In 2011, Marc Andreessen wrote his famous article for The Wall Street Journal, Why Software is Eating the World. He described how traditional corporations were busy transforming into software companies and brand-new software companies were rapidly ascending to dominate their industries:
“Today, the world’s largest bookseller, Amazon, is a software company…
Today’s largest video service by number of subscribers is a software company: Netflix…
Today’s dominant music companies are software companies, too: Apple’s iTunes, Spotify and Pandora…”
Andreessen goes on to discuss the ways that software is changing industries as diverse as recruiting, retail logistics and distribution, oil and gas, financial services, health care, education, and national defense. While he does not explicitly mention the legal industry — which may have given legal techno-skeptics some comfort — he also does not suggest that any industries will be immune from this software transformation. Still, he provides one tiny ray of hope for industries that, as of 2011, are largely unaffected:
“In some industries, particularly those with a heavy real-world component such as oil and gas, the software revolution is primarily an opportunity for incumbents. But in many industries, new software ideas will result in the rise of new Silicon Valley-style start-ups that invade existing industries with impunity.” (Emphasis added)
Those two sentences have always given me pause when considered in the context of the legal industry. The law certainly has a heavy real-world component — although, I’m not certain it’s in the same way that Andreessen intends, given his choice of oil and gas as an example — and while we have seen “Silicon Valley-style start-ups” like LegalZoom or Rocket Lawyer enter the industry, they haven’t exactly invaded with impunity. So, what is the deal with legal services? Do incumbents really have an edge in software transformation? Will “Silicon Valley” start-up firms take over the industry? Or, is legal simply immune from being eaten by software?
It’s important to remember that software transformation is not instantaneous and it’s not evenly distributed. It happens over time, at varying rates, and to different degrees in different segments of the market. I believe those segments are most easily put into three groups, defined by their relative comfort with the status quo.
Group 1 — Consumers and companies who need legal services, but who are not well-served by the current model, will be the first to look to software-driven companies to provide legal services and will consume most, if not all, of their legal services through those companies.
I experienced this myself last year when I started my own Limited Liability Corporation. Despite my many contacts and familiarity with the legal industry, I created my LLC through LegalZoom. I answered some questions online, uploaded a couple of documents, swiped my credit card, and got a call from a lawyer the next day to ask a few follow-up questions. LegalZoom software completed the rote work of asking pro forma questions and filling out basic documents. Although I don’t know for certain, I suspect the software assigned a lawyer to my matter and highlighted issues that the lawyer should discuss with me on the phone.
This is not a full-service legal solution, but for someone who would have probably otherwise complete the paperwork himself and then ambush a lawyer friend at lunch to “just look over these and make sure I didn’t do anything stupid,” it was a good solution. It took about an hour of my time, no more than an hour or two of the lawyer’s time, and it cost me less than I would have had to pay a traditional lawyer for about four hours of work. Less cost to me, more profit for LegalZoom, and everyone’s happy.
And the experience was good enough, that I will happily return to LegalZoom for my company’s future legal needs, only seeking more traditional counsel if and when LegalZoom can’t help me.
Group 2 — The second group to demand software efficiencies from their legal service providers will be existing clients who are in some way dissatisfied with their current legal service experience.
I’ve attended the Corporate Legal Operations Consortium (CLOC) convention in Las Vegas for the past two years. This group and conference have only been around for a few years, and they’re growing rapidly. Granted, their membership is self-selected and may not represent the majority of law firm clients but based on many conversations I’ve had at CLOC and elsewhere, I think it’s quite likely that most law firm clients fall firmly into this bucket. They are frustrated with the status quo and they’re looking for alternative models of matter management, service delivery, and pricing. Some larger corporations are beginning to demand that their panel firms present them with creative solutions (often involving software), but many are not quite there yet. These companies are still most comfortable with the firms and lawyers they’ve used for years but are beginning to flirt with non-firm legal companies like Elevate, Axiom, UnitedLex, Riverview, Thomson Reuters Legal Managed Services and others that provide software-driven legal services that most firms cannot yet imagine.
Group 3 — Finally, there are those clients who absolutely demand highly personalized and bespoke legal services and are willing to pay for them.
These clients may eventually use some of the software products their firms create, simply for purposes of convenience, but they will expect their legal services to otherwise remain unchanged; and they’re not going to switch their long-time firms and lawyers merely to get access to revolutionary software products.
Unfortunately, many firms are almost exclusively focused on this last group and dismiss the others as “not our kind of clients” or “not what our clients want.” While there are undoubtedly a handful of firms who will survive just fine for the foreseeable future without undergoing any software transformation at all, I think I can count those firms on one hand.
In my capacity as a software executive in recent years, I have heard many partners and high-level managers at U.S. firms say that they will create software products when their clients demand it, but since no clients are demanding it, they’ll keep doing what they’re doing.
Clients on the other hand, often bemoan the lack of creativity and innovation on the part of their firms, but unless they are mega-corporations, they’re really not in a position to demand that their firms do anything differently. This leads to a classic chicken-and-egg problem. This stalemate will be broken as more competition — with different business models and stronger reliance on software — enters the legal services market.
In Andreessen’s statement about industries with a heavy real-world component, he says, “the software revolution is primarily an opportunity for incumbents,” meaning it will be hard for Silicon Valley-type startups to break into these industries. In the case of oil and gas, for example, this is presumably due to steep capital requirements and the physical difficulty involved in exploration and production. In the case of legal, in the United States anyway, the barriers to software-driven legal interlopers have primarily been archaic unauthorized practice of law (UPL) statutes and regulations. These laws have been steadily crumbling around the world; and where they fall, new legal service companies have sprouted up with varying degrees of success. It’s not coincidental that in jurisdictions where we’ve seen alternative business structures for law firms legalized, we’ve also seen more traditional law firms investing in innovation and building software-driven solutions for their clients.
In the United States, LegalZoom has fought these statutes successfully everywhere they’ve been challenged, and other legal companies have avoided the regulations altogether through creative structuring. I believe it’s only a matter of time before UPL regulations are heavily undermined, if not eliminated in the United States. At that point the floodgates will be opened, and we’ll see clients demanding software-driven legal services, not by insisting their panel firms do it, but by sending their business to new competitors.
I do believe that law firms still have an incumbent advantage, or opportunity as Andreessen described it, but that advantage only exists as long as law firm competitors are hampered by strict UPL regulations. Firms that press their advantage now by working directly with their clients to develop software driven solutions to real-world problems, will be in a much better position to survive the coming competition.
Software will indeed eat the legal industry in time. It will not replace lawyers entirely, but it will make them more efficient, more productive, and the firms or legal companies they work for more profitable.