8/22/11

Legal Markets Fall in Classic Pincer Movement?

The news of Google investing in Rocket Lawyer got me thinking about the dynamics of the broader market for legal services. On one end of the market we have the discussion about how BigLaw is broken. There is a long and growing list of broken pieces of BigLaw, including: how fees are billed, how marketing is done, how research is conducted, how documents are created, .... You get the picture.
3 Geeks has previously commented on the need for law firms to shift from a cost-plus business model where all revenue is good (and profitable), to a profit margin model where profit (a.k.a. partner pay) is dependant on cost coming in below revenue. We’re not sure what the new law firm picture will look like, perhaps some sort of Law Factory, but we do know it will not be like the picture we see now.
One piece of the new picture emerging into view is being presented by LPOs. These providers present the option of using much lower cost lawyers to perform lower level legal tasks. For BigLaw this means that a segment of work and revenue is disappearing. Although not purely disruptive on its face, this model is disruptive to the cost-plus law firm business model. Outsourcing copies is one thing, outsourcing lawyer work is quite another.
The rest of the legal market has enjoyed poking fun at BigLaw, feeling immune to this force of change. Well – thanks to Google (and LegalZoom), their day has come, with their portion of the market being attacked by “legal forms” shops.
You can argue over whether legal forms offerings and their add-on services are “first amendment speech” or whether they are the unauthorized practicing of law (UPL), but I think that misses the point. The solo/small firm segment of the legal market has been equally comfortable with the way they provide services whilst change whirls around them. Enter the disruptive force, drawn to an un-served market, offering a needed service at a competitive price point.
The Missouri reaction of claiming UPL against LegalZoom is understandable, but IMHO a bit too late for a couple of reasons. First – the market wants and needs theses services and hasn’t been getting them from lawyers. Without the ability to fill this void, the organized bar will in essence be asking the courts (and legislatures) to reduce access to justice. Second – these services have been around for years, evidenced by Nolo Press. I recall years ago the then Utah Chief Justice commenting that if providing forms and minimal guidance on using them was UPL, then the biggest offender would be the court clerk’s office. The point being - attempting to stem the tide of the market in the courts is futile.
Where do these two market trends leave us? Once these two disruptive forces meet in the middle, they may well own the legal market. It’s a variation on the classic military pincer movement, whereby an enemy is attack from both sides, cut off from reinforcements and escape.
Sun Tzu was not a fan of the pincer movement. He argued that an enemy with no where to run will fight ferociously. But will the lawyers? Suing competitors will only get them so far. At some point, to survive, lawyers will have to fully embrace change and find effective ways to compete in a changing market.
Who would you bet on?
ADDENDUM
After writing this post, thanks to a tweet from Jason Wilson (@jasnwilsn), I found this article on Jacoby and Meyers suing some state bars to allow for non-lawyer investment and ownership in law firms. Wow. Here's a firm feeling cornered and willing to fight ferociously. And instead of suing competitors, they are suing the regulators holding them back from competing. They want to "increase competition, drive down prices, depress some lawyer compensation, and serve people who don't even know how useful legal services can be."
But before you change your bet - realize this will need to make its way through the courts, likely up to the Supreme Court. Which means they'll have an answer in 5 or 6 years. Still, it is nice to see a firm fighting to be competitive.

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