Virtual Firms on the Decline – Why??

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?