The opportunity
Lawyers have played a major part in advising dot.com and other Internet-related companies on how to set up their online operations, advising on a wide range of matters from tax to liability. Lawyers have also advised traditional businesses on how they might use e-commerce alongside more usual ways of doing business. Until the dot.com bubble burst, lawyers had done very well from this new area of instructions, and even now as the market matures there is a steady flow of new work for more realistic e-business propositions.
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Figure 1It has also given lawyers the opportunity, at little or no risk to themselves, of observing these early steps in electronic business. The successes and failures of their clients in such short timescales have been widely recognised. With such advisory experience, lawyers should be in a good position to identify how they could use the Internet to expand their own businesses and obtain a competitive edge.
But has e-commerce had its day?
Like all business revolutions, the ‘information’ revolution is going through a maturing cycle, which may look something like Figure 1. This shows that e-business will become the norm, when every business has integrated digital technology and the Internet into its operations. Then e-business will cease to be an identifiable and separate activity and all businesses will, by definition, be e-businesses. Therefore, it may be several years beforee-business begins to be generally profitable.
Today, the general consensus is that standalone e-businesses, the dot.coms, will rarely succeed unless they have a unique innovative proposition which lends itself to an online environment. Where existing businesses use the Internet as another business avenue to supplement, but not replace, existing channels where there is both a physical and online presence then there is greater possibility of success. This has been described as the ‘clicks and mortar’ approach. (In Richard Susskind’s recent lectures he takes this further and describes the need for a ‘clicks and mortals’ approach, ie one which includes some form of human intervention.)
Lawyer ‘toe clicking’
Some lawyers have started the process of using the Internet. Many have Web sites where they show ‘brochure ware’, which is beginning to replace hard-copy marketing literature. Law firms are using intranets to manage and share knowledge between their lawyers. Some are using extranets to improve client relationships and a few are turning their knowledge into new services and offering them online. The Susskind grid, which is taken from Richard Susskind’s book Transforming the Law (OUP 2000), is shown in Figure 2. This helps us to understand these developments. The grid can be used to delve further into explaining how Internet technology may be affecting law firms.
Understanding what is happening
Figure 2
Looking in more detail at the quadrants of the Susskind grid in Figure 2, it can be appreciated that lawyers are finding new and improved ways of marketing and delivering traditional services using Internet technology. They are finding more productive and efficient ways to collect, store and disseminate knowledge using technology – see bottom right quadrant. Finally, a few are turning this knowledge into value, particularly where it can no longer demand a high fee because it has become more of a commodity through repeated application. Such knowledge is being packaged in new online legal services such as Linklaters’ Blue Flag and Clifford Chance’s NextLaw.
Figure 3
All this is shown in Figure 3.
Can this disrupt existing business?
In Susskind terms, the types of development just described are very different. Taking existing knowledge in one form, say in a lawyer’s mind, and dumping it into a knowledge management system for use by others can make a firm much more effective. Replacing or supplementing hard-copy brochures with a Web site is not only cost effective from a production standpoint but also extends marketing reach, possibly on a global basis. These are significant steps but represent a more efficient means of undertaking existing activities rather than doing totally new things. They are sustaining the ways things are done. In contrast, providing online legal services charged on a subscription or usage basis as an alternative to traditional face-to-face advice is different and possibly ‘disruptive’ to the way lawyers currently do business, as they are still basically charging on a time basis (again see Figure 3).
Figure 4
Fundamentally, in Susskind terms, this new way of doing business could enable partners in law firms ‘to make money while they sleep’.
The possibilities
Figure 4 helps to clarify what activities might be undertaken in each quadrant of the Susskind grid. They are clearly related, hence the knowledge, technology, internal (firm-facing) and external (client-facing) axis.
The two top quadrants are client-facing and perhaps they provide a combined view of what could be described as ‘lawyers’ e-commerce’ (see Figure 5). In this sense lawyers’ e-commerce uses both sustaining and disruptive technologies which maps the general e-business experience. In simplistic terms, the disruptive side can be characterised by the dot.coms and the sustaining side by the clicks and mortar.
The market profile
Clifford Chance’s online services R&D group analysed online offerings of law firms and other providers of legal services in 2001 (as shown in Figure 6). The higher the service comes in the list, the greater the value it represents to the client. This shows that there is a value chain; below a certain level services are largely free and above it they can be charged for. So a Web site promoting a law firm will not have a value which can be translated into direct revenue because lawyers use first generation sites for marketing in the same way that they give away hard-copy brochures. In contrast, the provision of legal documents assembled through an expert system would be capable of generating revenues as a new way of providing a service which would previously have been charged for.
Figure 7 presents this categorisation in a graphical format. It uses two axes – technology and content – and shows that the higher the technological and content value the more likely that services will be above the ‘value line’ and be capable of commanding a price. It also shows that the divide is not necessarily straightforward and that the value line may cut through a category of service, some parts being able to demand a payment and other parts being free. For example, some news services are available from a number of different sources on the Internet free – there are many sites which provide general legal e-commerce news such as Baker & McKenzie’s Global Elaw Alerts. Others are charged, for example Clifford Chance’s Alerter services which are directed at particular sectors such as finance, energy, media and communications and allow users to have personal profiles as to what news they wish to receive. Clearly there is a divide between services which are of a publishing nature and those which provide more (this is distinguished by the ‘publishing line’ in Figure 7).
Where the value and publishing lines lie is open to debate. In any case, they are likely to be moving at any point in
time particularly towards the top right of the graph as clients expect more services to be provided as part of the non-chargeable client relationship.
Figure 5
The Figure 7 graph can also be used to show where the dividing line may lie between sustaining and disruptive service offerings.
The current state of play
Clearly the legal e-commerce market has developed but only a few firms are really experimenting with online client services. The general e-commerce market disillusionment has affected the legal market and progress has slowed. This is not surprising as lawyers are not usually risk takers, particularly in a period of economic downturn. However periods like this give law firms the opportunity to review market developments, understand the successes and failures, review their current online offerings and decide on their future online strategy.
What have we learnt so far?
1. It is much easier to apply sustaining technology than disruptive techniques.
Improving the way firms undertake existing business using technology has seen some significant developments. A number of firms are now offering extranet sites for key clients. In effect these are technology-based client relationship sites which are designed to improve communications, something lawyers have never been very good at, and provide much more transparency to the relationship. For example, the sites can make it much easier to identify the right partner or lawyer for the advice required, provide a matter status report including fees work in progress and news about the firm. More sophisticated services include ‘virtual deal rooms’ which are designed to provide a secure and efficient way to undertake transactions, allowing exchange of documents and version control and even providing digital signatures for completion purposes. After a matter has come to an end, ‘electronic bibles’ can be made available giving online access with search facilities, in effect, dispensing with the indecipherable and inaccessible filing cabinets of archived papers relating to the transaction. By contrast, providing successful online legal services as an alternative and new way of business has proved much more difficult. The problem is that it is these services which are likely to produce additional revenues – the sustaining ones are merely designed to keep the firm competitive.
2. It is better to purchase off-the-shelf packages than develop a unique solution.
Law firms that have pioneered some of the above developments have undertaken the work themselves or contracted out the work. As a result, they have spent large sums. This is mainly because there are few suitable products on the market for early adopters. Lawyers tend to over specify the requirements, making bespoke development appear the only option, and are inexperienced when it comes to software development. Fortunately, today there are a growing number of off-the-shelf packages available on the market at a fraction of the cost involved with bespoke development. Bearing in mind the ’80:20 rule’ that most users never take advantage of all the features and facilities available, these packages will grow in demand as firms supporting their own systems realise that they are uneconomic to maintain.
3. Using disruptive technology to adopt new business methods faces a number of challenges.
Although some online legal services have been launched by law firms and others, only a few, if any, which appear to be successful, whatever the claims of the suppliers. Success here is defined in terms of making profits. One of the reasons that profits may not yet be forthcoming is that such enterprise involves an investment decision which may take several years to pay back; as most services have only recently been launched it is too early to determine whether or not they will eventually be successful.
Categorisation of services
9. full legal/corporate portal
8. expert systems
7. automated drafting/document assembly
6. more detailed (“packaged”) guidance
———————————————————————————————–The “value” line
5. virtual deal rooms
4. summary guidance/checklists
3. basic financial/status reporting
2. news service/newsletter/updater
1. basic web site (“1st generation”)
copyright: Clifford Chance 2001 Figure 6
However, the more likely reasons for the absence of profits from them are as follows:
- The services being launched are not necessarily what clients want. Few firms undertake market or client research to understand what is needed. Often the service is based on work done for a particular client and considered to be a basis upon which a generic online service can be provided without any market testing.
- In product life-cycle terms the market is still immature. This means that such services have not yet been widely accepted as a way of doing business and only early adopters who are innovators are likely to be interested. So the market for online services will be small at this stage while an education process takes place to persuade clients that this is the way forward. This process could take years in a sceptical marketplace, particularly where the early services are not seen as meeting client needs.
- Innovate as well as automate. The first generation of online services have tended to automate processes, for example multi-jurisdictional surveys, and have not been innovative in their own right. It is not sufficient just to computerise what you do. It is necessary to consider computerising things which have never been done before.
- Long-term investment may be required. From the above factors it becomes clear that considerable investment may be needed over a period of years. Law firms generally concentrate on short to medium-term strategies and will find it difficult to take longer-term perspectives which do not have early returns.
- Non-legal professional support is necessary. The development and launch of online services, even if outsourced or purchased off-the-shelf, require professional design, project management, marketing and sales skills – most of which will not be available in the existing law firm structure. Law firms have difficulty in using the term ‘salesperson’ and, although firms are used to the concept of ‘business development’, the need, as with other industries, to have a real sales function requires a difficult transformation as well as being challenging from a management perspective.
- Providing content may conflict with other work. The amount of work involved in providing legal content is always underestimated, particularly for multi-jurisdictional services. Where a service is regularly updated it can be a logistical nightmare, and a dedicated editorial team may be needed. Lawyers often find it difficult to meet both their commitment to contribute to the service and undertake their normal fee-earning duties.
- Concern about giving away the ‘Crown jewels’. Online legal services are usually based on knowledge gained over many years, which is regarded as a valuable asset of the firm. It is difficult for partners to come to terms with the fact that such services may be licensed at annual charges which appear lower than normal hourly fee rates. Also online services are seen as having the potential to take away traditional work and undermine parts of the practice.
- Concern about protecting IPRs. Lawyers face similar issues to other businesses in trying to protect their intellectual property rights in these new services, with the associated risks and costs of infringement and enforcement.
- Concern about maintaining confidentiality and compliance with security regulation. The Internet is insecure. Intranets and extranets can be made more secure but networks are vulnerable to attack. Lawyers will be reluctant to use the new technology unless they have confidence in its integrity.
- Culturally it is difficult to develop sustaining and disruptive technologies in the same environment. Supporting and making existing business more productive is very different from developing a new business model. Most partners support the former but many will be hostile to the other. In any case, it possibly involves a different team with a different skill set. Richard Susskind suggests in Transforming the Law that online services should possibly be hived off into a different organisation if they are to work.
What should law firms be doing?
All law firms should be seeking ways of improving their relationship with clients. Technology can clearly help with this process and a number of applications like virtual deal rooms are already tried and tested. However, it is not just the client facing applications which need to be considered. The firm’s IT infrastructure – bottom left quadrant of the Susskind grid (see Figures 2 and 3 above) and knowledge systems (bottom right of the grid) need to be able to feed the client relationship sites so as to automate the process. This is not necessarily straightforward and may require a portal to be built to integrate the various systems. Also the set-up, maintenance and support of client sites needs properly managing and can be a significant overhead. In effect, the way of dealing with clients or work processes is being re-engineered by the use of technology, which requires the management of change.
It is important that firms manage client expectations so as to avoid harming the relationship by not delivering on promises. Lawyers are inexperienced with technical systems and their implementation and tend to have unrealistic expectations of their own support staff. As a result, they can over commit – necessitating client recovery programmes which can be extremely time-consuming.
Figure 7
However, if the law firm can get it right, these sustaining technologies can significantly increase efficiency and productivity, provide major cost savings and improve the competitive position. In other words, developing sustaining technologies is a direction that every firm has to take, in the same way as happened in the past with other technological developments such as photocopiers and word processors.
What is more problematic?
In contrast, using online legal services as a new method of doing business is not an easy proposition. In fact it may be unsuitable for most law firms. It requires a longer-term strategic commitment, which most firms cannot afford to make. The problem is that disruptive technologies could be used by other unlikely sources, such as legal publishers, which may have the effect of replacing traditional legal work. Already publishers are providing many different types of legal information online, mainly to law firms. It would not be difficult for them to provide basic legal advice directly to clients and to some extent this is already happening – for example, where generic precedents are published in CD-format or as part of an online service.
Therefore, although often ill equipped to understand or use disruptive technologies it may be imperative for law firms to recognise their emergence because they could become a business threat. Clients are beginning to ask firms for bespoke online services, for example the World Bank’s fully automated electronic system that generates legal documents for it to issue bonds in the global capital markets which has been provided by Linklaters. Some of the larger law firms have set up research and development groups so as to improve their understanding and observe developments. Also some firms are entering into joint ventures with third parties in order to experiment with technologies and test the market in a more appropriate commercial environment so that existing practice’s operations are not directly affected.
This is not mere alarmism. Not many years ago most high street solicitors made their principal profits from domestic conveyancing. The emergence of non-legal conveyancing enterprises led to the collapse of fees and some law firms. The emergence of e-conveyancing may even lead to the end of this practice area for many lawyers. Such disruptive technology could happen in other practice areas, threatening the very existence of many law firms.
Conclusion
There is no easy solution. Like all businesses law firms cannot sit still. They must adapt to the information society and plan to incorporate new technologies in their future operations. The legal profession has remained largely unchanged for longer than any other business sector. In the writer’s view, information technology will be a significant catalyst for necessary changes to meet the needs of clients in the 21st century.
Therefore it is not a matter of whether lawyers can make money out of e-commerce. The adoption of e-commerce in its broadest sense, as explained in this article, will be essential to ensuring the existence and profitability of law firms in the future.
John Angel is a Solicitor, former head of online legal services at Clifford Chance and senior visiting fellow at Queen Mary University of London. john.angel@virgin.net.
