Are we going to see a giant provider become the disruptor of the legal profession, like a Google, a Microsoft, an Apple or an Airbnb in other markets?
There is no shortage of people trying their hardest to become significant in the law. According to the 2017 report ‘Capturing technological innovation in legal services’ published by the Law Society of England and Wales, there are 600 legal startups.
Many of these are just improving a particular process. A smaller number are aiming to be the innovative disruptor, the one who changes the model and becomes dominates.
Disruptive innovation is the process described by Clayton Christensen where a product or a service begins as a simple application at the bottom of the market and then inexorably moves up market, eventually displacing the established competitors at the top of the market.
Christensen describes the process where companies generally tend to innovate more than their customers’ needs evolve. This means that the companies end up producing products or services that are too sophisticated, too expensive, and too complicated for many customers in their market. One readily equates this to Big Law and their concentration on major clients.
Companies persist in servicing the higher tiers of their markets because they can charge high prices to the most demanding and sophisticated customers, and achieve the greatest profitability.
The result is that such companies leave space for ‘disruptors’ at the bottom tier of the market. These disruptors provide a whole new population of consumers with goods or services which were previously only available for the wealthier consumers in the higher tier.
Typically, the established player spurns the disruptor working for peanuts down at the bottom of the market. But revenge is sweet. Eventually, and inexorably, the disruptor moves steadily upmarket until the disruptor is providing the established companies customers with cheaper and better.
A great example is the well-known Netflix versus Blockbuster battle, a modern business fable.
Netflix began life running a DVD postal rental business, aiming at the low end of the market.
In 2000 they offered to join with Blockbuster and handle the online business. Blockbuster, who were at the top of the of video industry with millions of customers and fantastic cash flow, had no trouble rejecting the offer.
Blockbuster went into bankruptcy in 2010.
Blockbuster’s secret weakness was that their profits were highly dependent on penalizing its patrons for late fees.
At the same time, Netflix had certain advantages. Without expensive retail locations and counter staff, it had lower costs and could afford to offer its customers far greater variety. Instead of charging to rent videos, it offered subscriptions, which made annoying late fees unnecessary. Customers could watch a video for as long as they wanted or return it and get a new one.
Netflix was a classic disruptor. Blockbuster would have had to alter its business model, and suffer reduced profitability, to compete with the startup.
Blockbuster did eventually begin a rentals-by-mail and streaming service but they didn’t come on strong enough or soon enough to be effective competitors in that market.
Now, Netflix has nearly $9 billion in revenue and 90 million subscribers trading in 190 countries.
Hopeful disruptors in the legal space include RocketLawyer, LegalZoom and, in Australia, LegalVision.
Following the classic disruptor model, they provide legal documents, advice and information to the personal and small business market, the lower tier. These customers are not the preserve of the major big law firms. Will these newcomers rise up through this bottom tier to attack the sophisticated customers paying the big fees to Big law? They appear to be healthy businesses, but their progress is probably slower than they had hoped when they were founded.
Another model, and a successful one, is the legal secondment business. Advent Balance pioneered the model in Australia, and has now morphed into the global Lawyers on Demand.
They followed the disruptor model, providing a solution for a demand that Big Law did not perceive as valuable enough, namely lawyers on secondment. The business model is now well established, and profitable, and Big Law firms have their own subsidiaries competing for the same business. Again, the question is, will these potential disruptors overtake their Big Law competitors?
It’s the same question for all disruptors- as your products or services develop, will the quality increase to satisfy higher-value customers?
Will a giant provider develop in the legal profession like a Google or a Microsoft? There is no obvious candidate right now and the answer remains to be seen. Maybe we are waiting on advances in artificial intelligence to speed the progress.