Warning to Law Firms: The “uberization” of law is coming…and fast

Due to intense pressure from local bar associations and other members, the American Bar Association recently did an about face and announced it would no longer pursue a program with Rocket Lawyer. The program had sought to make it easier for clients to obtain legal services at a more affordable price point. For as little as $4.95, clients could ask questions to lawyers through a software application developed by Rocket Lawyer. You can read more about the specifics of the program by reading the press release issued last October.

The American Lawyer reported that the push back from the industry was intense:

“William Pugh, the president of the State Bar of Pennsylvania, denounced the program at the ABA’s midyear meetings in San Diego earlier this month. “My leadership wants to withdraw from the ABA if we don’t have this program deep-sixed,” said Pugh during a public meeting of state bar leaders. Pugh, a partner at Philadelphia’s Kane, Pugh, Knoell, Troy & Kramer who defends doctors and hospitals in medical malpractice suits, said it was “unconscionable” that his group and others had not been consulted about the alliance with Rocket Lawyer.”

Mr. Pugh’s statements sound eerily similar to the pushback with which we have become accustomed from many of the taxi cab trade associations, who consistently voice their adamant opposition to innovative companies like Uber and Lyft. Mr. Pugh and those who abuse the privilege of self-governance to push an agenda aimed at protecting an economic cartel rather than ensuring the public is protected from unqualified lawyers are unlikely to withstand the onslaught of technology and innovative business models that will soon alter the legal profession in radical ways. In fact, I suspect cab companies will fare better against Uber and Lyft than many law firms will fare against those looking to upend how legal services are provided to clients.

At first glance, it would seem that the legal cartel is an impenetrable fortress, capable of protecting its “economic rents” because of its inherent monopolistic cartel structure. A more in-depth analysis, however, reveals growing cracks in the fortress. In fact, with the exception of a handful of law firms that handle “bet the company” litigation and advise on multi-billion dollars transactions, many traditional law firms face a grim future. That does not mean, however, that all lawyers (or law firms) face the same fate. To the contrary, those lawyers that are passionate about our profession’s role in molding important issues of public policy; increasing access to quality legal services to those who are not wealthy and embracing new technology that will allow us to produce a better product at a more affordable price, will not only survive, but will thrive.

The assault on traditional law firms is being driven by at least two fundamental pressures. The first pressure is that many clients simply can’t afford the price of legal services provided by good lawyers. In many areas of the U.S., inexperienced associate attorneys routinely bill their services at over $300 an hour. The average partner charges over $600 an hour in many parts of the country. In the rarified New York City marketplace, the $1,000 an hour lawyer is now a bargain. As a result, all but the smallest law firms and solo practitioners, must rely on corporate america for a large portion of their revenues. At this point, one might rightfully highlight the fact that many large law firms are doing very well. In fact, since the Great Recession, law firm revenue per lawyer and profits per partner (the Holy Grail of law firm metrics) have been healthy, with year over year increases being significant notwithstanding an otherwise lack of inflation and overwhelming wage stagflation. In other words, lawyers are making more money than ever.

It’s this very success that is pushing clients, especially in-house departments, to increasingly push back on annual rate increases proposed by law firms each year. In the legal business, your hourly billing rate is not important. What’s important is how much of that hourly rate you are able to collect from the client. Without looking at the reams of data put forth each year by law firm consultants, my intuition tells me that there is a diminishing margin of return in terms of how much of these annual rate increases law firms are capturing. Simply put, law firms are collecting less of those increases than they did in the past. If my intuition is incorrect today, it will come to pass soon — that’s all but certain.

The second dynamic (which can really be called a paradigm shift) is the onslaught of legal tech start-ups. For years, other industries like financial services embraced innovative technology (now known simply as FinTech) — think high frequency trading and algorithm based trading. The legal profession on the other hand has basically replaced the typewriter with word processing software. And with the exception of predictive analytics, which has made some inroads in reforming how discovery is performed, the legal profession has virtually ignored these powerful tools. This is about to change. The combination of advances in artificial intelligence (particularly machine learning) and blockchain technology (just to name two) is about to upend how law is practiced. There are at least ten times the number of VC funded legal tech start ups today compared to just five years ago.

The result of this new embrace of technology? Law firms will be able to produce a better product at a more affordable price. This convergence of downward fee compression and unprecedented innovation in legal technology almost seems certain to create new winners and losers in the legal industry. The losers will be those who refuse to embrace technology as the primary driver to leverage productivity and enhance performance. The winners will be those that do, and as a result, gain a competitive advantage over their rivals. Inevitably, market forces prevail and when a consumer is presented with two equivalent products, the consumer will choose the lower priced product.

Over the next few years, the shake out from these new realities are also likely to transform the very structure of how lawyers organize. While the traditional law firm structure (partners leveraging associates) will not disappear any time soon, you can expect to see a significant increase in alternative structures over the next decade. The use of contract lawyers will only increase, especially as platforms make it easier and more cost effective for traditional law firms to scale up and down based on actual workflow. For many, this will create an opportunity for core groups of very talented lawyers to avoid the need to hire costly associates — which creates a high fixed cost that can’t easily be adjusted up or down based on the workload of the firm. Leveraging legal technology and having an adjustable workforce that can easily be increased or decreased depending on demand will create tremendous opportunities for many.

Or perhaps everything I’ve written above will not come to pass and lawyers and law firms will continue to practice for the next 100 years in the same way they practiced for the last 100 years. And maybe Uber and Lyft are just fads that will fade away. So ask yourself: Are you willing to take that chance?

This article was originally published on Medium by Josias (“Joe”) N. Dewey and is re-published here with the permission of the author.

Joe Dewey is an attorney, coder, entrepreneur, co-founder of LegalTechLabs and professor of Law. Joe is a practicing attorney and partner at a national law firm in Miami. Joe is also an avid coder. Learning how to code from a young age, Joe has used his coding skills to innovate his practice, which is primarily focused in the areas of real estate, finance, and gaming. Some examples of Joe’s innovations include an application to handle and keep track of post-closing matters for many of his high-volume finance transactions, which (as many transactional attorneys know) can easily fall through the cracks. Furthermore, Joe is an adjunct professor at The University of Miami School of Law. Joe received his B.A. and J.D. from the University of Florida.

The opinions and views expressed above are solely those of the author and not those of the law firm for which Joe Dewey works or any other person.