LegalZoom: Good or Bad News for the Legal Profession?

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Online documents are here to stay. Lost in all the hype regarding the Facebook IPO is the fact that LegalZoom filed for an IPO in early May. For those of you who may not have heard of LegalZoom, it is perhaps the largest online legal document preparation services for estate planning, trademarks, corporations and others. Some very impressive statistics were contained in its filing. In the past ten years, LegalZoom has had more than two million customers. Its revenue in 2011 was $156 million.

What does the apparent success of LegalZoom and other online document companies mean for the legal profession as a whole?

According to some legal commentators, it means doom and gloom. Last month, on the eLawyering Blog, in a post entitled, LegalZoom: The ‘Good Enough’ Legal Solution, Richard Granat wrote:

Solos and small law firms will find it will be very difficult to compete against LegalZoom. … [It] is here to stay and will expand its market share as the major provider of the delivery of legal solutions to consumers and small business. … LegalZoom will, inevitably, put many solos and small law firms out of business as it grows and expands its suite of legal services.

Is Business Being Lost to LegalZoom?

Call me crazy, or call me an eternal optimist, but I don’t think the sky is falling. In fact, its success may actually lead to more opportunities for solos and small law firms.

Let’s take a closer look at the likely customer profile of the two million people who have used LegalZoom. The doom-and-gloom crowd simply assumes that many of these customers would have gone to solos and small law firms. Certainly some would have done so, but I don’t think the majority would have followed suit. The majority would have likely done nothing.

That’s also what LegalZoom thinks, apparently. In its analysis of the legal market as set forth in the filing, LegalZoom believes that demand for its services will grow because “many small businesses and consumers often are unsure of or dissatisfied with the legal services available to them, and many elect not to seek or take no action to address their important legal needs.”

Included among those who go without legal assistance is the do-it-yourself crowd. These are the customers who, in the pre-online world, went to a law library to find what they thought were the appropriate legal documents.  Alternatively, they borrowed a will from a relative and drafted their own based on that.

In any event, the common characteristic of online document customers is that they either cannot afford traditional legal services or are too cheap to spend money on such services. The reality is that these companies have created an entirely new market without replacing an existing one. It’s the market that believes, “I could probably do this myself with the benefit of some legal documents, and I can certainly afford the low cost of a product offered by LegalZoom.”

Online Document Companies Create Opportunities

So where are the opportunities for solos and small firms? The more obvious opportunities are the problems that will inevitably arise when use of online document forms creates unintended legal problems that will then require the use of an attorney.

A less obvious benefit from these companies is that they increase the awareness of the need for legal services in general. One statistic proudly announced in the filing is that 20 percent of all limited liability companies in California were formed using LegalZoom. I believe that many of those companies would never have become limited liability companies in the first place. Furthermore, its marketing efforts likely persuaded some small business owners to turn to traditional legal services instead.

Do you think your practice has suffered because so many legal documents can now be found online? Are online documents a “good enough” legal solution?

(photo: Businessman with document and laptop at office image from Shutterstock)

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  • I couldn’t agree more with your analysis. Certainly, LZ is competition. However, they are far from putting me out of business. I have had several clients who have come to me to start businesses because they realized they were in over their heads after checking out LZ. I welcome the competition and appreciate the opportunities it will create for me. With that being said, I still think they’re crossing the line into the Unauthorized Practice of Law in many instances. In the words of my father: Bring it on!

  • MCDonald’s sells billions of burgers, buy I bet the last burger you bought was not from McDonald’s. Taco Bell just came out with a competing product (dorito taco0 and sold 50,000,000 in 3 months…it took Mcdonalds ten years to do that.

    My guess is you do not want the people using legal zoom anyway. They are people who always buy on price. That is why Borders went out of business. That is why Best Buy will go out of business

  • Roy, as you’ve indicated this is actually a huge opportunity for solo and small firm lawyers to differentiate themselves from the document drafters — as true trusted counselors their clients can turn to at every stage of life. When lawyers really learn how to do this, we become irreplaceable and can use the LegalZooms of the world to justify commanding and collecting much higher fees.

  • I completely agree with Alex. Roy, you have identified exactly the opportunity lawyers should be looking for — ways to become trusted advisors to their clients. Only then will a client see the real added value an attorney can bring. Anyone, indeed any computer, can put together a document full of boilerplate and standard terms. But without understanding what keeps his or her client up at night, without understanding what the client feels about the transaction or will or contract, that document will miss something important. A lawyer that takes the time to get to know his or her clients — their businesses and their concerns — will give those clients added value that LZ and outsourcers cannot compete with. Small firms and solos are especially well-placed to offer clients exactly this kind of added value. I believe the competition from LZ will be a good thing for the profession — if it drives lawyers to focus on value and client satisfaction.