Why Platform Thinking Will Save the Legal Industry

It’s no secret. The legal industry is in pretty bad shape right now. You’ve heard about the poor job market, declining law school applications, and the rise of “lawyer replacement” services like Axiom and LegalZoom. Legal technology expert Richard Susskind even predicts there is no future for solo/small firm lawyers at all. I happen to disagree and believe that technology is going to make things better, not worse. Here’s my take on why platform thinking will save the legal industry.

What is a Platform?

“A platform is a plug-and-play business model that allows multiple participants (producers and consumers) to connect to it, interact with each other, and create and exchange value.” – Platform Thinking

In other words, a platform is simply a technology layer between two interacting or transacting parties. Let me give you some examples:

  • eBay: a platform where buyers and sellers of goods can interact and conduct transactions
  • Airbnb: a platform to connect property owners with those in need of short term accommodations and allow them to transact
  • Facebook: a platform to connect people and allow them to share and consume digital content
  • Uber: a platform to connect drivers with passengers who need a ride and allow them to transact
  • YouTube: a platform to connect producers and consumers of video content

Platforms vs. Pipes

The platform business model is so incredibly effective that each of the above businesses reached a multibillion dollar valuation within just a few short years.

It’s important to note the single most important attribute of a platform business: a platform does not partake in any transactions or interactions with its customers.

This is quite different from the traditional “pipe” model, where businesses transact directly with customers, and products and services flow from company to customer.

In the platform model, the company provides a two-way interface through which the actual transacting parties can find each other, communicate, exchange information, make payments, etc.

Information flows in both directions across the platform to allow for an exchange of value and facilitate the intended outcome.

Today’s Legal Industry is a Clogged Pipe

Today’s legal industry functions very much like a pipe, and one that’s clogged and in need of plumbing.

There are inefficiencies across all aspects of the legal market: everything from the way clients source legal work, to the intake of new clients, to the workflow and delivery of services, to the billing and payment for services, and more.

Due to limitations in the law firm business model and constraints imposed by the ABA ethical rules, there is currently very little innovation taking place in the delivery of legal services. The traditional hourly billing model literally rewards law firms for inefficiency, and thereby destroys the need for innovation.

When you’re only getting paid for the time you spend working on a matter, why spend any of your time working on something else (e.g. innovating to develop new products, services, or business models)?

As a result, the legal marketplace is stuck like a clogged pipe:

  • Only a law firm is allowed to provide legal services
  • The ethical rules prevent outside investment or ownership in a law firm
  • Law firms operate inefficiently and lack the necessary incentives or means to innovate
  • This inefficiency hinders the flow of legal services from law firms to clients
  • Legal services become overpriced and difficult to access
  • Demand in the marketplace suffers
  • Law firms struggle to grow and new lawyers can’t find work
  • And the cycle continues…

Why Platforms are the Answer

Platforms provide innovative solutions to two major problems: liquidity and efficiency.

The Liquidity Problem

Think about how hard it was to sell a rare baseball card before eBay. Your best bet would probably be a trading card store or pawn shop, where you’d be forced to sacrifice significant market value in order to actually make a sale. This is due to a lack of liquidity in the market.

Liquidity problems may arise for a variety of reasons. In the case of the legal industry, the illiquidity stems from excessively high prices, market fragmentation, and a general lack of transparency. In other words, legal services are unnecessarily difficult to purchase which reduces the number of transactions happening.

The Efficiency Problem

Consider how hard it used to be to share vacation photos with friends and family before Facebook. You pretty much had to physically get together and look through your photo album, requiring both parties to schedule time out of their day to meet.

This type of interaction was really only feasible with your closest contacts because of how inefficient the information exchange was. Today, it’s exactly the opposite. We’re now able to instantly view photos from almost anybody in the world, as long as we’re connected on Facebook or Instagram.

Efficiency problems are rampant in the legal world. As I touched on above, law firms are actually rewarded for inefficiencyrather than the other way around. But it gets worse, with inefficiencies extending to all other aspects of our legal system, from courts, to legislature, and more.

The Platform Approach

The fundamental tenets of a platform are designed to solve the challenges of illiquidity and inefficiency:

  • Better Infrastructure
    • The technology infrastructure of a platform offers better tools and processes for communicating and handling transactions.
    • This creates more efficient interactions and unlocks liquidity in markets that were previously non-existent, poorly developed, or “stuck” like the legal market.
  • Transparency
    • By aggregating a large number of buyers/sellers or producers/consumers in one place, platforms create transparency in markets.
    • A platform polices itself through various feedback mechanisms, and ultimately, the cream rises to the top and fair market values are established.
    • This increases consumer confidence and builds network effects by driving more transactions and engagement on the platform.
  • Scalability
    • The platform model introduces a third party to a transaction whose sole focus is on making this exact type of transaction easier.
    • The costs for a platform to facilitate each additional transaction are extremely low, making platforms highly scalable.
    • By eliminating friction, platforms empower producers and consumers and encourage increased transactions over time.

Summary 

Platforms are the business model of the future. Most, if not all, industries are likely to see some type of platform-oriented shift because of the smooth, frictionless environment that platforms provide.

The platform effect improves products and services, creates market transparency, and drives more value to producers and consumers. It’s a win-win-win scenario.

It’s unclear exactly how the platform shift will play out in the legal space. But I’m confident that it will fundamentally transform the way that legal services are accessed by clients and delivered by law firms.

Contrary to Susskind and others, I don’t believe computers will ever replace human lawyers. There’s too much of a human element in legal services.

Legal issues are serious and they can affect our lives deeply. A computer may be able to spot issues better and faster than a person, but it will never be able to provide the genuine, human interactions we desire. The counseling, the reassurance, the sympathy.

Early legal platforms like Avvo and UpCounsel are making progress, but they’ve yet to really take the market by storm. Personally, I think it’s because the technology layer between lawyers and clients is not powerful or automated enough yet.

The platform to win the race will be the one that strips out most of the actual legal work (research, drafting, etc.) and replaces it with technology, while empowering human lawyers to focus on advising, guiding, and counseling their clients. And that’s why lawyers will always have their place.

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