When numbers do not add up
As one legal blogger stated: “The logic of economic value has changed forever”. So my question is: what is the value of traditional legal services? When does a product provide value to customers? And how to measure it?
To help answer these questions I delved into the meaning of value and specifically what value is for a consumer of legal services. One simple answer I heard during a lively discussion on the subject of new versus old legal business models: Does the product generate more value for the consumer that it cost to acquire it? To find out I took two low-end and two high-end legal service examples which many see as a disruption to the establishment and analyzed their value.
Apples & Oranges
For this exercise I looked at four services which by the very nature of their a product make them different:
It’s reported that Legalzoom would be #163 on the AmLaw 200 based on its generated revenue. Similar to Rocket Lawyer, its end product is legal documents, which are supplied by a community of legal professionals. Both provide a platform for the legal community to interact with consumers to provide legal services. You may read more here on both their effects as branded networks.
Axiom has been characterized as a project , a mysterious animal in the legal market which is pondering its own IPO. With a complex set of services it accommodates both small and large deals. Based on its revenue I assume its ranking would be similar to Legalzoom. LegalForce also seems a fairy tale that doesn’t fit the legal market reality. They claim to have filed more trademarks than any other entity in the world and add clients at a blistering pace. Besides their two impressive legal search engines LegalForce recently designed a unique kind of retail stores to augment their online service.
The Quadrant of Value
Based on the services above I distilled 4 elements which seemed essential to their success and looked at the amount available in each:
expertise: the amount of legal knowledge capital captured within the service;
discovery: the way the knowledge capital is made available in analog (e.g. books) or digital (search portals, workflow etc) format;
technology: dependence of these services on technology such as cloud, algorithms etc to augment the knowledge capital;
community: the size of the community engaged to increase the knowledge capital.
Specific numbers would in any case still make it arbitrary exploration so I used my honest judgement weighing each element per service based on reviews, comments and articles I could gather.
For example a book on a specific legal subject would be heavy on expertise but light on discovery due to lack of more advance discovery mechanisms that go beyond the table of contents or index. While a workflow tool might hide the expertise with technology and hamper simple browsing of it. In exchange, a workflow or automation tool would deliver a more consistent but maybe less personalized end result.
So the goal of this exercise is to visualize how traditional legal services stack up against technology first legal services (and give me an excuse to dabble with infographics).
My lesson from this exercise is that a lot of expertise without technology (e.g. book) might have less value than a technology first service (workflow tool). Then again, a workflow or automation tool may have too much technology going for it to expose the expertise which is still valuable in solving unique cases. I also suspect that services like Axiom Law use technology to continuously calibrate their elements based on what’s needed to help their clients. Thus making it more valuable. Finally, the size of the engaged community will boost value of a service exponentially as opposed to a limited set of experts (Washington Post effect).
Many lawyers find themselves adrift in this market, in search of a purpose: What value do we provide? Legal services shift from lawyer to non-lawyer providers supported by the changing mindsets about the value of legal products. In turn these new legal service providers invest heavily in technology. Their organizational structure is also very different from traditional law firms. Although under regulation these parties are not allowed to dispense formal legal counsel, they seem to grasp a large portion of the work.
Traditional services would benefit greatly by boosting their technology expertise. Not only because it is required by the industry and clients demand it*. Not even because workflow tools and other software aids increase efficiency. Simply because an expertise in technology will boost value for their clients more than the legal expertise. In addition the sale of the Washington Post demonstrated: the value is not always derived from the number of experts on staff or the legacy of the institution but also by leveraging of the crowds with technology.
I believe more models will arise because the industry is still in transition but now is the time to hack instead of attack.
*Note: I read somewhere that a General Counsel requires lawyers to take a technology aptitude test as part of the procurement process. Unfortunately, I lost the article. The fact that I’m losing stuff I will tackle with Monocle.