartphones, but also with laptops, tablets, TVs and fancy audiophile systems, contract analytics can be used to feed data beyond CLM to procurement, accounting, risk management and HR systems.
In short, contract analytics is a critical capability feeding data to many parts of the modern enterprise, and we’re confident that the leading specialist players will easily out-compete the in-house offerings bundled into many CLM products. When performance matters, people want choice, and will gladly pay extra for it.