Legal Tech: The Rise of the Virtual Lawyers

Lost in all the focus on high-end legal tech is the emerging small firm, virtual firm legal market.

First one definition: virtual law firm means two things to me: (a) no high-priced central or satellite office space, (b) and the judicious use of technology to work and communicate with clients and co-workers. Essentially anything that’s not needed to deliver work product equal to BigLaw, you peel it away like the skin on an onion. Only this time, who’s crying now?

Virtual law firm pricing then, is easy. You pass the savings from avoiding all the low-value, no-value cost components on to clients. Some of the pioneers in the virtual space (such as BigLaw diaspora) report they can cut their billing rates in half, and operate much more efficiently without the piling-on of lawyers that can happen in the BigLaw arena.

What does this mean for clients? The 50% lower billing rate, plus efficient workflow, can sometimes translate into 60%+ savings. Yep, you read it right. Often one-third the price. Not just similar work, mind you: the same lawyers.

So in this way, virtual law firms do a clever end-run around AFAs and the “value” debate. When a GC hears “same work, same lawyer, 50% off,” they don’t need to form a task force to study the proposal.

What is appealing to lawyers contemplating the virtual jump is that the technology is cheap to acquire and easy to use. If you haven’t collaborated using Google Apps or videoconferenced on Skype, you’re missing something. Probably 90% of BigLaw firm technology features at less than 10% of the cost. It’s in the cloud, so you don’t need to name your teenager as IT department head. And no one in the legal tech space wants this part of the market, since it’s low-margin and highly fragmented. But it’s one of the few sectors of the legal market that’s growing.

And, yes, a virtual law firm may not work for the “bet-the-company” litigation or major cross-border transactions. It’s just that these aren’t even 20% of the in-house workload.

True, these low-overhead, high-talent firms may not be taking market share from large law firms. Yet. But since the cost advantage is so compelling, the only challenge is appearing on the GC radar. And some people are working on that.

With all the talk about unbundling in the legal industry, it is virtual law firms that are literally unbundling larger law firms. Not every legal task needs to be improved by LPO. Sometimes POB is enough (as in the virtual lawyer’s low-tech post office box). Contrast this with the tech challenges facing BigLaw profiled yesterday.

After five days of writing about legal technology, it’s time to give it a rest. There is a lot to be excited about.

Can you hear me now?