In a recent conference at Harvard Law School, Firoz Dattu, CEO of AdvanceLaw, pointed to the “Yelp-ification of the legal industry” as a specific disruptor of large law practices. Yelp, a popular mobile app, allows users to quickly find the best drink, dry cleaning, etc., complete with cell-phone pics and star ratings from actual customers.

Market efficiency results from information

Yelp is rapidly becoming iconic of a class of technologies that improve market efficiency by providing a more complete information profile of any particular product or service. In lay terms, based on an ever increasing volume of customer-supplied information, yelp can get me face to face with the best bowl of red curry at the best price within reasonable walking distance of wherever in the world I happen to be. So what’s that got to do with disruption of Am Law firms? Quite a lot, implies Dattu, who heads up a company that is positioning itself in a Yelp-like role for general counsels (GCs) at large corporations, who, on an increasing basis, are looking for the best possible legal work for the best possible price.

Inefficiency in the large law market

Dattu points out that approximately 20% of the work GCs send to Am Law firms is well suited for the Am Law model—a team of lawyers that may actually include one or two of the world’s leading authorities on a particular aspect of law. But that means that 80% of the work sent to Am Law firms could be completed by smaller, less expensive firms that may actually have a greater competency in the matter at hand. That sort of grotesque market inefficiency has been a sustaining factor of the hourly billing model for decades. But as companies like AdvanceLaw, a sort of matchmaking service for GCs and law firms, increase market efficiency by providing better information to GCs, Am Law firms are likely to see their own billable hours—and profits—continue to drop.

Not exactly star ratings, but close

In keeping with the Yelp model, AdvanceLaw stores feedback from GCs on projects completed by particular firms and lawyers. Firms that get bad ratings quickly lose favor and will eventually be eliminated from AdvanceLaw’s go-to list of recommended firms. Unlike Yelp, AdvanceLaw’s information database is not available to the general public, which, of course, makes sense, given the nature of AdvanceLaw’s business model.

AdvanceLaw, a catalyst of disruption

As AdvanceLaw and others like it improve legal-market efficiency, law firms are being forced to become technologically of age.  As GCs continue to shop for services based on price, they become more likely to demand alternative fee arrangements (ATFs). In an effort to deliver what was once considered a variable amount of work for a fixed fee, law firms must turn to technology providers, especially process automation vendors that allow legal knowledge to be encoded in expert systems, such as custom workflow applications or document generation-based systems.

The next logical step beyond law firms building expert systems for internal use is law firms building and embedding expert systems onsite with customers, changing a large, fixed-fee model to a recurring, subscription model involving a series of smaller payments, which, of course, will present a whole new range of challenges for large law.