Is the commoditisation of legal services inevitable?

Tom PhillipsThe Future Legal Mind competition 2016 seeks to reward the brightest legal minds of tomorrow. Entrants were asked to demonstrate original thinking and legal insight, with a well-structured argument and evidence of research. Tom Phillips was the overall winner, answering the question: Is the commoditisation of legal services inevitable and is a commercial approach more likely to compromise or enhance the quality of advice and service to consumers?” This is his winning entry.

Commoditisation will drive an inevitable revolution. The legal industry, commonly perceived as expensive, unavoidable and stagnant by consumers; will be forced to innovate, evolve and embrace change. The result? Consumers ultimately gain greater access to services: the cost is reduced, their choice is enhanced and their loyalty is more valuable than ever.

Automation is key to economic success in the 21st century. Free markets ruthlessly punish the inefficient. Take Uber: in June 2012 it hadn’t launched in London, by the end of 2015 it was perceived as the Black Cab’s kiss of death. The Legal Services Act 2007 (LSA 2007), which liberalises the market for legal services, came into force in 2010 and, perhaps surprisingly, lawyers haven’t yet been replaced by the fabled Tesco Law.

The legal services industry is lucrative yet inefficient, common sense dictates that a plethora of entrepreneurs and investors would be fighting for a slice of the pie. In this case, however, common sense doesn’t tally with reality – a 2012 report by the Legal Services Board suggested that there had been ‘limited evidence of an active competitive response [to the LSA 2007]’. The conclusion to be drawn is that there are high barriers to entry (either perceived or real). The question to be asked, in respect of commoditisation, is whether or not these barriers will fall.

My contention is that, on the whole, these barriers are more psychological than real. The LSA 2007 really has opened up the market for legal services but potential entrants to the market are wary of the risks which a venture in the legal sector might carry. However, as an increasing number of firms become successfully licenced as Alternative Business Structures (ABS) these psychological barriers will fall and we can expect the process of commoditisation of legal services to accelerate.

Legal professionals, on the whole view commoditisation as undesirable. It is undesirable for lawyers because it threatens their professional status. It is undesirable for consumers because it will lead to a race to the bottom where the quality of legal service is sacrificed in order to achieve reductions in prices. I propose to leave the first charge to one side and to concentrate my efforts on rebutting the charge that a more commercial approach is undesirable for consumers.

Firstly, as Frank Stephen points out in his book Lawyers, Markets and Regulation, a race to the bottom isn’t necessarily undesirable for the consumer. The conclusion is premised on a false assumption – that it is better to have no legal solution than to receive an imperfect one. In almost all other markets, consumers are normally willing to accept some trade-off between the quality of service or good received and the price paid. There is no reason to assume that the same cannot be said in respect of legal services.

Secondly, the evidence suggests that a more commercial approach is unlikely to lead to decline in the quality of advice and service offered to consumers.

In fact, there are many reasons for believing that the commoditisation of legal services will lead to an uplift in the quality of advice and services offered to customers. Firms operating in a commoditised market succeed not as a result of their product but as a result of their market presence, visibility and reputation. Advertising in the legal services industry is a zero-sum game, the demand for legal services is more or less fixed and so the primary aim of advertising is not to generate demand but to entice consumers to choose one firm ahead of others.

In a market of this type, where competition is fierce and consumers are presented with a genuine choice, providers of legal services will suffer if they fail to provide an adequate level of service. Those who provide poor quality advice will fail and only those firms who are prepared to make a true commitment to quality will be tolerated.

This contrasts with the current state of the legal services industry where customers are primarily driven to their providers out of necessity rather than choice. Providers know that a good reputation is valuable but that in the absence of viable alternatives it is not an absolute necessity.

Furthermore, the liberalisation of the legal services industry encourages the implementation of new systems and technologies which will enhance both efficiency and the level of service offered to consumers. Multi-market corporations such as BT and the Co-op have the funds, the information and the workforce required to bring innovation to the legal services industry. We can expect the quality of service to be considerably enhanced by improved consumer interfaces and an increasingly digitised offering. We can also expect a decline in the level of error present in the advice and services offered.

The reason for this is two-fold. Firstly, increasing standardisation and implementation of effective IT systems reduces the room for human error. Secondly, large corporations are usually much better at recognising systematic failures and introducing procedures to correct these failings and prevent against future ones. This advantage arises as a result of a more commercial approach and their ability to collect and analyse substantially more data than any high street solicitor’s firm.

Next, the billable hour. It’s on the way out. The commoditisation of legal services will force the industry to move forwards and away from this dated practice which at best incentivises inefficiency and at worst encourages dishonesty. For the consumer it means a slow service and an unpredictable bill, for the legal professional it means that increases in revenue must be generated by either longer hours or a hike in prices. Commoditised legal services will likely come with fixed-prices, leaving no room for the billable hour. Consumers will benefit from knowing that they aren’t being ‘ripped off’ and legal professionals will be able to increase their incomes without having to resort to extra hours in the office.

Finally, where bespoke attention is truly required, legal services will resist commoditisation. Where consumers have individual needs which can’t be met by a standardised offering, professional lawyers will be able to demonstrate their true value. The claim that commoditisation will deprive consumers of specialist attention is therefore ill-founded – where it is truly required or indeed desired professionally qualified lawyers will be available to deliver bespoke legal services to consumers.

In conclusion, the commoditisation of legal services is an inevitable product of the liberalisation of the legal market. Despite popular belief, an increasingly commercial approach is unlikely to lead to a race to the bottom. The legal sector needs to be dragged into the 21st Century. If this requires a more commercial approach then we should embrace it wholeheartedly.

The inevitable revolution can’t come soon enough.