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Creative Destruction: Transforming theLegal Profession into the Legal-Services               Industry              Timothy...
The recession forced corporate America to look hard for savings, and the people who were beingpaid hundreds of dollars an ...
d. Corporate clients are increasingly unwilling to pay first- and second-year associates               historic billing ra...
bill the client anywhere from $100-300 per hour for the associate’s work, while paying the associate asmall fraction of th...
the “recession as tipping point for structural change” in the industry seems a much stronger hypothesisthan that that lega...
These factors have understandably led to probably the biggest trends in client demand—alternative-fee agreements (AFAs) an...
What do corporate clients chiefly value? In answering this question, a good starting point is theAssociation of Corporate ...
Cheaper Law Firm Substitutes: Leading Legal Process Outsourcers – Pangea3 and Novus Law         Pangea3, the world’s bigge...
which requires large investments in land, equipment, machinery, and inventory. Smart firms are takingadvantage of this (se...
would be very likely or somewhat likely to use them.lxi The unbundled option was, unsurprisingly,especially attractive for...
Technology for Law Practice – Cloud Computing        How much does the typical small or medium-sized firm spend on technol...
observe and to learn more about how real-world law practice is done—something they lacked in theirlaw=-chool educations. T...
should keep abreast of any developments. But the most important thing to keep an eye on the short andmedium term is any ch...
Appendix A: Porter’s Five Forces – Legal Industry
Appendix B: Changes in the Legal Industry’s Value Canvas
Appendix C: New-Law Firm Model Case Studies and Firms1. Axiom Law, D.C.lxxxi2. Clearspire – To comply with ethical rules o...
Appendix D: Further Law-Practice Technology Resources       ABA Legal Technology Survey, which costs $1,550 to $1,800 for...
Appendix E: Sources, References, and Endnotesi   “The price of legal services: How to curb your legal bills.” May 5, 2011....
( at $3,500 to $4,500, depending onmembership/participation status.xxv  ...
lii     See ABA Journal. “Make or Buy in the Age of the Free-Agent Lawyer.” Mike Evers. Oct 26, 2011. (advising onbest pra...
lxxxiii    ABA article at:
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Transforming Legal Profession To Legal Services (Legal Industry Analysis)


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Report on the "New Normal" and the changing nature and disruptive forces affecting the legal profession. Actionble advice for providers (attorneys and in-house counsel) and users (clients)of legal services.

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Transforming Legal Profession To Legal Services (Legal Industry Analysis)

  1. 1. Creative Destruction: Transforming theLegal Profession into the Legal-Services Industry Timothy D. LaBadie, J.D., M.B.A. Candidate Industry Analysis – Atkinson Graduate School of Management December 7, 2011 Rob Wiltbank & Sean Campbell
  2. 2. The recession forced corporate America to look hard for savings, and the people who were beingpaid hundreds of dollars an hour to nitpick were an obvious target. Some lawyering requires exceptionalskills and deserves high pay. But law firms were often charging stiff rates for routine work done bytrainees. Clients are right to demand better value for money. Law firms can increasingly oblige themwith the help of technology and globalization. —The Economisti Clients say they want their lawyers to provide excellent service, at competitive and predictableprices, in a timely and professional manner, and all of this is true. But what clients most want from theirlawyers, what they’re really purchasing, is peace of mind. When a client buys a legal product or service,he or she is buying reliability, security and assurance — in a word, trustworthiness. –Jordan FurlongiiRoadmap: This report is intended for two main audiences. First, attorneys who want to understand howthe legal industry is changing (or, the New Normal), to understand client needs better, and to increasetheir competitive advantage. Second, for a general business audience and clients who want to know howthey can get more value for their legal spend.What the report is not about: it’s not about marginal changes (e.g., “You can use an iPad to stay in touchand communicate with clients, use it in depositions, in court, and so forth.”). Rather, its focus is onfundamental, structural changes facing the legal industry.Nor is the report directed at readers or “lawyers who have incredible lack of interest in changing legalmarketplace.”iii, or those who do not believe the legal industry is changing or are generally resistant to it.Many have good reasons for doing so. Attorneys coming into the latter part of their practice naturally arehabituated to the old model. But younger attorneys and those who find themselves in “mid-practice”should find the report more salient.This report will argue that legal industry is fundamentally changing because of changes in three broadcategories: (client) demand, technology, and globalization. The paper will proceed by analyzing thetrends in each of these three categories. I. Key Findings and Trends 1. Demand (The Client) a. Corporate clients are continuing to insist on cheaper legal services from law firms and in- house legal departments, while simultaneously insisting on higher value. Corporate clients are still less-than-satisfied with many of their law-firm suppliers. Hence, it is still decidedly a buyer’s market. b. The most popular way to achieve these dual goals (higher quality at lower cost) when corporate clients choose to continue using law firms are through alternative-fee agreements (AFAs). c. There is a strong corollary trend of moving work previously done by law firms in house, or limiting work given to a few select, preferred firms because businesses can control costs more easily this way and many law firms have been proven slow to innovate.
  3. 3. d. Corporate clients are increasingly unwilling to pay first- and second-year associates historic billing rates. 2. Globalization (Supply Side) a. Perhaps the most important, most profound trend is the rise of legal process outsourcers (LPOs), which are increasingly taking the bread-and-butter work away from many law firms, such as e-discovery, document review, contract drafting, patent filings, legal research, etc. b. Contract or adjunct attorneys are increasingly being used by in-house legal and law firms. 3. Technology a. Individual clients and small businesses are underserved. These markets are being penetrated by many internet providers, such as LegalZoom and RocketLawyer. b. The internet is also offering new ways for lawyers to market themselves through crowdsourcing websites (i.e., sites that allow users and potential clients to receive answers to legal questions from numerous attorneys, such as LawPivot and Quora) and, to a lesser extent, social media (LinkedIn, Facebook, Twitter, YouTube, blogs, etc.). c. Cloud-based and virtual practice constitutes other emerging trends, which allow attorneys to simultaneously cut costs and communicate with clients more effectively (increase quality). It is transforming the face of law practice, and smart firms have been using these tools to deliver better results to clients. II. Industry Background:The Old Normal: The 1980s Called—It Wants Its Business Model Back To understand the current trends in the legal industry and the structural changes taking place (the newnormal) it is necessary to sketch what the old normal looked like, especially for those who are less thanfamiliar with the industry. The legal industry earned great profits and grew rapidly during the latter half of the 20th century,going from a mere 0.4% of America’s GDP in 1978 to 1.8% in 2003, thus growing four times faster thanthe economy as a whole.iv By 2000 this translated into the typical U.S. law-firm lawyer making$191,000, compared with a mere $64,000 for all Canadian lawyers and $90,000 for Australians during thesame timeframe.v Barriers to entry (occupational licensing rules, ABA accreditation of law schools, andrules against non-lawyers investing in, or owning, businesses that do legal work) also helped to limit thesupply of lawyers and retard competition in the legal sector. vi These barriers, when coupled with analmost ever-present revenue growth, resulted in a gilded age, at least from the profession’s point of view. But things were even sweeter for law-firm partners1. The old law-firm model is often described aspyramid-like: relatively few partners at the top, with many associates (i.e., generally younger attorneys) atthe bottom. Partly because law schools have not emphasized practical training, associates had to learn onthe job—and thus on the client’s dime. vii Strikingly, it typically takes an associate 10,000 hours on thejob before he or she rises to mere competency or proficiency. So partners would have associates do themore menial legal work (reviewing documents, drafting routine contracts, due diligence, etc.), and would1 I.e., attorneys that own equity in the firm. Under U.S. rules, nonlawyers are not allowed to own or manage a lawfirm, which includes companies that offer legal services and advice.
  4. 4. bill the client anywhere from $100-300 per hour for the associate’s work, while paying the associate asmall fraction of that rate. How could a firm not make profits? The essence of the model was summed upaptly by a law professor, John Heinz: A senior partner in a large Chicago firm told me that, until a few months ago, hiring more associates and more paralegals was, “like printing money.” A larger number of subordinates per partner provides “leverage” for the partner’s assets. The firms bill the clients considerably more than the firms pay for the time of these employees. viii Business clients were the first to get savvy, albeit probably belatedly. ix No wonder by 2010, andafter they themselves were being squeezed by the recession, almost half of law firms reported thatcorporate clients refused to pay them for work done by their first- or second-year associates!x Largebusiness and corporate clients were only half of the legal “hemisphere”, though.xi The other half consistsof individual and small-business clients, many of whom cannot afford to hire a private attorney,especially because of stagnating real wages. xii In fact, two legal-industry economists have recentlyconcluded, after controlling for a range of factors that would explain higher wages for U.S. lawyers, thatout of the $170b spent on American lawyers annually, about $64 billion is an “unearned premium”produced by market distortions, with another $10 billion in annual “deadweight loss”—lost or wastedeconomic activity.xiii Hence, it is no wonder that the legal industry has been rife for change, innovation,and competition from new entrants in both hemispheres of the legal profession: for both arguably over-served large business and corporate clients, as well as under-served individuals and small businesses.The Recession as a Tipping Point for the Industry The change seems well underway. Since the 2008 recession, many law firms have seen revenues andprofits falling significantly.xiv Thus the recession has been described as a tipping point, where hitherto“fake pressure became real pressure” with respect to clients’ demand for change in how law firms operateand serve them.xv Further, most industry observers attribute the falling profits to creative destructionforces, and which are the focal points of this report, namely: (1) changing client tastes and preferences,or buyer power; (2) globalization (largely in the form of outsourcing), and (3) technologicalchange.xvi No, It’s the Economy, Stupid As mentioned above, many lawyers are reluctant to the changing legal landscape, holding out hopethat the economic rebound will restore the profession to business as usual. Given the lucrative last fewdecades, it is not difficult to understand why some attorneys take this position. But this is probably wishful thinking. Though the vast majority of industry experts disagree with thisrosy prognosis, there are good empirical reasons for thinking the changes are fundamental, and not merelycyclical. First, in-house attorneys—as opposed to law firm attorneys—are seeing salary increases;companies are lifting salary freezes, and cash bonus levels are approaching pre-recession levels, yet manylaw firms (i.e., external legal suppliers) are not seeing a rebound in work.xvii Second, clients weredispleased with the majority of legal services offered by law firms even at the height of the economicboom. In 2006, about 70% of large business clients reported that they were unhappy with their primarylaw firm, and 50% reported they planned to switch firms for substantive matters in the future.xviii Thus,
  5. 5. the “recession as tipping point for structural change” in the industry seems a much stronger hypothesisthan that that legal business will return to business as usual once the economy picks up again (See alsoAppendix A: Porter’s Five Forces analysis). III. The New Normal: Changes in (Client) Demand: A Client’s MarketSummary of Trends in Demand: Cost-cutting, Alternate-fee arrangements (ADAs), Refusal to pay(train) young associates, A move to In-House, and Greater Value Demanded from Firms. Imagine you as a law-firm owner-partner hire a new associate. She has graduated from the top 10%of her class, was a law review member, and was a decorated moot court member. In short, she hassterling credentials. In the first few months, she works on various matters and performs well, even on theless-glamorous, but necessary, menial tasks such as reviewing discovery2 documents. You pay hercompetitively ($60 hour). And she performs well on these matters. You then learn that much of thedocument review she has actually outsourced to a smart worker (but nonlawyer) with a mere bachelor’sdegree, whom she has paid $15/hour. She has effectively made a 300% profit margin. This is prettymuch sums up the old law-firm business model. She has merely followed the old law-firm model—shehas “leveraged”. WTF!? This is the position in which corporate clients found themselves vis-à-vis law firms.Needless to say, they are no longer willing to pay for this.Corporate Law Departments under Huge Pressure to Cut Legal Costs—Trickling Down to External LawFirms Since business clients have become more sophisticated and knowledgeable about lawyering, they aredemanding that firms cut costs, yet insisting on higher value. Why is there so much pressure to cut legalspend? First, as companies have faced increasing competition, and thus pressure to cut costs themselves,this has trickled down to corporate legal departments and law firms. xix Second, as mentioned above,corporations were already displeased with most of their legal suppliers before the downturn. The GreatRecession merely put law firms on the front firing line. Third, business people almost universally viewlawyers as a mere expenses, rather than as revenue generators, so paying high fees for most legal mattersdoes not make sense from a ROI point of view. Fourth, law firms are frankly quite pricey; from 1998 and2009, large law firms’ hourly rates increased by more than 65%.xx Consequently, most chief legal counsel consider legal-spend cost control as the number-one priorityin the next year according to Altman Weil, a leading legal consulting firm.xxi Further, corporate counselconsidered the most important metrics for evaluating the effectiveness and efficiency of outside counselas (1) “legal fees spent on outside counsel” (79%) and (2) “total legal spend as percentage of annualrevenues” (70%).xxii The metric of predictability in legal billing is a close second to cost-consciousnessfor business clients; two-thirds of corporate legal departments analyze past billing to predict and managefuture costs, and 90% discuss specifics of new project budgets with outside counsel according to a 2011survey.xxiii2 I.e., gathering and exchanging evidence, often documents, between litigants prior to trial.
  6. 6. These factors have understandably led to probably the biggest trends in client demand—alternative-fee agreements (AFAs) and keeping legal work in-house, thus lowering demand for external law firms.AFAs AFAs are particularly popular for mid-level legal work, or where good enough is good enough. Incontrast, businesses are more willing to use the billable hour for important, high-profile, or bet-the-company matters. They are also more willing to use a billable-hour basis with niche firms with rare,specialized expertise.xxiv Companies have increased their use of AFAs from 77% to 84% since 2009;though the amount of AFAs remains relatively low at 11% to 14%.xxv Interestingly, online bidding andreverse auctions (in which buyers-clients post a job, and sellers-firms would bid) are only used by about4% of corporations, which could provide substantial cost savings to corporate clients. xxvi So it is unclearwhy this approach has not been more popular. Although the immediate goal is to reduce costs,corporations seem to have a broader, long-term goal of incentivizing law firms to improve theirefficiency.xxvii Further, in 2010 almost half of law firms reported that corporate clients have refused to pay for workdone by first- or second-year associates. xxviii As a result, some firms have changed their trainingprograms, and not allowing associates to bill at all. This is useful both as a marketing tool (“We won’task you to pay for on-the-job training for our employees”), but also useful to help associates focus ongetting up to speed as soon as possible, rather than being distracted on mere billings.xxix Call it a “firstthings first” kind of approach.The Trend to Keep Corporate Legal Work In-House: Damn it, We’ll Do it Ourselves Some companies are cutting out some or all of their outside counsel and law firms, opting tocapture efficiency gains through in-house counsel instead. The savings can be striking. One surveyreported that the total cost of in-house lawyers were 46% cheaper on average than the top law firms used;even though 80% reported that their company’s legal needs are And 60% of businessessurveyed reported that they decreased outside spending on law firms. In the last three years, only about13% of legal departments said they planned to increase spending on outside counsel. xxxi These are dismalnumbers for law-firm attorneys. The upshot is that, legal work is picking up again, but not much of it isreturning to law firms. The economy is recovering, but traditional law firms are not. How responsive have most firms been in responding to the new normal in client demand?Generally, corporate clients are still not pleased. While virtually all corporations are putting heavypressure on law firms to cut costs, they exert at best only moderate pressure for firms to change the waythey deliver their services, though the trend is getting stronger.xxxii Relatedly, most corporations believethat law firms are not serious about changing their service-delivery model to provide greater value toclients. 3 And only 45% of general counsel surveyed mostly or wholly agreed that their external lawyerswere recognized as “essential partners” in delivering financial value; the term “necessary evil” cropped upin several interviews. In sum, many, perhaps most, law firms are viewed as an “unwelcome, albeitnecessary, cost” by corporate clients and counsel. xxxiii3 I.e., scoring a median of 3 on a scale of 1 to 10 for 2009, 2010, and 2011. 0 = not at all serious. 10 = doingeverything they can. The mean however is slowly ticking upwards the last three years, 3.4, 3.7, and 4.7 respectively.Id.
  7. 7. What do corporate clients chiefly value? In answering this question, a good starting point is theAssociation of Corporate Counsel’s (ACC’s) major initiative, the ACC Value Challenge”, which offersguidelines, metrics, and best practices for law firms to cut costs while increasing value added.4 Aminority of firms are emulating the ACC guidelines (See e.g., Appendix C for list of firms and casestudies that are, including the firm Clearspire). Further, there is ample room for innovative marketingapproaches. For example, only 35% of in-house counsel formally evaluates outside counsel’sperformance on a regular basis, and only 17% report those results to counsel. xxxiv So firms that create aconvenient and meaningful evaluation process with their corporate clients will stand out, and this will alsohelp to build long-term relationships, which over time, competing firms will find hard to imitate.Strikingly, corporate counsel rated “spending time to understand our business” as the single mostimportant marketing strategy for law firms looking to secure their business.xxxv All in all, what clients currently emphasize and value, or the new normal, is summarized inAppendix B: Changes in the Legal Industrys Value Canvas. IV. The New Normal: Globalization and Global Competition - Outsourcing Menial Legal Work by both legal departments and law firms, Offshoring, and Contract attorneysFirst Thing We Do, Let’s Cut Out the Lawyers Perhaps the biggest and most transformative trend facing the legal industry is outsourcing legalservices to non-law firms, or legal service providers (LPOs). Although outsourcing legal services is stillrelatively small at $1b a year (out of $180b spent each year annually on attorneys), it is growing at 20-30% a year (or $200-300m per year).xxxvi Impressive growth, to say the least. Businesses are pressuringlaw firms to outsource more and more menial work that their associates used to bill out at hundred-dollarrates—such as e-discovery, document review, due diligence, and legal research.xxxvii This has largelybeen led by in-house counsel: 13% of corporate legal departments themselves have taken the initiative,outsourced e-discovery, document review, due diligence and legal research work that they said theywould have given to law firms in the past.xxxviii Additionally, some corporate legal departments are“offshoring” legal work abroad, to India for example. In 2011, about 10% of corporate legal departmentsoffshored legal work, and about 90% expected this to increase or to stay the same next year.xxxix More efficient work by outsourcers has not only saved a lot of cash for business clients, but onlitigation matters as well. Litigation costs have rose markedly during the last decade. In large part, this isdue to the monumental inefficiency of discovery. On average, and depressingly, it takes about 1,000pages of produced documents in discovery to yield one page worthy of being used at trial. In 2008, theaverage number of pages produced in discovery was almost 5 million, while only about 4,800 pages weremarked for use at trial. xl This corresponds to a miniscule utility or “hit” rate of .1% for produceddocuments.xli These dismal numbers are crying out for six sigma, and some larger firms are alreadyimplementing the discipline long used by businesses.xlii For example, general counsel for Cisco, MarkChandler, reported in 2007 that there was no quality difference between using “armies of associates” toconduct document review and a more automated, data-mining driven system used by outsourcingvendors—but that there is a huge cost difference. xliii4 See:
  8. 8. Cheaper Law Firm Substitutes: Leading Legal Process Outsourcers – Pangea3 and Novus Law Pangea3, the world’s biggest LPO, was acquired by Thomson Reuters, the largest legal-systemsand information company in 2010.xliv Although based in Mumbai, India with 650 employees, thecompany has recently opened a Dallas, Texas office to better serve the U.S. market for legal matters thatrequire a U.S. presence.xlv It applies six-sigma principles to a wide array of legal services, including thosethat hitherto were the bread-and-butter work of law firms and younger associates, including:  Corporate work (contract drafting, M&A due diligence, etc.),  Litigation (review, organize, and catalogue documents pertinent to litigation, expert and lay witness background reports, etc.),  Intellectual-property work (draft patent applications, patent research, etc.),  General legal research.xlvi Pangea3 garners world-class clients. American Express, GE, Sony, Yahoo! and Netflix havealready started using Pangea3 for basic legal work. xlvii Law firms are catching on, too. Currently, 25% ofPangea3’s business comes from law firms.xlviii Another leading outsourcer, Novus Law, whichspecializes in document review for complex litigation and due diligence, has seen its revenues doubleyearly.xlix Novus’s approach uses cheap offshore labor and operational efficiencies to snatch upbusinesses that also used to hire law firms at a much higher price. l Further, some corporations arecreating their own in-house LPO infrastructure. GE, for example, has their in-house lawyers superviseother legal staff and attorneys in India, thus cutting costs Another complementary trend is that both law firms and corporate legal are increasingly usingcontract or adjunct attorneys, thus further managing costs.lii This trend doesn’t seem to be goinganywhere any time soon either. In 2010, 55% of law firms reported that their firm had used contractlawyers, up from 44% in 2009.liii This allows firms to cut down their fixed costs, and gives them moreflexibility to hire specific expertise needed for certain projects, thus cutting their fixed costs.For Lawyers: The Silver Lining of Outsourcing Much of the work done by LPOs is, as admitted by most attorneys, miserable drudgery. Theblessing of LPOs is that it can allow attorneys to hone more prized skills, and for them to follow themarketing maxim, “Do what you do best, and outsource all the rest.” It simply does not make economicsense for lawyers to consistently do work that does not require a law degree, no more than it makes sensefor a lawyer to type up his or her own dictation. That said, the LPO substitute will divert a hitherto hugerevenue channel for many firms. Smaller firms, however, may be the biggest beneficiaries of LPOs. First, it allows smaller outfitsand boutique firms to better compete with “big law”, who, as a tactical ploy, would inundate andoverwhelm the little guy with a flood of documents. Utilizing a supplier like Pangea3 could obviate thatsmall-firm disadvantage, and level the playing field. Second, LPOs can transform fixed costs intovariable ones. Firms need not take the risk of paying staff round the year, reducing profit, andnecessitating layoffs when times get tough. If combined with virtual office space (see next section,below), it could result in a truly lean or low fixed-cost business—the holy grail of most business models.Indeed, the bare bones of lawyering is essentially a very low-cost service—as opposed to manufacturing,
  9. 9. which requires large investments in land, equipment, machinery, and inventory. Smart firms are takingadvantage of this (see e.g., Clearspire and Axiom Law, in Appendix C: New Law-Firm Model CaseStudies and Firms). V. The New Normal in Technology – “Get my Computer on the Phone.” Technology is transforming professional-services work in general, allowing mere laymen oramateurs to do what professionals did before. liv Think: TurboTax meets the legal world. Now, it ispossible for technology to do the work that, in the past, only lawyers or paralegals could do. For a largesection of underserved middle- and lower-class consumers this is welcome, and long overdue. For at leastthe past two decades, there has been a trend in self-representation (or pro-se work), as many peoplecannot afford to hire an attorney. lv Technology is simultaneously offering major opportunities and threats, especially to smaller-firms. Probably the most drastic, disruptive change in technology will be caused by internet-basedsubstitutes for law firms.Technology that Competes Directly with Law Firms – The Online Disruptors  The site allows online, cheap legal services, such as routine business formation/incorporation, patent applications, and simple wills. A consumer can pay $75-100 for a simple will, as opposed to paying a traditional attorney $500-$1,000, for example. Since its formation about 10 years ago, has served over 2m clients. It is earning over $100m in revenue annually, and is profitable.”lvi Several prominent venture-capital firms just infused $66m into the company, and it looks to be preparing for an IPO.lvii It thus seems that LegalZoom will grow as a potent displacing force.  is a fast follower of LegalZoom. It allows online “clients” to fill out, store, and share legal forms on the web. It has 70k users a day, and has doubled its revenue for four years straight, earning over $10 million in 2011. As with LegalZoom, Rocket Lawyer provides online legal forms, from wills to business incorporation documents, which regular folks can fill out and store and share on the Web. For $20 a month, consumers can also have their documents reviewed by a real lawyer and receive legal advice at no additional cost.”lviii Google Ventures invested $18.5m in the startup 2011.lix  and (settle your legal case online services). These sites offer confidential and round-the-clock dispute resolutions settlement services online. If a case does not settle, they then provide online facilitators to move disputes toward settlement. Cybersettle boasts it has handled over 200k transactions in the past 10 years, totaling about $1.6b in settlements in bodily injury and other insurance claims.lx Its users also include insurance professionals and attorneys, especially for smaller cases. These are serious threats to firms, especially smaller ones. How can attorneys counteract thisthreat? Essentially what these websites offer are unbundled legal services, or “an agreement with a clientto provide only a portion of the services, such as a consultation or document preparation, as an alternativeto full representation.” Law firms need to better market themselves as offering unbundled, and hencemore affordable legal services—most people are unaware that law firms can offer unbundled legalservices. Although 70% of persons are completely unaware of unbundled services, about 66% said they
  10. 10. would be very likely or somewhat likely to use them.lxi The unbundled option was, unsurprisingly,especially attractive for households making less than $50k per year.lxii Yet about half of solo practitionersand small firms (with two to nine lawyers) reported offering unbundled legal services, and only 25% oflawyers in a California study reported that they did not offer any unbundled services.lxiii Thus lawyerscould do much better in making middle- and lower-class segments aware of this option.lxivOnline Technology that Augments Law Firm Practice Other web-based technology is also complementing and augmenting law practice, allowingattorneys to reach more potential clients and market themselves more effectively. Take and, which are crowdsourcing sites where lawyers respondto legal questions, thus drumming up potential business. LawPivot, for example, focuses on mostly onstartups.lxv Users can ask questions publicly or privately. They can then post jobs such as contractreview, business incorporation advice. Clients can then mark whether the advice was helpful or not.Moreover, it links directly to the lawyer if the user wishes to hire the attorney. The websites offer a good deal of information, allowing users to test-drive potential attorneys.Take a typical example:User: “I am a daycare director and want to know if I can copyright a handbook that I have put together?”Attorney: “Yes you can mark it as copyright, with the "c" in the circle. However if you did it as part ofyour job, it is probably ‘work-for hire’ and as such it may belong to your employer.” The site also conveniently cross-links to Facebook, LinkedIn, Twitter, Google +, and other socialmedia, allowing clients and attorneys to further research and communicate with one another. Lastly, itassists clients to link up with lawyers within a fixed price range or budget.Social Media and Marketing – Probably Won’t Get You to a Retainer Agreement, but Clients Want to SeeIt Social media (Facebook, LinkedIn, blogging, YouTube, Twitter, etc.) has garnered a lot ofattention in the legal press. Empirically, its effectiveness as a marketing tool for bringing in clients seemsslight, however. Only about 10-12% of attorneys reported actually retaining a client using various socialmedia.lxvi As with most any business, personal referrals still matter the most, and are far-and-away themost potent way of marketing and getting clients in the door. About 80% of people looking for anattorney for a personal matter said they would rely on either the advice of a personal acquaintance (46%)or an attorney they have already known or used before (34%).lxvii Only 7% would search online and 8%would look in the yellow pages or other printed directory. lxviii This is a big change from the late 1980sand early 90s, when yellow pages or print directories were used anywhere from 13-34% of prospectiveclients,lxix though those with incomes below $15,000 were most likely to still use the yellow pages.lxx The primacy of personal referrals holds true for corporate and large business clients as well. Thethree strategies that received the corporate legal’s top rating were (1) personal contacts, (2) free trainingprograms and (23) written material demonstrating legal expertise. However, even the highest-rankingactivity rated only 6.7 on a 0 to 10 scale (0= no effect and 10 = extremely positive effect), while a numberof other standard marketing efforts scored very poorly.”lxxi
  11. 11. Technology for Law Practice – Cloud Computing How much does the typical small or medium-sized firm spend on technology? About 55% offirms spend 2-4% of revenue per year on technology, which is still down considerably since therecession.lxxii Just under half reported spending $8k-17k per attorney.lxxiii Increasingly, tech funds arebeing spent on a growing and important trend—cloud computinglxxiv (e.g., Dropbox, percent of firms indicated they are implementing a cloud strategy, up from 17% in 2010 and9% in 2009.lxxv So this is a rapidly growing trend. Firms are attracted to cloud computing because ofbrowser access from anywhere (as 70% reported), round-the-clock availability (55%), and the low costsand predictability of monthly cloud-based expenses (49%).lxxvi Cloud computing in conjunction with virtual-office technology offers a range of benefits, evenaccounting for security concerns. First, the cloud facilitates more of a paperless office, and large gains inefficiency. Consider the waste each year when attorneys and staff moving to grab physical copies of files,or as often happens, cannot locate the file and has to go on a search expedition to find a file or document.Second, the cloud allows for easy backup when hardware goes on the fritz, and can provide duplicatecopies, thus cutting down on malpractice risk if documents are lost or destroyed. Third, it cuts down onpaper and office-supply costs. This seems to be an incipient, but strong trend: about 15% of attorneysnow operate a virtual-type law office, based on cloud technology.lxxvii There is a plethora of practice technologies available. The reader is directed to Appendix D:Further Law-Practice Technology Resources. Given the glut of emerging technologies, perhaps the bestway to describe how technology is changing the practice of law is by way of illustration.A Day in the Life of the Tech-leveraging Lawyer After seeing his kids off to school, an attorney, Jim, sits in his home office, receiving emails fromhis paralegal, who, as he does, often works from home. They are finalizing the drafting of an importantcomplaint. The client retained Jim just yesterday, and it turns out the statute of limitations will run by theend of the week, so the he wants to get it filed today. Although the paralegal did not see the request fromJim to draft the complaint until early this morning, she finished the initial draft within half an hour, afraction of the time it used to take, by using a document-automation software, HotDocs. Jim posts the revision to a Google Docs-like program because he wants his associate to take alook at a provision of the complaint (the associate recently did some research on a nuanced area of lawimplicated in the complaint). They collaborate inside of the “virtual” office made possible by cloudtechnology. The team discusses it, makes corrections, and finalizes it for filing. As with most matters,the client instantly receives an online copy of the final pleading, an plain-language explanation of what itmeans in their terms, and a bill. No postage is incurred unless the client insists on a hard copy of thedocument, as indicated in a client-intake questionnaire. After fairly typical rest of the morning working at home (talking to clients on the phone or viavideo conferencing, emailing, and drafting letters), Jim meets with a potential new client at rented spaceor shared space, offering the high-end type of accommodations without the fixed cost of doing so. Jimtalks to the prospective client in nonlegal terms whenever possible, emphasizing the problem and theclient’s options in plain language. A law clerk and second-year associate tag along to the meeting to
  12. 12. observe and to learn more about how real-world law practice is done—something they lacked in theirlaw=-chool educations. The client is not billed for their presence; the point is to train and apprenticethem. The young attorneys value this pragmatic approach and the opportunities for mentorship. As aresult, the firm has a good retention record, low turnover, and has little trouble attracting new talent. As Jim returns home, he receives client feedback on work she has done on a recent businessmatter. He then spends the afternoon finalizing client bills, some of which are AFAs, and some arebillable-hour basis, depending on the client’s needs and the type of legal matter involved. While working on another case, he remembers a colleague of his who worked on a similar projector issue several years ago. He searches his cloud database, organized by practice area and cross-taggedwith legal issues, and finds it within seconds. He reads the memo, and finds it somewhat useful overall,but the real utility is that it only took him a few minutes to locate it. Things would be different if he hadto take more than say 10-15 minutes to look for it, or had to wait hours or days for a call back from hiscolleague, who likely would not remember much of the specifics anyhow. Jim drives home, and is reminded by his iPhone that he needs to dictate a one-page letter toopposing counsel. He does so in the car via Dragon Dictate (DD), which he can (1) either send to hisassistant to type or (2) the DD application will transcribe the audio for him, which he can then read orsend. Upon arriving home, Jim meets with his a consultant regarding the production of a softwareprogram that will allow the firm to determine whether potential clients are eligible for expungements oftheir criminal record. The statutes determining the conditions under which certain crimes are eligible aretangled and complex, often taking an associate or paralegal an hour or so to determine. He has seensimilar software used for complex statutory schemes with export controls and certain statute-of-limitationstatutes. Cutting down 30-45 minutes of research to a matter of minutes or seconds would allow a high-volume but lower-margin stream of revenue, allowing the firm to undercut the $500-1,000 charged bycompeting firms. Big business opportunity. Further, if the software works, this could open the door tomore lucrative rates should the client wish Jim to represent them at a hearing in court. Of course, clientsare made aware that they can bundle in-court advocacy or proceed after the necessary filings anddetermination by themselves if they wish. VI. The New, New Normal? Things for Law Firms to Pay Attention to and Keep on the Radar Screen going Forward This report has described the structural, fundamental changes taking place in the legal industry.Put differently, it has described the forces of creative destruction in the form of changing demand, forcesof globalization (esp., outsourcing and offshoring), and technological change. Yet there is another classiccreative destruction dynamic to consider: deregulation. The U.S. has not seen much deregulation, nor any major changes to legal ethics rules and otherlaws that define the boundaries and nature of the legal industry. But other countries, notably the U.K.,have. Deregulation would further disrupt the legal market. Therefore, lawyers and business people alike
  13. 13. should keep abreast of any developments. But the most important thing to keep an eye on the short andmedium term is any change in the existing rules of law-firm ownership.Wal-Mart Legal??? Presently U.S. law firms must be “fiscally and managerially separate” from firms that have non-lawyer investors.”lxxviii “Law firm” is broadly defined as any business that offers services or legal advice.This rule has long been questioned. But just this year, the U.K.’s Legal Services Act took effect, allowingnonlawyers to invest in and share in management responsibilities of law firm companies. This is a majordevelopment, as the U.K. is the second biggest legal market behind the U.S. American attorneys shouldpay attention to several aspects of this development in the U.K.: First, British firms will have a comparative advantage over U.S. firms, as they can raise largeamounts of cash from capital markets and public investors. This will allow them to capture othercomparative advantages, such as: to more easily expand into foreign markets, the ability to hireconsultants and experts, to develop and implement new technology quicker, to be able to absorb greaterrisk, etc., etc.lxxix It is likely that this will trigger a “race to the bottom” dynamic, in which the U.S. willbe forced to follow suit in order to compete globally. lxxx The question seems to be when rather than if thiswill happen. Second, as a consequence of this liberalization, the U.K. has been termed the world’s legallaboratory. Though it is still early, analysts have predicted that various innovations in legal servicedelivery are underway in Britain, including being able to access routine legal services via kiosks; one-stop-shopping professional firms whereby clients can have their accounting, legal, and financial needstaken care of; and legal clinics in shopping centers, akin to Wal-Mart’s proposal to offer medical clinicsin its stores. Hence, American lawyers should pay attention to how legal services are being offered in theU.K. to anticipate further changes in the future, and how it might impact practice in the U.S.
  14. 14. Appendix A: Porter’s Five Forces – Legal Industry
  15. 15. Appendix B: Changes in the Legal Industry’s Value Canvas
  16. 16. Appendix C: New-Law Firm Model Case Studies and Firms1. Axiom Law, D.C.lxxxi2. Clearspire – To comply with ethical rules on law firm ownership, Clearspire has a dual structure. One entity has salaried, employee lawyers, and the other focuses on rainmaking and business support for the attorneys. Clearspire also institutes fixed fees that reward attorneys if the project is completed faster or cheaper than promised, the lawyer receives a third of the savings. Clients report that the firm charges a fraction of what traditional firms have charged for just-as-good work.lxxxii3. Law Pivot4. Novus Law5. Paragon in San Francisco6. FSB Legal in Atlanta,7. Outside GC in Boston and8. Philips & Reiter in Houston9. Morgan, Lewis & Bockius10. Slater & Gordon (Australian law firm) who launched an IPO in 2007.11. The Blackstone Group (publicly traded while still retaining partnership status).12. Delegatus Inc.: Reinventing Legal Services13. Fenwick & West LLP: FLEX by Fenwick14. Aliunde LLC: Expedited RFPs for Legal Matters15. Waller Lansden Dortch & Davis, LLP: Schola2Juris – Reinventing Student Recruiting16. Stokes & Stokes, Ltd., aka
  17. 17. Appendix D: Further Law-Practice Technology Resources  ABA Legal Technology Survey, which costs $1,550 to $1,800 for members and non-members5 for the six-volume set covering: * Vol. 1: Technology Basics * Vol. 2: Law Office Technology * Vol. 3: Litigation and Courtroom Technology * Vol. 4: Web and Communication Technology * Vol. 5: Online Research * Vol. 6: Mobile Lawyers  ABA’s Law Practice Magazine > 2011 SEPTEMBER / OCTOBER 2011 | VIRTUAL PRACTICE ISSUE. ( . Stephanie L. Kimbro, Virtual Law Practice: How to Deliver Legal Services Online.5 The volumes can also be purchased for $350 singly(
  18. 18. Appendix E: Sources, References, and Endnotesi “The price of legal services: How to curb your legal bills.” May 5, 2011.( Slaw Magazine. Your Client is Not Your Enemy. Dec. 21, 2010. ( ABA Journal: Lawyers Have Incredible Lack of Interest in Changing Legal Marketplace. Law firms: A less gilded future | The Economist ( Barriers to Entry in the Legal Profession: Not enough lawyers? Economist, Sept.3, 2011.( ( “What They Don’t Teach Law Students: Lawyering”. New York Times. David Segal. Nov. 19, 2011.( “When Law Firms Fail.” John P. Heinz. Suffolk University Law Review. 2010. P. 71.ix Law firms: A less gilded future | The Economist ( Law Firm Leaders Survey (Lexis), infra.xi (Heinz, p. 78).xii Barriers to entry in the legal profession: Not enough lawyers? The Economist. Sept. 3, 2011.( ( Alternative law firms: Bargain briefs | The Economist. Aug. 13 2011.( Ibid.xvii HBR Consulting on Lawyer Compensation, 2011, “In-House Counsel Pay is Improving” Press Release.(, citing BTI Consulting survey. March 5, 2006( The New Normal. What Aspects of Legal Services Are Most Likely to Get Standardized? Posted Aug 1, 2011. ByPaul Lippe.( Offshoring your lawyer: Outsourcing can cut your legal bills. Dec 16th 2010 | NEW YORK | from the print edition( Altman Weil, infra. P. ii.xxii Id., at p. 17. Other primary metrics reported were Number of lawyers per $B of revenue (47%), Ratio of fullyloaded inside budget tooutside counsel spend (35%), ratio of paralegals to lawyers (15%), and ratio of support staff to lawyers (11%). Notethe last two measure a degree of leverage, though associates to lawyers is lacking. Law firms should likewise trackthese metrics as an operating measure and marketing data. See page 18 of the report for “quality andsatisfaction”, financial, and other metrics that a firm might use ( Altman. P. 10.xxiv HBR Consulting Law Department Survey, 2011, Press Release on Outside versus Inside Legal Spend Survey,2011. P. 1. ( Infra, supra.Note: this consulting firm has conducted surveys for the past 25 years. THe full survey is available at
  19. 19. ( at $3,500 to $4,500, depending onmembership/participation status.xxv Altman Weil, p. 14. The amount of non-billable hours refers to the mean. Median rates for 2009, 2010, and2011 are 7%, 10%, and 10%, respectively.xxvi Id., p. 15.xxvii Top Ten Tips for Leveraging Cutting-Edge Legal Research Technology to Control Legal Costs and Drive ClientValue. ACC Website. May 5, 2011. Thomson Reuters. No. 6.( Law Firm Leaders Survey (Lexis), infra.xxix “What They Don’t Teach Law Students: Lawyering”. New York Times. David Segal. Nov. 19, 2011.( Corporate Legal Department Spend Increases 6% as Clients Boost In-House CapabilitiesPosted Oct 11, 2011.( Specifically, the survey found: “219 survey participants, of which 70 percent have revenuesat or above the Fortune 500 level, the median fully-loaded inside hourly cost per lawyer is approximately 46%below the median average hourly rate of the company’s top three billing firms.”xxxi Altman Weil, p. 9. Comparing CLO surveys from 2009, 2010, and 2011.xxxii Altman, at 12. The average (mean) pressure for law firms to change their underlying value proposition forlegal-services delivery from corporations in 2009, 2010, and 2011 were 5.5., 5.3, and 6.4 respectively.xxxiii “General Counsel: Vague About Value” Report. Nabarro. p. 17.( Altman Weil CLO Survey, supra. P. ii.xxxv Altman Weil CLO Survey, p. 17.xxxvi Offshoring your lawyer: Outsourcing can cut your legal bills. Dec 16th 2010 | NEW YORK | from the printedition ( Altman weil, p. 8. Supra/infra.xxxviii Id., p. ii.xxxix 2011 Chief Legal Officer Survey. Altman Weil, p. i. ( A Toolkit For Change: How The Federal Civil Rules Advisory Committee Can Fix A Civil Justice System “In SeriousNeed Of Repair” Topic: Civil Justice Reform. By Daniel E. Troy, Senior Vice President and General Counsel atGlaxoSmithKline, and John O’Tuel, senior counsel at GlaxoSmithKline. Legal Backgrounder, May 21, 2010, 4 pages.Washingtion Legal Ibid.xlii Maura R. Grossman & Gordon V. Cormack. Technology-Assisted Review in E-Discovery Can Be More Effectiveand More Efficient Than Exhaustive Manual Review. XVII RICH. J.L. & TECH. 11 (2011). See Also: Six Sigma Solutions. Seyfarth Shaw, LLP.( “Using Technology to Cut Legal Costs”. The National Law Journal. April 19, 2007.( ( ( See Offshoring your lawyer: Outsourcing can cut your legal bills. The Economist. Dec 16th 2010.( Ibid.xlix Ibid.l Ibid.
  20. 20. lii See ABA Journal. “Make or Buy in the Age of the Free-Agent Lawyer.” Mike Evers. Oct 26, 2011. (advising onbest practices for using and integrating contract/adjunct attorneys).liii Law Firm Leaders Survey 2010, ALM Media, LLC. Dec. 2010. Accessed via Lexis-Nexis.liv The Economist | Schumpeter: Angst for the educated. Sept. 3, 2011.( “Perspectives on Finding Personal Legal Services: The results of a public opinion poll.” 2011. ABA. p. 17 Kleiner Perkins invests in LegalZoom — IPO on the horizon? May 3, 2011. Anthony Ha.( ( See “Perspectives on Finding Personal Legal Services: The results of a public opinion poll.” 2011. ABA. pp. 19-20.( Ibid.lxiii Id., p. 17.lxiv Id., p. 21.lxv Alternative law firms: Bargain briefs | The Economist. Aug. 13 2011.( “Legal tech now: Social media effectiveness, software trends, mobile security, more.” ABA. October 2011.( Perspectives on Finding Personal Legal Services: The results of a public opinion poll. 2011. ABA. p. 8.( Ibid.lxix Id., p. 9.lxx Id., 10.lxxi Altman Weil, at ii.lxxii (2011 ILTA/InsideLegal Technology Purchasing Survey. Page 1, 2. Ibid.lxxiv “Legal tech now: Social media effectiveness, software trends, mobile security, more.” ABA. October 2011.( Id. p. 1.lxxvi “Legal tech now: Social media effectiveness, software trends, mobile security, more.” ABA. October 2011.( How to Integrate a Virtual Law Office. Stephanie Rabiner. November 3, 2011.( See ABA Comm. on Ethics and Prof. Responsibility, Formal Op. 96-401 (1996); ABA Comm. onEthics and Prof. Responsibility, Formal Op. 94-388 (1994).lxxix John P. Heinz. “When Law Firms Fail.” P. 77.lxxx John P. Heinz. “When Law Firms Fail.” P. 77.lxxxi Alternative Law Firms: Bargain briefs. (; see also“Nonconventional law practice makes inroads in D.C. market” - The Washington Post. Sept. 11, 2011.( Alternative law firms: Bargain briefs | The Economist. Aug. 13, 2011.( See also
  21. 21. lxxxiii ABA article at: