Legal Services & Tech Disruption in Australia
The way that legal services are delivered is changing thanks to advances in technology and business model innovation.
This is resulting in a shift towards affordable, standardised services unlocking a new market for disruptors and incumbents alike, efficiencies in how law firms deliver services and inevitably, regulatory changes.
Technology has reached an inflection point thanks to Moore’s Law, effectively the doubling of computing power every two years. The coalescence of deployable ‘good enough’ emerging technologies such as artificial intelligence, natural language processing, machine learning, blockchain and deep analytics is threatening the upheaval of almost every industry we know, not least legal services.
To put Moore’s Law into perspective, Peter Diamandis - founder of the X-Prize and Singularity University - says that if you take a one metre step today and double it every day, you would have walked over 1 billion metres after 30 days, equivalent to walking around the world 26 times.
This is precisely why Netflix today boasts a market cap of US$41B with just 4,000 employees whilst its predecessor, Blockbuster, could barely crack US$5B with a workforce of over 60,000 employees. Exponentially improving technology allows us to do more with less and that includes less humans.
Emerging technologies are being applied progressive law firms and legal startups alike to perform legal research, make data-driven decisions, manage IP, generate and deliver legal documents, compose, review and enforce contracts and help firms better manage their practices.
The lower barriers to entry brought about by ubiquitous, fast internet access and cloud computing has opened the door to various forms of business model innovations that legal startups are pouncing on, including lawyer marketplaces, legal document repositories and online self-service tools.
These changes are essentially unlocking what Clayton Christensen, author of The Innovator’s Dilemma, refers to as non-consumers, that is, people who have elected notto consume legal services for reasons often pertaining to cost.
For too long, most Australians couldn’t afford a lawyer for anything beyond the simplest legal issues. Lawyers normally charge between $200 and $600 an hour so anything but the simplest legal matter is likely to cost thousands and sometimes tens of thousands of dollars, whilst most lawyers ask for a significant up front payment. Chief Justice of the Supreme Court in WA, Wayne Martin, echoes these thoughts. “Big business can afford access to the courts, but the ordinary Australian can’t.”
Using technology and business model innovation to deliver what a lawyer would traditionally do means that people can gain access to justice for a significantly lower cost, thus activating members of the public who previously shunned legal services.
This is where the initial opportunities for legal startups lie. Non-consumers amount to early adopters for most consumer-facing legal startups, which for most technologies and innovations, usually makes up about 16% of the eventual market (see below). According to the theory of disruptive innovation, new entrants start at the low end of the market, targeting early adopters, eventually moving upmarket as their technology improves, mainstream acceptance increases and regulators soften their grip, displacing incumbents.
On regulation, what becomes apparent with many disruptive innovations is a loosening of the grip once it becomes apparent that customers, not incumbents, are benefiting. Think UBER, AirBNB and no doubt in the near future, fully-autonomous vehicles (already legislated in the US States of Nevada, Florida, California and Michigan).
Whilst incumbent firms might currently command a monopoly of sorts at the high end of the market where the representation of clients in court is restricted to those with a license to practice, it is not implausible to imagine that in some point in the short to midterm that regulators might change their stance, as the value provided by technology loosens its regulatory grip.
In fact, this is already happening in several jurisdictions abroad. In the US State of Washington, Limited License Legal Technicians (or LLLT’s) are trained and licensed to advise and assist people going through divorce, child custody and other family-law matters. In this case, Washington is an early adopter when it comes to changing legislation.
Parallels have been drawn between LLLTs and nurse practitioners who can treat patients and prescribe medication like a doctor, but aren’t allowed to conduct surgery. Like them, LLLT’s can’t represent clients in court, but they can perform a significant number of services previously restricted to lawyers, at a fraction of the cost.
It would not be unusual to see the breadth and depth of such services increase as technology improves and the public demands warrant a shift in legislation.It is at this point that the opportunity for disruptive innovations and companies to scale upmarket presents itself. This is what incumbents, who often point to existing relationships and regulations as defence mechanism, need to be thinking about.
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