Back since the 1990s I have tracked the rise of virtual and distributed professional services models. They have progressed somewhat more slowly than I anticipated, but the trend is clear. Large professional firms are not in jeopardy, but significant and profitable aspects of their business are being eroded.
One of the great examples is Axiom Legal, which I first wrote about in 2002 in Living Networks:
The founders of Axiom Legal saw that the clients of major law firms were paying extremely high fees which rarely reflected the cost of the lawyers doing the work. Salaried associates do virtually all the work, and clients fork out a hefty premium to pay for both the swanky offices in prime real-estate, and the partners who sit at the top of the pile. The million-dollar plus packages of top legal partners consist primarily of the difference between the salaries of their associates and what clients are billed for that work. Axiom was set up to provide the same quality of advice as the top New York law firms, with a substantially lower cost to the client. Partly because it is a virtual organization, it finds it easier to gets its lawyers out to its clients’ offices, which helps drive the hands-on way of working with its clients in-house counsel that is Axiom’s trademark.
Clearly individual lawyers are not able to provide the same level of service as large firms, as they do not have access to the same resources and diversity of experience. Axiom established a similar infrastructure to that a large law firm would have, with complete libraries, support staff, and knowledge management systems to allow its lawyers to work closely together and tap each others’ expertise. It then set out to recruit the best lawyers, going through a stringent selection process, but in return being able to offer work flexibility, higher income, and an escape from the intense office politics of partnerships. The enormous demand to join the network has allowed Axiom to be very selective in its recruitment. The firm’s attorneys all gather for a monthly meeting, as the firm is still primarily based in the US North-East.
Since then Axiom Legal has accumulated successes and accolades and expanded nationally and internationally. The July edition of American Lawyer magazine has a nice piece titled The Disruptive Innovation at Axiom’s Legal Outsourcing Division, which notes:
The rapid growth of Axiom’s outsourcing arm is just one example of the disruption that is taking place in the legal services market as clients embrace nontraditional providers of legal services, as well as alternatively structured law firms like Washington, D.C.-based Clearspire Service Co. and Silicon Valley-based Virtual Law Partners. Both Clearspire and Virtual Law Partners emphasize cost-reducing work-at-home attorney staffs, technology infrastructures to efficiently manage work flow, and fixed-fee pricing. While Virtual Law Partners focuses on transactional matters, Clearspire offers a full range of litigation and corporate matters.
It’s also worth looking at Ron Friedman’s piece on The Rise of Axiom Law which draws out some of the key issues in the American Lawyer article and some more context.
Axiom Legal billed $130 million in 2011, up 62%, which would put it in the top 200 legal firms in the US. Friedman estimates a healthy gross margin of 40%.
The legal profession is often – from the perspective of its clients – inefficient and ineffective, yet it is protected from competition in a variety of ways. New approaches are being created that are helping change existing structures.
These shifts are realities, and the real focus for legal firms should be understanding the set of business models that make up their business, and how to design them the best to compete in a far more fluid and dynamic legal market.