by Mark A. Cohen, Columnist & Featured Contributor
[su_dropcap style=”flat”]L[/su_dropcap]AWYERS AND CABBIES have several things in common: (1) if their meter is not down, they are not generating revenue; (2) most cabbies don’t own their medallions, and the vast majority of attorneys are not equity partners in their law firms; (3) both groups operate in economic models that are strikingly similar: owners benefit when their ranks of cabbies — or lawyers — are working “with their meters down” and (4) statistics show that lawyers and cab drivers have disproportionately high rates of drug abuse, alcoholism, depression, and a host of other maladies. And as if that’s not enough, there’s something more to heap on: Uber.
Uber? It has become an existential threat to cabbies to be sure, but is it a shared threat to lawyers?
The Collaborative Economy
It is not the threat of Uber per se, of course, that looms over lawyers but, rather, the “collaborative economy” that Uber personifies. The term describes a new economic model built on distributed networks of connected individuals and communities rather than centralized institutions. In the shared economy model, individuals are connected to communities by technology that enables them to deploy underutilized assets the community can tap into in real time and cost effectively.
Translation: technologically, it is the glue that connects providers to consumers, cutting out the traditional delivery infrastructure and providing faster, cheaper, and more efficient alternatives to the incumbent economic model. Call it disruption. Cabbies have it in their windshield. But is this apposite to lawyers?
For lawyers, the disruption is, perhaps oxymoronically, more gradual. The traditional law firm model, though under assault, is still dominant.
But that is changing as evidenced by the array of technology companies, diversified legal service providers, “new model” law firms, consultancies, and the BigFour who have entered the global legal market. A piece of evidence making the case for “gradual disruption” is the frenzy of merger activity engaged in by the traditional model firms. No dominant disruptor has yet emerged, but the cumulative success of new competitors — coupled with the thinned ranks of incumbent firms — suggests that there is growing market appetite for alternatives to the traditional law firm model. And as the traditional law firm model becomes increasingly disaggregated — a process already well underway — the opportunity for a market integrator to come in and claim an Uber-like market share is enhanced.
But what about regulatory hurdles? Uber has generated so much consumer demand for its services that the regulatory and legal obstacles it confronts — shared by other industry disruptors including Airbnb (hospitality) and ZipCar (automobile) — are not dead ends but temporary detours.
Lawyers might take solace in their self-regulated environment, breathing a sigh of relief and convincing themselves that “It can’t happen here.” But entrepreneurs backing disruptive model companies — including those already in or entering the legal vertical — view regulatory and legal obstacles as costs of doing business, not show stoppers.
It is not the threat of Uber per se, of course, that looms over lawyers but, rather, the “collaborative economy” that Uber personifies.
It’s Been a Tough Time for Uber
Uber has been in the news a great deal lately, and it has been a bumpy ride for the company. Earlier this year, Uber experienced much-publicized setbacks from Paris to California.
Parisian cab drivers blocked major intersections and set fires in protest to Uber’s circumnavigation of taxi regulations and its claim that it should be exempt because it is in the technology rather than transport services business. This is a dispute that has implications well beyond Paris and hinges on how the EU will characterize the nature of Uber’s business.
Here’s something powerful that Uber has going for it: the public’s demand for its services. Call it: “too popular to fail.”
Meanwhile, a California Labor Commissioner ruled Wednesday that Barbara Berwick, a local Uber driver, was an employee, not an independent contractor as Uber had maintained. The case will now be appealed to a state court in San Francisco (conducting a de novo review), and you can bet that either way that body rules the decision will be appealed. But again: Uber holds one important card: it is wildly popular with the public and has the funds to take on legal and regulatory challenges as well as a forthcoming class action which, to date, has a limited certified class.
How popular, you ask? Last year, Uber’s revenues in the Bay area were $500M compared to $150M for the taxi industry. That’s disruption. And consider two other telling developments: (1) it’s not just Uber; Lyft, Uber’s biggest competitor, just completed a half-billion dollar raise at a $2.5B valuation; and (2) this media outlet filed an exclusive report in February, 2015 that Google, an early funder of Uber — to the tune of approximately $250M — is now launching its own competitor.
Translation: big money is backing the collaborative society model. One gets the feeling there’s no turning back.
Here’s something powerful that Uber has going for it: the public’s demand for its services.
Back to Legal Services and Inchoate Disruption
Many lawyers reading this — if they have not already clicked out — might be thinking, “We have regulations that will prevent the Ubers of the world from taking over. In fact, that’s why we are self-regulated — because we know what can happen when others interfere with what we know best. Besides, law is unique.”
Really? The UK, Australia, and other developed nations have already “reregulated” the legal industry’s guardrails in their countries, providing a kick-start for new entrants as well as enabling incumbent firms flexibility to share ownership and revenues with non-lawyers. Some incumbents are “hedging their bets” by backing new model entrants while maintaining their traditional model law firms. Consider DLA, by headcount and revenues one of the global Goliaths of the traditional law firm model, which invested in Riverview, a UK-based, fixed-price, technology driven law firm that embodies the new firm model.
Then there are alternative service providers like Axiom and UnitedLex, each the size of major law firms in headcount and revenues — as well as global reach — that provide sophisticated legal services but are not engaged in the practice of law.
Or take LegalZoom, a technology turned legal document company with nine-figure revenues, a well-known brand, and a newly minted British “Alternative Business Structure” license which enables it, among other things, to partner with law firms to create a very different model law firm that might look very much like Uber-applied-to law. How? LegalZoom’s robust IT platform will connect legal consumers — mostly “retail” — to a wide network of attorneys who can offer needed expertise faster, cheaper, and more efficiently — and at a fixed price.
There’s also the BigFour and other formidable new entrants into the legal vertical who have the brand, scale, technology, breadth, depth of expertise, and, most of all, the capital to disrupt the traditional law firm model — in the corporate segment of the market. There are many entrants in the legal disruption sweepstakes and even if it is incremental, a tipping point is being reached.
And Now for Something Completely Different
Uber did not seek to create a variation on the traditional cab company by, say, painting its cars crushed orange, or discounting cab rates by a certain percentage. Instead, they utilized technology —upon which they made a huge initial investment — to alter the way people utilize car-for-hire transport. In the process, they did away with the existing taxi fleet model, replacing it with resources they neither owned nor maintained.
Uber utilized technology — upon which they made a huge initial investment — to alter the way people utilize car-for-hire transport.
How could this be done in the delivery of legal services? Let’s start with the premise that disaggregation of legal tasks is already well underway, meaning that the role and function of the traditional law firm has already changed.
Law firms are routinely paired with various service providers in the legal supply chain; the limitation is that the technology — at least from the law firms — cannot presently integrate the supply chain.
But technology does exist — and has for some time — that not only effects integration of the legal supply chain but also jettisons cost-escalators endemic to the traditional law firm model.
The ingredients for full-blown legal disruption are largely in place: (1) technology; (2) relatively low regulatory and legal hurdles; (3) a wealth of providers with under-utilized assets (“Service Partner Resurrected?”) and, in the retail market segment, a glut of clients in need of representation —“the access to justice crisis”; and (4) consumers driven to identify more cost-effective, efficient alternatives to traditional legal service providers.
What’s missing and when will the tipping point occur?
Think of Roberto Duran’s famous “No mas!” That will come when the C-Suite demands — as it is showing increasing signs of doing — that legal services are delivered with the same price predictability, sensitivity, efficiency, and metrics as other goods and services in the business world.
At that point — and it will happen soon — disruption will occur in the legal vertical, and it will come quickly and decisively.
Lawyers need not fret about their impending extinction but, like cab drivers, many of them will soon be working for companies with a new economic model.