Dollar Shave Club was just bought by Unilever for $1 billion. That’s a mighty big number for a five-year old start-up. But the real story is how a start-up could disrupt an industry not by improving the product or service but by altering its delivery structure and pricing. Short form explanation: Internet, mass transportation, and globalization mixed with customer service, marketing, design, and a good niche. It made me wonder: is legal delivery ripe for similar disruption?
When Dollar Shave Club launched a few years back, Gillette dominated the razor business as it had for quite some time. That’s why Proctor & Gamble shelled out $57 billion for Gillette in 2005. Think back, say, to 2005 when law firms held a similarly dominant position in their market.
Dollar had a simple idea to combat the high cost of razors, a recurrently used item. The idea was to change the way men buy razors. This had two components: (1) make purchase easier; and (2) make it cheaper–without sacrificing quality. Dollar customers purchased razors online and subscribed to a monthly delivery; product was shipped to them for a fraction of the shelf price. Dollar eliminated the middleman; streamlined efficiency; routinized supply; and reduced price. Now think about agile service providers replacing traditional law firms, operating from a transparent, fixed-price model at vastly lower price points and stripped of all the pass-through costs of fancy office space, skyboxes, and partner tribute. That’s where legal service providers come in–law’s answer to Dollar.
Legal service providers are a multi-billion dollar market segment. They deliver disaggregated legal tasks (e.g. e-discovery, data management, document review, contract review, etc.) more cost effectively, transparently and efficiently than law firms. And the leading service providers, notably LegalZoom and Axiom, among others, are well-capitalized, tech- and process-savvy, broadening their portfolio of products and services, and gradually migrating up the complexity chain. And while LegalZoom is in the retail end of the legal market and Axiom the corporate, there’s more convergence than one might think.
LegalZoom has serviced more than 3.5 million customers and has helped launch over 1million small businesses. It also provides subscription services to consumers, enabling them access to vetted panel attorneys who answer questions and provide basic advice for a fixed monthly fee (formal attorney engagements can ensue, for which LegalZoom takes no fee and is not involved other than negotiating discounted rates on behalf of its customers). The company was among the first US legal providers to obtain an alternative business structure (ABS) license in the UK which means, among other things, that the company can operate as both a service provider and a law firm there. And it did not take long for LegalZoom to acquire British conveyancing (real estate transactions) firm Beaumont Legal.
Then there’s Axiom, the legal staffing-turned technology provider. They have grabbed headlines recently for extending a multi-million dollar, long-term managed services deal with BT for work that would have formerly been performed by a law firm. Axiom has hedged its bets, too, by collaborating with the British-based law firm, Ashurst, to assist UK banks with new regulations governing derivates. Axiom will support banks on the IT and renegotiation functions while Ashurst will provide legal advice on writing new rules and executing new agreements. Look for more collaboration between law firms and service providers going forward.
Dollar has not knocked Gillette out of business (yet), but it has garnered an 8% market share of an industry that, until recently, was dominated by Gillette and its distributor model. Dollar disrupted the industry by offering a scalable alternative to the traditional model, lowering cost, increasing efficiency, and enhancing customer loyalty via high satisfaction ratings. It has recently expanded its line of personal care products beyond razors.
Substitute “services” for “goods” and that is precisely what tech- and process-savvy legal service companies are doing. They are increasing market share from law firms. More importantly, they have convinced clients that they have cost-effective, customer-centric, reliable options to acquiring all legal services from law firms. Service providers are experiencing 30% annualized growth that is likely to accelerate as their use has become commonplace among in-house legal departments who themselves have grown significantly in size, portfolio, prestige, and compensation. It’s not just service providers that are taking market share from law firms.
Now some may be wondering, “Is he suggesting that law firms and lawyers are like razors?” No— but lawyers–like razors–can deliver the same result at different price points depending upon how, where, and by whom those services are delivered. Translation: lawyers need not operate in a law firm setting–at law firm rates–to render service. There are other ways to structure the delivery of legal services, just as Dollar created a new way to sell razors. And, like Dollar, its not the product or service that has changed, but the structure and method of delivery. In-house legal departments, whose DNA closely resembles their client, and service providers, born from a corporate–rather than law firm partnership–model, seem better aligned with client business practices than law firms.
Dollar’s success is also attributable to its size, focus, nimbleness, and ability to scale by tapping into the distribution chain. The company has three million subscribers but only about 190 employees. How? Its razors are made in South Korea; distribution was transferred from in-house to a third-party company in Kentucky; and employees focused on the core elements of their business: customer service, marketing, and design.
Now think about how law firms could–should–be structured: they have a niche; address customer need by lawyers with differentiated expertise and skills; have key supply chain partners that enable them to scale quickly and seamlessly; and deliver customer-centric service at a fixed, cost-effective price. And they make it easy to work with them by removing the hassle of buying their services. That’s why savvy law firms are starting to collaborate with service providers as well as corporate legal departments. The days of multiple law firms prospering as undifferentiated big box stores (of legal services) are over.
Many lawyers still believe that law is unique and cannot be compared to other professions or industries. Not so. Law firms provide a service–legal expertise–that can now be acquired without the traditional law firm delivery structure. Legal delivery is now comprised of three elements: legal expertise, technology, and process management. Law firms are generally strong on the first element but lag on the others. That’s why in-house departments and well capitalized, tech and process-savvy legal service providers are wresting market share from law firms. Oh, and they are cherrypicking legal expertise, too.
Technology, globalization, and the global financial crisis have changed the way many industries operate, and the legal service industry is no different. Transportation, hospitality, retail, communications, and a slew of other industries have had their “Gillette moment”–or is it “Kodak?” So have the professions–most notably medicine. Like it or not, there’s no turning back. Now– finally – it’s law’s turn. That does not spell the end of lawyers, but it certainly portends disruption of the traditional law firm model. And, like Dollar Razor, new models make it easier and more cost-effective to buy what is, in many instances, an undifferentiated service.
No single provider is likely to take a dominant share of the legal marketplace. That’s true for a number of reasons not least of which is conflicts. But providers with new delivery structures will continue to wrest market share from traditional law firms. Legal customers – like shavers – recognize that new delivery models exist. And while the service or product might be the same, the delivery structure makes for a very different customer experience. Then again, there will remain certain customers – or occasions – when only a certain type of razor – or lawyer –will do.
This post originally appeared in Forbes.
