A Lesson On Legal Industry Disruption

I love watches. I probably have two dozen—some so old I have to wind them. Some are solar-powered. Most are battery-operated. I even have four different smart watches.

My first watch was a Swiss-made Zodiac I purchased on a trip to the Caribbean right after law school. At the time, Zodiac made mid-range watches in the $300-600 range—nothing fancy, but I thought it was beautiful. I still have it and wear it. Still keeps perfect time.

Since the band had gotten a little tight on my arm and I had long since lost the extra links, I tried to find a replacement and Googled Zodiac. What I found was that Zodiac, as well as some other mid-range Swiss watchmakers, went out of business in the 1970s during something called the quartz crisis.

The Quartz Crisis

The quartz crisis or (aka quartz revolution) refers to the economic upheavals (aka disruption) caused by the non-Swiss-made quartz based battery watches in the 1970s and early 1980s, which largely replaced the handmade mechanical watches the Swiss were famous for.

Due to their neutrality during World War II, the Swiss initially enjoyed a huge advantage in the design and production of military watches for both sides which it then transferred into the consumer marketplace. Immediately after the war and for some time after that, the Swiss had a near-monopoly and controlled up to 90% of the world’s watch marketplace.

After the war, quartz-based technology was developed primarily by the Japanese and, to some extent, by the Americans. These quartz watches, such as those made Seiko and Timex, were reliable and inexpensive and didn’t require winding every morning.

Despite their dominance in their marketplace, the Swiss were slow to adopt the innovation, thinking innovation was not necessary to maintain their dominance. They must have figured those newfangled gadgets were inferior and would never catch on.

Sound familiar?

But the cause of the failure to innovate went beyond just reluctance. Swiss watchmaking and craftsmanship were marks of national identity. The Swiss watchmakers were organized and fiercely committed to their mechanical watches. They were also committed to a guild system which was based on customer service and trained watch repair craftsmen. And they failed to appreciate that what they prided themselves on was also a point of friction with their customer base. Who wants to send their watch off to Switzerland to get repaired?

So, many of the Swiss watchmakers stood idly by while the majority of world watch production shifted to Asian and American companies that embraced the new technology. By 1978 quartz watches overtook mechanical watches in popularity, plunging the Swiss watch industry into crisis while at the same time strengthening both the Japanese and American watch industries.

As a result of the economic turmoil that ensued, many once-profitable and famous Swiss watch houses particularly at the mid-level became insolvent or disappeared. (Including Zodiac.) Between 1970 and 1988, Swiss watch employment fell from 90,000 to 28,000.  The number of watchmakers cratered, from a high of 1,600 to about 600. Swiss watch market share dropped to about 10%, a fraction of what it was before.

But that was not the end of the story.

Surviving and Swatch-ing

The Swiss ultimately creatively responded to the disruption and miraculously righted their ship. Some brands—Rolex, Tag Heuer, etc.—adopted the new technology but instead of following Seiko and Times, they doubled down on luxury watches and marketed to a sophisticated new audience. They survived.

Smaller watchmakers formed a research consortium, the Swiss ASUAG group (Société Générale de l’Horlogerie Suisse SA), launched in March 1983 with the Swatch.

Everyone who was around in the 1980s remembers the Swatch.

Swatch was sealed in a plastic case, sold as a disposable commodity with little probability of repair, and had a small number of moving parts compared to mechanical watches. Production was essentially automated, which resulted in higher profitability.

The products could not have been more different. Swatch watches are cheap, come in various styles and models, and work well enough. And when they quit, the price is such that you just get another one. Hard to imagine a more forceful and complete pivot in the marketplace.

Lawyers Should Not Be Swiss Watchmakers

What does any of this have to do with lawyers and our legal system? After all, we don’t sell products to consumers, right? Of course we do—or at least we should accept the fact that we do. Legal consumers just come in different sizes, shapes, and levels of sophistication.

And we should recognize that all sorts of new technology threaten to alter our profession and work fundamentally, just like the quartz technology did to the Swiss. Like the Swiss watchmakers, many of us want to hang on to the old guild way of doing things. Most of us still work with a craftsman mentality—each project is different with the results being handcrafted and more expensive than perhaps necessary or than our clients expect. But technology will inevitably change that.

Just like quartz technology, developments like AI, crowdfunding, and alternate litigation financing may be about to make legal services available to vast groups not previously able to use lawyers.

Others who are currently using “traditional” lawyers may start expecting to take advantage of the reduced costs that technology does or should provide. Entities like Avvo and LegalZoom offer an interactions and experiences that are less costly and require less friction—you don’t have to go to a lawyer’s office to get a routine matter handled. These services don’t look at all like traditional law firms, yet they provide what people and clients want.

Make no mistake, just as it was with the Swiss watch makers, a few clients may continue to demand Rolex-level products and services and be willing to pay for them. But the competition for these clients will get even fiercer than it already is. For the rest of the profession, we need to realize that we may have to offer a different and cheaper product—a Swatch—to survive.

The good news is that the technology will enable the have-nots to compete on a quality basis with the legal Rolexes. The good news is that there will be an increased access to justice. The good news is that there are lots of non-traditional clients out there. The bad news is that many of us will need to better and more efficiently use technology and automation to get those clients. And we will have to find different pricing model—just like the Swiss finally did with the Swatch. You can complain about, you can ignore it, but it’s happening.

We either act like the Swiss or many more of us will go out of business.

1 Comment

  1. Avatar flashwins says:

    *looks up at high rises for falling lawyers

Leave a Reply