My Shingle

Virtual Firms on the Decline – Why??

by Carolyn Elefant on August 16, 2013 · 13 comments

in Tech & Web, Trends

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According to the 2013 ABA Legal Technology Survey, virtual law practices are on the decline , reports  Bob Ambrogi at his Law Sites Blog. The decrease isn’t particularly significant; the number of lawyers who describe their practice as virtual declined from 7 to 5 percent between 2012 and 2013, while the number of lawyers providing unbundled legal services (an offering common to many virtual practices) declined from a high of 44 percent in 2012 to 25 percent, in line with 2011.

What accounts for the decline in virtual law practices? I think that several factors are at play:

  • Growing recognition that  virtual law practices aren’t sustainable. Almost three years ago, the blogosphere (in one of its last rare rounds of interactive discussion) debated whether virtual law practices were a viable business model.  I’ve long observed that while  solos ought to offer a “cheap and simple” option through leveraging virtual tools, in the long run, subsisting on a stream of low-end one off cases alone can’t work without the kinds of economies of scale that solos and smalls don’t have – and as a result, they fall victim to the perils of a volume practice.
  • Increased competition from non-lawyer providers. Almost four years ago, I observed  that large, well capitalized firms could easily set up virtual firms that would eat solo and small virtual practices for lunch.My prediction came to pass in part, thought it isn’t larger firms that are cannibalizing solo/small virtual practices but non-lawyer providers like Rocket Lawyer and Legal Zoom which offer stiff competition to lawyer-run virtual practices in a couple of ways.

    First, as Lee Rosen pointed out, often, many clients who purchase online services do so for cost or convenience and don’t understand the value add that a virtual lawyer might bring to the transaction. It’s hard for a lawyer who provides a $400 incorporation through an online portal to compete with a $200 incorporation at a non-lawyer provider site – clients wonder why they are paying an extra $200 for a lawyer they don’t see.  Moreover, to the extent that a client does want a cheap lawyer, services like Rocket Lawyer and LZ are now able to provide them. For $39.95 a month, RL offers a legal subscription plan that allows users to speak with a lawyer, while LZ will let customers speak with a lawyer as part of some of its offerings.

    Some might argue that virtual lawyers can compete through improved customer service – but that’s a challenge. Many of the client portal interfaces I’ve seen that are designed for lawyers are still clunky to use in comparison to the slick, quick and easy LZ and RL forms. Unless virtual lawyers can improve portal-based offerings or sell the other benefits of using a real lawyer (confidentiality! malpractice insurance), they’ll continue to lose market share to these larger non-lawyer providers.

  • Lack of regulatory certainty. Unbundled virtual law firms may never have been a great business model, but the weaknesses of the model are exacerbated by bar rules, bonafide office rules, advertising rules and uncertainty about UPL has a chilling effect on some lawyers considering virtual practice and no doubt, increases the cost of doing business – making it even harder for virtual lawyers to compete with Rocket Lawyers and Legal Zooms.
  • Reluctance to self-identify as a virtual lawyer.  The ABA Survey asked lawyers whether they considered themselves virtual. With increased emphasis on the importance of office space, lawyers may either be reluctant to go virtual or at least to admit that they are practicing virtually.

Don’t get me wrong – I am not suggesting that lawyers who incorporate technology in their practices or seek to start virtual law firms are on the wrong side of history. To the contrary. Even though virtual law firms may be on the decline (and there’s really not enough evidence to be clear on this), today’s clients still demand lawyers who can use technology. Most lawyers want to communicate with lawyers by email (in fact, by trying to force clients to communicate via portals only, I think that client portals hurt the virtual law office cause more than they help).  And increasingly, clients are demanding the ability to access files, check the status of a case, pay their bills and possibly even schedule their own appointments online just as they do at the bank or the doctor’s office.  Whether a firm bills itself as virtual or not, these amenities are important to many clients – and law firms that do not use technology won’t last any longer than purely virtual, unbundled models.

Ultimately, technology is a tool (say it with me, now!); it is not a business model any more than a telephone or voice mail or an electronic word processor. Lawyers need to figure out how they want to incorporate virtual and unbundled services into their respective practices – for some lawyers (even someone like me, with more high end services), unbundled offerings make sense, for other lawyers they don’t. But merely because we have the technology to enable virtual law firms or various other types of practices, doesn’t mean they make sense for your practice.

So I’m curious. What’s your view about virtual firms? Is a two percent decline significant enough to comment? Are we seeing a backlash? Most of all, if you have a virtual practice, is it succeeding – and do you offer full or unbundled service?

  • Jeena Belil

    I don’t consider a lawyer who communicates by email a “virtual lawyer”. I still don’t really know what a virtual lawyer is. I had a client in Colorado I never met in person, but he had a dispute in my area on which he needed assistance. We talked on the phone, we communicated by email….did that make me a virtual lawyer? No. I was still on the phone or typing away on my keyboard in real life.

  • Cathy

    I also don’t know what the term means. I’ve considered myself a virtual lawyer because I don’t have a storefront practice (with office, infrastructure, etc.), do my work from wherever I am, and can be just as reachable in one place as another thanks to the Internet and the telephone.

    I am starting to think I’d like a bit more infrastructure than I currently have, but even then I might still consider myself a “virtual lawyer” since given the nature of my practice I almost rarely have need to actually meet my clients.

  • myshingle

    I think your comments and Jeena’s suggest that there’s lots of disagreement over what is meant by a virtual office – and perhaps it’s merely a difference in branding that explains the decline in virtual offices.

  • Sandy

    Maybe the decline is because all lawyers can be “virtual” if necessary – so how does it really distinguish you anymore? I think that if clients are paying “lawyer” money for something, they want facetime and contact. Otherwise why not just use legalzoom?

  • Emily Wood Smith

    I agree with previous posts regarding the use of the word “virtual.” I have been teaching undergraduate legal studies and paralegal studies online for 6 years. I am not referred to as a “virtual” professor, and the schools where I teach are not “virtual” universities. Maybe at one time the word “virtual” was very distinguishing, but now, with so many people attending school online, banking online, etc., perhaps the word “virtual” is no longer a helpful description for law firms who serve clients primarily online.

    I just opened a small firm, and right now, we are primarily offering services online. This may change, but right now, it is a starting point for us. I enjoy your posts and have learned a lot from them!

  • Emily Wood Smith

    Hi Cathy,
    Do you mind me asking what your area of practice is? I recently opened a small firm offering estate planning services online, but I realize we may need to branch into other areas, too. I am interested in practice areas that do not require clients to meet with attorneys very often because my husband’s job has us moving frequently. Right now, it really is not very feasible for me to have a physical office because I am usually only in one place for 2-3 years before moving.

  • Jason Morris

    Perhaps counter to the trend, I started out running out of my home, cloud mangaement and filing, website, email, etc. Then I got an office because i found it easier than working with kids around, and needed meeting space (and it was really quite inexpensive). Despite the fact I have a desk where I keep my printer, I sill identify as virtual.

  • Cathy

    Cyberlaw and IP.

  • http://www.rainmakervt.com Mike O’Horo

    I think the posters who challenge the significance of the terminology rather than the function are on the right track. We all remember the dot-com boom, when every company’s name included “.com”. After that faded, more recently any kind of Internet-based delivery got branded e-this and e-that. As the technology adoption became universal, the significance of the e- prefix dissipated to the point where you rarely see it anymore. As others have pointed out, “virtual-” as prefix is the next in line for the tar pits. It no longer has any more distinction than does “e-“.

    It’s not that electronic delivery of services isn’t important, only that the label isn’t. It was a short-lived phenomenon, left in the dust by the rapidity of technology adoption.

    This is simply the recurring phenomenon of early adopters using terminology that identifies them as such. When whatever it is goes mainstream, the early adopter labels become irrelevant.

  • Michael J. Palumbo, Esq.

    I do a high volume, virtual practice in traffic tickets defense and I love it! My overhead is low and my clients love the convenience of not having to come to my office or court. My business is thriving because I can glean an economy of scale and charge 1 low flat fee that ends up saving the client money. It’s all about value that is what no one ever understands. Just offer the public value and they will use your service. http://www.AttackThatTicket.com

  • myshingle

    Yes, but there are two differences. First, presumably, you have to appear in court – so a client expects to pay more to hire your firm than someone might expect to pay a virtual lawyer to review a virtual will. Second, I see that you also handle DUI and DWI which are (no pun intended) higher ticket items that also provide a stream of revenue to your practice. My concern is with solos and smalls who try to survive ONLY off online unbundled services and are competing with non-lawyer providers. As an adjunct to a full service firm, I think that smaller online offerings are a great idea.

  • http://batman-news.com Cop Head

    One trend is absolute and inevitable. LAWYERS are becoming more virtual (operationally) every day. From a lawyer’s perspective, the more virtual you can be while maintaining the requisite level of professionalism and quality, the better it is for the lawyer and the client. Brick and mortar law firms are becoming more virtual and office space (per lawyer) is shrinking. A virtual law firm is just a law firm that made the initial decision to minimize the brick and mortar stuff. The two models will merge somewhere in the middle. It’s just a law firm. The bigger question is whether the virtual law firm offers more to the individual attorney than a virtual back office that offers billing and client management services.

  • http://www.rainmakervt.com Mike O’Horo

    It seems to me that the literal definition of “virtual” is useful: “…not physically existing as such but made by software to appear to do so.” That means that software would actually be doing the lawyering.A virtual lawyer would be an avatar with which clients interact online to accomplish the service purpose. The “lawyer” doesn’t exist, but software makes it appear that she does. IMO, little to none of what appears in this thread aligns well with that definition. This thread is more about a “virtual office,” or virtual filing clerk, or virtual billing clerk, etc.

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