If you thought accountants and rival law firms were your biggest threat in an increasingly cut-throat international legal market, it might be time to think again.

With the new age of virtual lawyering, heralded by Linklaters' Blue Flag and Clifford Chance's NextLaw, packaged legal information on the Internet will be a key commodity in the very near future.

And because of this, Future of Law author Richard Susskind says big legal publishers such as Sweet & Maxwell and Butterworths could be the next danger on the horizon for vulnerable law firms.

Susskind says law firms and legal publishers are destined to meet at the middle of what he calls "the legal information continuum" – that is, they will both eventually compete in the market for online legal advice.

"Legal publishers are moving up the continuum, while law firms are moving down it," he says.

"Publishers almost have an advantage because they are used to providing textbooks to help lawyers and they have more experience in packaging and selling legal knowledge."

Andrew Jones, vice chairman of tax and legal at Ernst & Young, agrees that all professional service firms need to be ready for the possibility of competition from unexpected quarters.

"There is no reason why a big technology company, for example, cannot hire lawyers and build up its online advice capacity.

The professional services market is very fluid and if firms want to succeed, they need to be able to adapt," he says.

But a firm needs money if it hopes to meet the challenges of an online future – and lots of it.

Clifford Chance lawyers estimate they have spent £1m on the NextLaw service to date, while Linklaters' Blue Flag has been described as a multi-million pound project.

Both Internet-based services took more than three years to develop.

Paul Nelson, the Linklaters partner in charge of Blue Flag, and Christopher Millard, the Clifford Chance partner responsible for NextLaw, say the start-up costs for online advice services will be prohibitive for all but the biggest firms.

"No one should underestimate just what a major undertaking this is," Millard says.

But despite such considerations, other firms are making plans to build up their own virtual law capabilities. Simon Slater, director of business development at Eversheds, says: "Most firms are examining their portfolios, looking at what they will offer online and discussing how they will pay for it."

Slater, however, says his firm will not be rushed into establishing an online advice system, and will carefully consider which niche areas might be profitable.

"The firms that score will be those that develop a distinctive niche," he says.

According to Nelson, Linklaters developed the Blue Flag system for its investment bank clients after meticulously forecasting whether or not it would be profitable.

"This is not a pilot project," he says. And the fact that Nelson claims the service is profitable "in Linklaters terms" – despite the multi-million pound outlay – seems to back his approach.

But where will the substantial sums of money needed for online investment come from for firms without the capital base of Linklaters or Clifford Chance?
Susskind says the need for significant capital investment to offer high-quality online advice could hand the advantage to the big accountancy firms which have more cash available than law firms.

"Medium-sized and smaller firms might find it difficult to find capital investment for change," he says. "Even Clifford Chance does not have endless resources.

At this juncture, these projects are being driven more by the energy of certain individuals, but there will be an obvious need for a substantial research and development capacity at law firms to develop and sustain legal information systems.

This will take money and is another reason why law firms might want to look at mergers."

Surprisingly, even the rich accountancy firms need financial help to fund the development and maintenance of expert information systems.

According to Susskind, one of the main reasons behind the attempted Ernst & Young and KPMG merger was the need for a stronger capital base to fund research and development for similar systems.

Most law firms agree that a substantial part of their business – mainly the repetitive transactional work – will be conducted via virtual lawyering systems in the near future.

What is equally likely is that law firms will face increased competition from rivals, accountants and newcomers, as everyone chases that lucrative Internet niche.

But if the comparatively rich "Big Five" accountancy firms are worried about finding the money to pay for developing their online businesses, it will be interesting to see how law firms rise to the challenge.

Tim Hyman, IT director at Olswang, says most firms are "sitting on the fence", waiting to see how the Blue Flag and NextLaw services get on.

If they sit on the fence too long though, they might just miss the bus.