The LegalZoom IPO: Proving That Volume Practice Doesn’t Work, Even 21st Century Style

Academics and legal futurists may be  enamored by the Legal Zoom business model, the market sure isn’t.  As Legal Zoom readies to launch an IPO at $10 to $12 share, sources like  Reuters and The Street  are questioning whether a $483 million valuation is a tad “feisty” for a company that generated $156 million in revenues, but earned only $12 million in profits.  Combine that with looming lawsuits over UPL, and the fact that more than half of the stock is coming from existing shareholders (raising the question of why they’re not sticking around), and the future of Legal Zoom is looking just about as dim as the future of lawyers.

Or worse.  Legal Zoom’s $156 million in revenues are paltry in comparison to the $1 billion+ take of the 15 top firms in the AmLaw 100. And while big law attorneys work hard for their money, Legal Zoom works even harder.  According to this site, in 2011, Legal Zoom’s SEC filing said that it had 490,000 in 2011 – or 1300 a day.  Moreover, LegalZoom  spent $41 million on ads to lure them in a cost of around $81/lead. All for a measly $12 million in profits – which is the equivalent take home pay for  three partners at Quinn & Emmanuel.

Legal Zoom may be a new company, but the lesson is ancient: volume law practice is a struggle.  Even with all of the technology in the world, with a volume practice, you’re always on the prowl to  drum up more clients to feed the beast. That’s partly because volume practice requires bodies to serve, but also because volume work consists largely of “one-off’s” (clients with small matters who don’t come back) so you can’t leverage your existing marketing efforts.

While some hackademics laud LegalZoom  because they don’t care whether small fry clients are represented or not, others truly believe that LegalZoom services expand access to law for those who can’t afford it. Thus, they glorify the LegalZoom concept as innovative and noble because it relies on technology without realizing that it’s the same low end, assembly-line business models that most professors back in my day had the sense to warn students to avoid.

Please, let’s not use technology to revive the broken and embarrassing model of the volume practice but instead, to improve the quality of legal service that we deliver.  Somewhere between the failing extremes of Legal Zoom’s mass production and Big Law’s mass profits, there are roads still not taken that can lead to meaningful access to law and a meaningful future for lawyers.