This is day three of a review of LegalZoom after the filing of its S-1 registration statement.
As I noted in day two, LegalZoom is apparently focusing (for now?) on the consumer/small business market. Of course it must address competition in its SEC filing under Risk Factors (page 14), first noting random attorneys, others in the document prep segment (BizFilings, RocketLawyer, and The Company Corporation), and those in legal plans (Hyatt Legal Plans, ARAG and LegalShield).
As for existing lawyers (small law firms and solos), this is the essence of a fragmented supply base, and no doubt some of LegalZoom’s issues regarding UPL stem from getting the noses of certain incumbents out of joint. But rarely to they have much general market presence outside their network or a few area codes.
The other two types of competitors highlight to me what is most innovative about LegalZoom. They seem to be trying to create a hybrid of document prep and legal plans, and leveraging the emerging power of their brand to do so. It’s clear from looking closely at the S-1 that LegalZoom wants the monthly revenues from legal plan subscriptions (it’s part of the reason they have swung to a profit). But LegalZoom is apparently the only one in the legal plan field using mass media to promote itself. Hyatt and ARAG focus on selling to companies as an employee benefit; LegalShield (formerly Pre-Paid Legal) sells to individuals and businesses through an army of independent sales representatives.
So LegalZoom aims to compete by (a) gaining mindshare through traditional and new media; (b) using technology deliver customers document-related services; and (c) up-selling a segment of one-off customers to legal plans, with the monthly revenue to boot.
Seems like a potential winner, what about pricing?
The flip-side about being in the consumer/small business space is that there is a small window for a monthly credit card charge that will get authorized once and be allowed to hit the account monthly like clockwork thereafter. Netflix saw how fickle consumers can be when it jacked its monthly charge for DVDs and streaming from around $10 to around $16. It took a hit at the time, but recent reports say some of these customers are coming back. So it’s no surprise perhaps that the LegalZoom personal legal plans start out at $14.99, smack dab inside the zone of comfort and outrage that Netflix experienced.
So the Netflix pricing model has been wildly attractive as a business proposition, but people like movies more than they like lawyers. The legal needs of consumers tend to be more episodic (house closing, traffic ticket, divorce) so it’s challenging to get them to pay monthly no matter how good the deal appears at first. The trick in monthly consumer pricing, to paraphrase what an expert told me in the context of other markets (fitness clubs, for example), is this:
… price at the high end of “low enough” so if they don’t use the product/service they can’t be bothered at the end of the month to call up and cancel.
When we move to the small business space, this is where LegalZoom can really push things. A lot of the radio marketing I hear from them targets the startup space: entity formation, patents and the like. Small businesses will pay more monthly than consumers, but the ongoing services will depend a lot on the stage of the company and the quality of the attorneys providing them. The incumbents in the legal plan space have a real head start in locking down participating attorneys; good thing there are a lot of attorneys out there.
LegalZoom starts at a$29.99 monthly price point for businesses here (down to $23.99/month for a 12 month commitment). (Click on that link to see that the marketing mavens at LegalZoom have even found the right hipster-startup photo model to help “seal the deal;” looks like he and his co-founder are on the couch rockin’ the Wi-Fi at their incubator workspace.)
That linked page provides this summary of business plan coverages:
(Potential business customers need to read the details of the plan carefully, look for the “*Some restrictions apply” at the bottom of the page. No your plan attorney will not negotiate changes to their Terms of Service for you.)
Over the long run in the small business legal market, LegalZoom will function in part as lead gen for plan lawyers who can offer additional services, and leverage its document side and technological savvy to get businesses to stay on the plan, and not outgrow it.
One reality of the startup legal space is that when the 1 in 20 hits a single (profits), bigger law firms start to take notice. And for those awesome yet rare home-run businesses (like LegalZoom), the large firms have been tracking them for some time. Like, for instance, Sheppard, Mullin and Latham & Watkins, who appear on the cover page of the LegalZoom S-1. No word yet as to whether those firms will participate in the proposed registrant’s Business Legal Plan.
But something tells me they are charging more than $29.99 per month for their work on this deal.
That’s it for now on LegalZoom; I’m looking forward to see how the road to their IPO goes. It’s really great that someone in the legal space is trying to “go public” with new ways to tackle old problems. And costs.