Several months ago the question “Why are lawyers so expensive even with the excess supply of lawyers?” was posed and answered on Quora. It received a great deal of attention from the Quora and Hacker News community.
The answer, and the comments that followed, in our opinion did not viably answer the question. The most accurate point was that the legal market lacks a “middle” service offering and the current population of lawyers is unable to satisfy it. The short answer should have been:
There is no excess supply of attorneys “in the market.” While there is a large number of attorneys throughout the country, the barriers to enter the market as a unique service provider are very high and cost prohibitive. Thus, supply is still limited and we lack a “middle” service offering. Prices remain bound by a relatively limited pool of expensive service providers.
The problem with bundled legal services
The author asserted that the growing number of boutique law firms would create this middle. We disagree. Boutique law firms, albeit leaner, possess the same flaw as traditional law firms – bundled legal services which encourage overpayment for experience premiums. Bundled legal services are like paying the same seasoned developer to build your core product and your WordPress blog, or going to a bar and paying the same for a hand-crafted specialty martini and a can of Bud Light.
In the legal world, experience is the true cost premium. Sometimes this premium is worth it (i.e. negotiating protective provisions with a VC). Other times, less experience will suffice (i.e. explaining an NDA or consulting agreement). In traditional legal services you pay a high price for service regardless of the skill required. Essentially, you are paying a high experience premium for jobs which require less skills.
The most likely candidates to start solo law firms are attorneys with 10+ years of experience. Thus, most boutique lawyers charge high billable hours consistent with that of an attorney with 10+ years of experience, not 2+ or 3+ years of experience.
Now in any other market this would be ludicrous. For a less sophisticated need you would turn to an array of cheaper alternatives. Not the case in the legal market where there really is no cheaper alternative besides document automation services. The “middle” is still absent and will continue to be as long as there are bundled legal services.
A few movers and shakers offering unbundled legal services
Some amount of unbundled legal services already exist. Companies involved with large litigation are refusing to pay $250 – $300/hr for young associates at law firms to comb through mountains of documents looking for the “smoking gun.” They now turn to companies that specialize in this “low skilled” document review and employ huge warehouses of newly minted lawyers making just above minimum wage.
Fenwick & West LLP (a prestigious Silicon Valley law firm) has introduced a complementing service called FLEX which offers cheaper day-to-day legal services to their clients, provided by outside contracting attorneys. Fenwick realized a long time ago that clients are becoming more reluctant to pay the big bucks for the small things
A barrier to unbundled legal services
As the call of the Quora question suggests, there are a large number of lawyers in this country. Many of these lawyers have left the legal workforce or were never really given a chance in it – but they do not completely lack “skills” as the Quora post would have you believe.
If they do not lack skills, then why aren’t these attorneys opening solo practices and flooding the market with even more boutique law firms? These lawyers often have at least one of three limitations which restrict their ability to sustain their own solo practice: 1) they lack a diverse enough skill set to maintain a steady flow of work, 2) they lack the time to sustain a solo practice, usually due to families, and/or 3) the costs of starting a solo practice are high.
The biggest pain for this group is the cost of business development. The time and effort to amass the constant client base to match the above limitations steers many people away.
Technology’s capability of creating a marketplace
This presents an ideal opportunity for technology to help lawyers reduce the impact of these limitations and exploit their underutilized skills. This is one of the facets of the modern digital marketplace – it helps sellers reduce certain barriers which once prevented them from selling their products to the masses. Through such a marketplace, demand for these types of legal services can be aggregated and appropriately matched to select attorneys based on requisite skills. With more selection for these types of legal services, experience premiums begin to wash away and the price begins to match the time and skill required to complete the task.
General marketplaces for contract work already exist. The law, however, carries with it certain considerations not to be taken lightly or grouped together with other services – most notably the inherent confidentiality that is part of every attorney-client relationship. In order to create a true alternative in people’s minds, these legal services need their own unique marketplace.
The legal community should strive to make legal services more accessible and affordable to the masses. Such widespread legal representation empowers businesses and individuals and reduces their risk of costly legal mistakes and blunders. As such, we should embrace innovation that offers this possibility.
Matt is the co-founder and CEO of UpCounsel (www.upcounsel.com), a legal services marketplace. UpCounsel makes it easy to find and hire a great attorney for anything. Matt started his career as a startup and venture capital attorney.