Is the legal market really a market? We’ve been calling our sector ‘a market’ for a long time, but in many ways it does not have all the characteristics of one. Here’s why it matters.
What Makes a Market?
A market is a place where people come to buy and sell goods / services. They tend to involve a lot of information sharing. In an open-air farmers market, for example, you can see the products, you can compare them to similar products on other stalls, and you can get specific prices, and talk to the sellers to get an explanation about the product.
If you have the time to discover what you want to know, you can find nearly all you need to make an informed buying decision. The same cannot be said of the legal market.
The internet has allowed us as a society to take this transparency approach far further and the most transparent example is one that we’ve all probably used: Amazon.
This web-based market and its various departments sell a very wide range of things, from fresh tomatoes, to books on pricing, to NLP software (via AWS). For most of the goods it sells there is an incredible amount of information available.
First, there is a search function that allows you to find ‘the thing that you want’, even if you don’t know the name of it. Let’s say you need some very niche kitchen implement. You type in some characteristics of that thing and soon enough you’ll find it.
You’ll see a range of these things. This will include publicly available data on:
- First, and most importantly, the price – including information if the price has changed recently, as well as data on potential price changes based on quantity and delivery method. Plus the prices of all the other products that are similar across the entire site.
- What the product is made of (where that is relevant).
- Its dimensions and weight.
- When this particular product was first sold, i.e. when this ‘specific answer to a problem / need’ came into existence in the market.
- And finally, the other really key piece of information: the reviews, which include: a star system; comments; and also a handy Q&A system where previous buyers can share their experiences of that particular product, which gives information to the benefit of the market as a whole.
Now, let’s look at a commercial legal need.
There are commercial law directories that help a buyer to find the right firms to approach. So, that helps and brings some transparency. It’s certainly not a perfect system, nor, after perusing such directories is there any guarantee someone in an inhouse legal team who is also a lawyer, (and likely started out inside a commercial law firm – i.e. from the sellers), won’t just approach a firm they’ve used before.
Also, like Amazon, large commercial law firms appear to sell everything in their domain. Go to any random global firm site and you’ll see a list of so many categories it covers most needs. But, without any further information this has limited use.
Some firms provide lots of detail about each of their partners. So you can find out more information about the person who is going to make and sell you the thing you want.
So, there are some characteristics of a market and information asymmetry is not total.
But…the legal thing itself? Well, that’s where the legal market really is opaque.
Generally, a healthy market is one where there is a lot of information and buyers can find nearly everything they want to know before they buy.
Take the housing market. At least in the UK there is an incredible amount of information you can find before you buy a house. There are all kinds of sites providing data. Moreover, the sellers provide tonnes of information too, allow visits, and you can hire a surveyor (for a fixed fee) to give you a super-detailed analysis as well.
Now take commercial law. First, to Artificial Lawyer’s knowledge there is no public website (yet) that shows the prices and other data related to all of the most common legal matters in each of the main legal jurisdictions. (N.B. At the more consumer level, e.g. wills and simple conveyancing of property there is transparency, but this is limited).
In fact, there is as yet, no broadly agreed set of language and terms even to describe all the things that lawyers sell to their buyers – although there are some great efforts there now, such as the SALI Alliance, which is building a shared matter taxonomy.
There is no public website that shows how all the most commonly found legal products are usually made, e.g. what work goes into making them. I.e. the product ‘dimensions and manufacturing’ information.
There are some websites, such as Thomson Reuters’ Practical Law, that show what many frequently used legal documents should contain in terms of up to date language and provisions – and that helps with information transparency. But, it’s not a total solution.
The buyer may have the time and data to go back and look at previous examples of a certain matter that they and their inhouse team had ordered before and gather some benchmarking data. This is handy, if it exists.
But, even if they have this information is there a will there to put it on the table and introduce it into a pricing discussion with the seller? And, if the seller won’t work on a scoped or fixed absolute fee, then having a visible price is not of much use either. If the seller demands opacity, what can you do? I.e. they say: ‘Sorry, if you want my services the work will be undertaken as a mystery. You will get the bill eventually when all the hours have been totalled, and it will be what it will be.’
It’s a lot easier to just buy whatever the sellers are selling, at the price they want to sell at, made in the way they want to make it, and just cough up the money. Maybe you can shave off 10% to make it all feel better. But, then the seller is probably assuming you’ll do that anyway.
You could do an RFP, but then does all that information really help? Does the data on price and production actually correspond to any shared database that allows you to make an informed judgment? Or does it become just a jumble of impressive facts and persuasive statements that allows you to pick one firm out of a group for that one matter – but, importantly, does not allow you to compare that RFP’s result with all the other times you – or if this is a real market – anyone else who has ever wanted that legal output?
In short, although the commercial legal market does have some characteristics of a market, in many ways it is not one. This is because the information that matters the most to a market: price, production methods and quality, is often in a vacuum and not connected to other data to allow it to have some real meaning.
I.e. even if you get this data from the seller it’s of little use because it cannot be compared, neither to your own data – as for most companies it’s still too much of an internal data challenge to do it accurately – and there is as yet no public resource, or even a resource just for the legal community, where this kind of commercial legal product pricing data is openly shared.
Is Pricing Transparency A Bad Thing?
Maybe one reason there is little pricing transparency in the commercial legal world is because it’s a bad thing and should be avoided? Maybe allowing buyers to know what it is they are paying for and how it compares to other related products is not a benefit to anyone, or to society, or to the wider economy? OK…playing Devil’s Advocate now, but many do not want a transparent market.
One reason heard recently by this site from a lawyer was that transparency would create a ‘race to the bottom’. That allowing buyers to know more about what things cost and what they are buying will lead to a massive commoditisation of legal work, which would be a terrible thing – they say.
This is a very revealing view.
The Sunlight of Demand
If you look at the property market, for example, which has very high levels of information transparency, prices tend to keep going up, especially for premium property.
How is that possible? If we take the argument that everything of value will decrease in price if people know more about it, then how can that be?
The answer is: demand.
House prices go up because there is demand for those houses. And, one could argue that greater information transparency supports those price increases. As, in the opposite case, if a real estate agent just pointed at a street full of homes and said: ‘Well, it’s way too complicated to tell you about each house and you certainly cannot visit,’ then prices may well drop because buyers would be unwilling to pay more and more each year for things they knew little about.
It’s Artificial Lawyer’s estimate that pricing transparency in the commercial legal market would likely create a lot of benefits for the sellers, or at least the really good ones.
The work that really was bespoke, that needed the handful of lawyers in the world who could really do that work, would see increases in price. Why? Because transparency would actually help you to sort the sheep from the goats. Demand for the best lawyers would push up prices for certain types of matter because it was transparent.
The buyers are not foolish. They will pay for something that they can reason to be very valuable and therefore likely to be expensive. But, at least they should be able to make an informed choice for themselves based on data.
For the work that really is commoditizable – then, that is what will happen: it will be commoditised. And that is also a good thing. Firms that have been ‘winging it’ by selling what now appear to be clearly mass produceable products, but packaged as something super-bespoke, will have to change their means of production.
This allows lawyers with the talent to really add value in terms of legal input to do so and to be paid accordingly. And as mentioned, transparency could help to direct demand to the right providers.
Moreover, those firms that are selling process management as part of their value proposition will win more and more of the commoditizable work. With the right mix of tech and specialised legal talent they will do probably better than they are doing today financially. Again, transparency will help them because buyers – armed with the right information – will seek out the best sellers in this area.
Fundamentally, good lawyers and good project managers have nothing to fear with regards to transparency. The buyers are smart people, they just lack sufficient data to make the best buying choices possible. Today this opaque market means that work that should go to the firms best suited to the task goes elsewhere, and in return clients get a worse deal than they otherwise could.
A more transparent sector that actually behaved like a market would likely drive demand to the best providers who really returned the best value, whether in complex advice and/or in handling repeatable and/or high volume matters.
Getting to the transparent market for commercial legal work that we need will take time. But, the idea that it is something to be feared really has to be overcome. Hopefully, as more and more data becomes available to buyers through their own internal systems, eventually we will get there.
It will certainly be for the benefit of….the market.
By Richard Tromans, Founder, Artificial Lawyer – April 2021.