Personal Legal Services in the U.S.

Winners and Losers:Lessons from the U.S. Legal Services Market

Richard S. GranatCo-Chair, E-Lawyering Task Force

American Bar Association

Size of U.S. Consumer Legal Market

• 50% of middle income households in the U.S. have atleast one legal problem per year.

• Only 20% seek legal assistance from attorneys.

• 26% do nothing at all.

• An increasing percentage of consumers seekalternatives to lawyers such as self-help, e.g., Nolo.

• Potentially huge market waiting to be tapped in theU.S. for personal consumer legal services.

U.S. Market for Legal Services

Reasons people give for staying away from lawyers:

1. Doubts that it would help;

2. A sense that the problem is notserious enough;

3. A desire to handle matters on theirown;

4. Biggest reason is affordability.

Internet Innovation: 1999-2001

• Creation of Internet-based legal servicecompanies funded by venture capital in thisperiod, before the dot.com crash.

• Attempt to serve this “latent” consumerdemand.

• Examples are USLaw.com,Americounsel.com., thelaw.com. All of thesecompanies failed.

• Why? Delivered traditional legal services inthe typical way - mostly referral sites toexisting law firms. There was no innovation.

What the U.S. Consumer Wants

• A different value proposition

• A much lower price for legal services

• A system where legal services are not billedby the hour

• More convenient, faster, and trustworthyservices

• Internet-based legal service

• Systems which take the risk out of buyinglegal service

Consumer Drivers

• Better educated & willing to try self-help

• Willing to explore alternative to traditional law firms

• Willing to sub-optimize

• Coming ubiquity of broadband net access in theU.S.

• Consumers want solutions without the

complications of a traditional law firm experience.

The Potential of the Web

• Lower cost

• Convenient

• Faster and better client experience

• Consistent with evolving consumer behaviors

• Digitally-based legal services that can scaleand have wide distribution

Need for Disruptive Innovation

• Innovation that changes market structure –not innovation that increases the efficiency ofexisting law firms.

• Google is a convenient example. The majorTV networks book revenue from 300 to 400customers. Google has more than 600,000customers. They have fundamentallyrestructured that part of the advertisingindustry.

Barriers to Innovation in the U.S.

• Over-regulation in the U.S. market protectslaw firms from competition.

• Examples:– Rules Against Unauthorized Practice of Law

– Marketing restrictions

– Inadequate capitalization and antiquatedownership structure

– No research and development to create newinnovative delivery systems

• Law firm cultural constraints

U.S. Law Firm Technology Trends

• Research from the ABA LegalTechnology Center

• E-Lawyering is stagnant:– Only 10% use client intake questionnaires

– Only 5% use online form preparation

– Only 2% do real-time consultations

– Only 1% do online dispute resolution

– Only 1% use legal expert systems

What if the Barriers are Removed?

• Web-enabled legal services thatcombine traditional legal services with adigital component

• Pure play digital solutions to legalproblems evolve, e.g., web-enableddocument automation

• Information technology leverage in thedelivery of legal services

Let’s Remove the Shackles!!

• New Players enter the Market

• Entrepreneurial individuals are attractedto innovate because of the size of themarket.

• Capital flows into the industry

• New methods of marketing andmanagement are adopted.

Disruptive Change and Elasticity

• Elasticity kicks in as costs go down.

• As costs go down, the market greatlyexpands converting “latent demand”into “effective demand”.

• This is not going to happen quickly inthe U.S., but it will happen.

Losers: Solos & Small Law Firms

• Highly fragmented

• Under-capitalized

• Low level use of technology

– Mainly word processing and billing

• Not truly web-enabled

• One-to-one relationship model

– Limited “reach”

– Limited “information technology leverage”

Winners in the U.S. for Now

• Legal information companies such asMyLawyer.com and Legalzoom.com.

• New, non-lawyer retail operations suchas We the People USA, Inc.

• Financial institutions that figure out away to get around U.S. regulatoryconstraints and add personal legalservices to their portfolio of services.

More Winners

• Virtual law firms that operate on the Net

• Law Firms that develop “packaged”legal solutions at a fixed price

Tomorrow in the U.S.

• Regulatory barriers will come down.

• Pre-paid legal insurance programs willexpand because insurance carriers areexempt from some regulatory constraints.

• New players will come into the market.

• The U.S. will copy innovations in the U.K. ifthey happen.

• Huge, new opportunities will emerge to servethe broad middle class.