The Problem with Disruption and Law Practice #ABATechShow

netflix-vs-blockbuster-revenues

The theme of this year’s LexThink.1 was disruption. I suppose that is because, with all the disruptive innovation happening all around us, everyone wants to know when it will come to law practice. So all the speakers talked about what will disrupt law practice, whether it’s virtual offices or LegalZoom or gamification or Big Data.

Here’s the thing: disruptive innovation is not coming to the law. At least, not quickly.

Disruptive innovation refers to the creation of new markets or industries that displace old ones. The first example you usually hear about in the legal world is online research, which in the last 10 or 15 years has almost completely taken over the paper-based case reporting industry.

Except that the same companies that published legal research on dead trees (West and Lexis) are the ones that pioneered online research. They just changed the delivery method. They didn’t really even change the pricing model. That’s not disruptive; it’s an evolving business model.

Plus, 10 or 15 years is “disruptive” in the same way that Kirk v. Gorn was a “fight.”

LegalZoom and Rocket Lawyer are not disruptive innovation, either. They are basically just selling forms and pre-paid legal services, which have been around forever, in one form or another. People who think this is disrupting the legal industry do not have a very good grasp of the legal industry. Customers of LegalZoom and Rocket Lawyer were never your potential clients. They may have been Office Max’s, or Hyatt Legal‘s, but they were never yours.

For another, LegalZoom has been around since 2001 without disrupting anything, as far as I can tell. It’s telling that people are still talking about when LegalZoom will finally start disrupting everything. It won’t.

The fact that nothing in the law has really been disrupted since the beginning of lawyers is not, necessarily, proof that nothing ever will. But consider the nature of law practice. For the most part, it requires lawyers. Sure, the market for legal services will contract as LegalZoom and Rocket Lawyer get better at building forms for things like wills and divorces, but there is more to law practice than forms. And artificially-intelligent cybernetic litigator constructs are still a few years off, I think.

So far, the only disruption to the practice of law has happened around the edges. Sure, Rocket Lawyer and LegalZoom may have siphoned off a few clients. And predictive coding will put some contract lawyers out of their jobs (although doc review is only “legal work” due to a technicality), but can anyone point to an imminent threat of disruption to the legal market? I don’t think so.

So who is actually threatening the legal market for lawyers representing clients? I’m not sure. In fact, I’m not sure anything is going to.

What I do know is that you can rarely see disruption coming. If the legal market is hit by disruptive innovation, it will not come from people taking old business models and putting them online, which is all that has happened to legal research, forms, and pre-paid legal services. Instead, it will be more like Netflix driving Blockbuster to bankruptcy in a few short years. So I’m betting on the Singularity.

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  • Bradley B. Clark

    Sam,

    Good post. You’ve said what many of us are thinking—LegalZoom is not disruptive.

    On a side note, you’re not saying Netflix was disruptive are you? Isn’t the Netflix/Blockbuster example no different than Westlaw and Lexis moving legal research online (i.e., a different business model)?

    Bradley

    • http://lawyerist.com/author/samglover/ Sam Glover

      No, different business models is the whole point. Westlaw and Lexis don’t offer a different business model; they just offer the same stuff, online. Netflix has a fundamentally different business model than Blockbuster. That is what makes it disruptive, and that is why Blockbuster went bankrupt.

  • Tony Chan

    I think disruptive innovation in the legal world is centered around economics. As clients of legal services demand higher quality work and lower cost, law firms are forced to reconsider their business model or they risk losing the marketshare. The most notable is alternative fee arrangements. AFA could fundamentally alter cost structure and lawyer compensation. Imagine a world with no billable hours!

  • Betsy Munnell

    Bless you Sam. Well said. I too am weary of faux-disruption, epitomized by delivery method renovations.

    True disruption, in my view, will require dramatic changes in law firm ownership models, and –as Tony Chan notes in his comment–both fee and compensation metrics. True disruption involves blowing up the third year of law school and supplanting it with intensive practical skills (both legal and business) boot camps and apprenticeships. Disruption is the American Lawyer finding a more client focused way of rating large firms than as a function of profits per partner, or a law firm investing substantial resources in the professional development (including business generation training) of its young lawyers.

    Perhaps on the day an LPO acquires an AmLaw 100 firm we will hear the drumbeat of disruption.

  • http://www.law21.ca/ Jordan Furlong

    If we’re talking about disruptive innovation, then we’re squarely in Clayton Christensen’s territory, because he gave us the idea of “sustaining technology” vs. “disruptive technology” in The Innovator’s Dilemma.

    Sustaining innovations (we can safely substitute “innovation” for present purposes) provide improved delivery or performance of an established product or service, “along the dimensions of performance that mainstream customers in major markets have historically delivered,” in Christensen’s words. Most innovations are sustaining, and while incumbents might struggle with them a little at first, they can and usually do handle and implement them.

    Sustaining innovations in law firms might include email (more efficient communication medium) and time-and-billing software (more efficient docketing methodology). Under this definition, LegalZoom and Rocket Lawyer are sustaining innovations: they are providing a more efficient and accessible method of acquiring legal documentation. Any law firm in the world could do what LZ and RM are doing right now — offering legal documents over the internet — without having to completely wreck their operations. (That they’re not bothering to do so says more about lawyer intransigence and biases about “low-value” products than about these companies’ offerings). Incumbents, inevitably, can find an answer to sustaining innovations: they can adjust to them without tearing apart their basic structure in the process.

    Disruptive innovations are different: in Christensen’s words, “they bring to the market a very different value proposition than had been available previously.” Disruptive innovations normally offer worse, not better, performance or quality than the incumbents when they first arrive. But they arrive at a time when the market is ready for something smaller, cheaper, easier, or more convenient than what’s already out there. They almost always start out at the lowest level of the market, or even tap into markets that have previously been invisible. Most importantly, they offer something that the incumbents can’t replicate, even if they wanted to, because the attempt to replicate would tear the incumbent apart: it would fundamentally undermine its basic production and business model.

    Neota Logic, to take an example, is disruptive technology: it guides users through an automated process of data gathering and internal analysis, based on a powerful legal KM engine, and produces an answer to a legal, regulatory or compliance question. Neota cannot replace a lawyer — yet. But it is going to *displace* lawyers, to start taking on some of what lawyers now do. What Neota wants to do is provide a way in which legal questions can be answered more efficiently and cost-effectively than the standard law firm model allows. Neota is first being picked up, as Sam says of all disruptive innovations, at the edges — law students, in this case, in Georgetown Law’s Iron Lawyer competition, using Neota to create apps that can address legal needs for people who don’t want to or can’t use lawyers. Disruptive innovations never start at the top. They start at the bottom and work their way up.

    Here’s what’s important: Law firms cannot replicate this type of innovation, because it would destroy their businesses. Law firms are not in the business of solving legal problems; they are in the business of billing hours devoted to solving legal problems, and that’s a key distinction. A law firm that introduced Neota throughout its firm and contributed to the ongoing expansion of its capabilities would soon find itself cutting loose many of its associates, because they would no longer be necessary. In most business models, this would create greater efficiency and drive profits up; but in law firms, reliant upon leverage for profit, creating greater efficiency drives profits *down*. If you make money by selling inventory, and if your inventory is billed hours, reducing your inventory is going to kill your revenue stream.

    In 2013, Neota represents no threat to speak of to the AmLaw 200. In 2023? It will be a very different story, because as I said earlier, disruptive innovations start at the low end of the market, but they don’t stay there. You can’t forecast disruptive innovations: find me any futurologist who, when we were all making millennial predictions in 1999, predicted the smartphone. All you can do is watch the market and identify the disruptors when they appear. If you want to identify a disruptor in the legal market, ask yourself: could a law firm do this without breaking down, without having to partly or completely reconfigure its financial, procedural and cultural infrastructure? If the answer is no, you have a disruption.

    • static

      So the law firms you know don’t solve clients problems, but only bill hours? Have you considered hanging out with different lawyers?

      So you think Neota Logic will finally be a disruptor? Some day? Eventually? Because it will be able to read between the lines, call out a client for fudging the truth, hold hands and wipe away tears, understand a client’s risk tolerance, recognize that law is more art than science and incorporate the intangibles in its counsel?

      Maybe. But let’s talk again when it happens. So far, the disruptor predictions have fallen pretty flat, so no point in taking another blind leap off a very high cliff.

    • http://lawyerist.com/author/aaronstreet/ Aaron Street

      This comment deserves to be a stand-alone post.

      • http://www.law21.ca/ Jordan Furlong

        Aaron — excellent suggestion! I’ve done just that. :-)

        http://www.law21.ca/2013/04/what-disruption-really-means/

      • Brian Rogers

        I agree. Everything I’ve read of Jordan’s is worthwhile. is this post is of interest to you, you should follpow his blog.

    • http://phillylawblog.wordpress.com/ Jordan Rushie

      Zzzzzzzzzzzzzzzzzzzz…

      • Tony Chan

        Are Zzzzzzzz’s a form of disruptive innovation?

        • http://lawyerist.com/author/samglover/ Sam Glover

          Totes.

  • http://lasthonestlawyer.org/ LastHonestLawyer

    Illuminating comment, Jordan. Another interesting disruptor I came across is on the other side of the pond is Martin Langan’s “Road Traffic Representation” site which uses free AI to help traffic violators understand their risk. And if I was picking a law school to attend today, MSU and the ReInventLaw folks would be on my shortlist.

    Netflix is informative as well, as their “innovative” streaming option disappoints from lack of good content – frustrated by the big traditional player who control the content – who are all scrambling to figure it out themselves.

  • http://www.legaltechnology.com Charles Christian

    I’m a legal IT journalist based in the UK and I’m having problems with the word ‘disruptive’ generally. It’s like when Richard Susskind published his first book in the mid 1990s “The Future of Law” and used the phrase “paradigm shift”. Suddenly all the world and his uncle were making paradigm shifts. Today’s paradigm shift is disruptive technology – only it isn’t, its the same old same old with a new name. I had a vendor recently tell me that Microsoft Sharepoint was a disruptive technology. Why? Because some law firms were going to use Sharepoint instead of OpenText or iManage for their DMS. That’s not disruption, that’s a product swapout because you are still doing the same thing but with a different tool. Online legal services like LegalZoom have been around since the late 1990s and they still haven’t set the world on fire. That’s not being disruptive, that’s being irrelevant. So here’s a disruptive thought: let’s ban the use of the word disruptive and add it to the funeral pyre of hackneyed cliches we can all live with out.

  • http://www.legalinfo360.com Brian

    As a non lawyer, I can say that I would not be confident trusting a website to take care of something as important as a will, trust, or divorce. I think I’d rather have a human being with knowledge of my specific situation. However, I think you are on to something with the Netflix comparison. Send what I need directly to my door so I don’t have to change out of my sweat pants to get a divorce. Perfect.

  • legaltruth

    One of the most fundamental elements of disruption is the dismissal of the disruptive innovation by the incumbents and their main customers. So having a lawyer write an article about technologies he finds not to be disruptive should actually cause more alarm than educate the populous regarding disruptive innovation in the delivery of legal services.

    Here are some elements of disruption that are apparent from reading “The Innovators Dilemma”, the hallmark study of disruption:
    -They use proven technologies
    -They initially target markets that could not afford to use the incumbent product/service but still have the problem that needs to be solved or need to be fulfilled
    -They are lower quality products/services solving a problem or fulfilling a need that has been solved or fulfilled in the popular market by the higher quality and more expensive product/service
    -They start from the low margin area of the market and move up market
    -The innovation operates on much lower margins than the incumbent
    -The production process of the innovation is usually different than the incumbent product
    -The innovation is usually more convenient, reliable, and less expensive

    Are Legalzoom and Rocketlawyer disruptions?
    -Are they proven technologies? (Automated Document Creation)
    -Are they viewed as lower quality then the incumbents and the incumbent customers? (See the above article)
    -Are they targeting a market that could not afford the incumbent product or service? (<100 for many of their documents vs. $100+ an hour for an attorney)
    -Are they starting from the lower margin end of the legal industry and starting to move up? (They started with simple documents are now adding work performed by attorneys to assist in document editing)
    - Do they use a different process in their delivery of the product? (They are not law firms housed in office buildings. They do not face the same restrictions as law firms in advertising, confidentiality, costs needing to applied to the customer/client)
    -Are they disruptive? They are reported as the most well known entity providing legal services in the entire world. And will likely remain so since they direct a much larger share of their funds to advertising than most if not all other current law firms. In only 10 years Legalzoom has reached revenues of $100 million annually and intends to continue taking away market share from the incumbents. They will do an IPO soon to fund the continued growth. Again are they disruptive? You can be the judge. Are there disruptive innovations on the horizon, yes. ODR, LPO, Law Pivot, JustAnswer, LawHelp, and the the UK will likely have many soon with the liberalization of the legal services industry.

    • http://www.linkedin.com/in/tonypchan Tony Chan

      One of the strategies that an incumbent can take is to analyze the downmarket targeted by the disruptive technologies, identify what comparable services are offered among the disruptors, select the most viable service and start thinking about acquisitions.

      Once the acquisition is complete, the key is to preserve marketshare by leaving the disruptive services alone but provide the same or higher level of services at the same cost to customers without injecting further capital. Also, disruptors tend to be incubator of new services. This is not dissimilar to the Big Four firms diversifying their portfolios by offering legal services to their customers.

    • http://lawyerist.com/author/samglover/ Sam Glover

      In order for lower-quality legal services to take over, the majority of consumers would have to decide they are happy to not get their legal problems solved, as long as they don’t have to pay more for it.

      In other words, when it comes to law practice, there is a solution, and there is a not-solution. Until LegalZoom, et al., can start offering solutions instead of not-solutions (like, say, a will and employment agreement that don’t work), they won’t be taking over the legal market.

  • Betsy Munnell

    Sam–exhausting as this is becoming, I have to say that I am grateful to you and all the commenters (especially Jordan and whoever lies behind the handle “legaltruth”) for causing me to realize that I have been misusing this ever more popular term for months. So, as much as I am as tired of it now as I am of “lean in”, it has finally dawned on me why you stated categorically that the Fullbridge Program was NOT disruptive. Many wonderful things it is indeed, but not that.
    Carry on.
    Betsy

  • http://www.neotalogic.com Michael Mills

    Another two cents, from the perspective of a not-disinterested observer – the CEO of Neota Logic.

    Don’t expect to see disruption immediately, or even quickly, perhaps especially not in this profession. “Disruption is a process and not an event. In some industries it might take decades for the forces to work their way through ….” (The Innovator’s Solution, Ch. 2, fn. 15.)

    Legaltruth has it right about LegalZoom and RocketLawyer. Those companies are serving not just people who would otherwise have gone to their friendly neighborhood lawyer for a will or contract. They are serving people who otherwise wouldn’t have had any legal guidance at all. “A disruptive innovation transforms a product that historically was so expensive and complicated that only a few people with a lot of money and a lot of skill had access to it. A disruptive innovation makes it so much more affordable and accessible that a much larger population can have access to it.” Clayton Christiansen, March 30, 2012, http://www.youtube.com/watch?v=qDrMAzCHFUU.

    It is certainly true that Neota Logic’s technology cannot “read between the lines … [or] hold hands and wipe away tears.” (You will surely see a press release when we can.) But that’s a straw person. A useful fraction of what clients need, and what lawyers actually do, can be done by software – we know that because we do it. And when software can’t (or shouldn’t) give an answer, it will send the client along to a lawyer. It is every lawyer’s professional responsibility to know what he doesn’t know, and guide the client to competent counsel when he’s not it. Professionally responsible software does the same thing.