Corporate & Securities Law

Charging for the Law: Castles and Moats

By John Wallbillich

Yesterday, I advanced the proposition that law firms may consider not charging for “the law.” In fact, larger ones might be able to use this as a competitive advantage.

The person who started this thinking was, paradoxically, Warren Buffet. He was quoted recently by VC Bill Gurley about looking for “economic castles” surrounded by “unbreachable moats.” The former, an extremely strong fundamental business; the latter, service options or market strategies that make competition difficult for new entrants.

The example used my Mr. Gurley was Google. Monetizing search is the economic castle, perhaps one of the best ever. The unbreachable moats include free services like Gmail or its no-cost open-source Android mobile operating system. Android has the bonus feature of being the lynchpin to an entire ecosystem for smartphones, to keep up with Apple and feed its core search business with mobile users.

The core business does subsidize these free services. Some who resist this would say: you are leaving money on the table. That sort of person in the legal market has a name: managing partner.

I think you can see where I am going here. Major corporate law firms have been their own form of economic castles for decades. (As long as some of the knights don’t leave, jump the moat and join another king in his castle). But where most have failed, I think, is to recognize the value of key customers and reward it.

There are examples of large law firms, keen to land a new client, who provide services on more attractive terms than they do for clients who have been with them for decades. It is not pretty when these clients find out, by the way. MFN clauses in AFAs may become more common.

So how does a “free law” concept work as an unbreachable moat? It’s really a simple concept. The firm really looks at what its core business is. The higher the firm rises on the value chain (custom work at premium fees), the farther it is from a “what is the law on X?” shop. If it has been efficient at all with knowledge management, it should have a lot of information on basic business principles and litigation points right at its digital fingertips.

So, yes, what I am talking about is giving better clients access to some or all of the KM system. For free. As in beer.

Almost overnight, clients see the firm as one that doesn’t try to nickel-and-dime them for trivial or ancillary matters. It allows the firm to do things to keep it squarely in the upper right quadrant of the law firm strategy matrix Bruce MacEwen recently described here.

I know some firms offer some kind of “free law” access to clients already. It may be organized, or ad hoc. Tomorrow a few ideas on how to really supercharge the Free Law model. But it won’t work for everyone and some may run away from that castle.

Full post as published by The Wired GC on March 29, 2011 (boomark / email).