Legal E-commerce</p>

E-commerce is the selling of goods and services over the World Wide Web. This article highlights the need for law firms to commoditise their legal services, the reasons for this, and the types of services which may be commoditised. It also examines concisely the advantages to be had, the risks involved, and spoons out advice for law firms interested in selling legal services over the internet.

E-commerce means the selling of goods and services via the World Wide Web. Material goods bought over the internet are despatched by more prosaic old-fashioned methods - books and CDs will be mailed to you; you will usually have to pick up the car you ordered personally.

However, the great opportunity with 'digital' goods and with many services is that they can be delivered to the consumer immediately and directly - over the same medium. Good examples of this would be an electronic version of an article or a book, an item of PC software, a digital MP3 version of a song and certain kinds of legal advice.

There is no doubt that e-commerce generally is on the increase. Here are some facts in support of that premise, together with their sources.

Products and services bought and sold over the Web currently (according to Internet Trak) break down into the following categories.

Over the past two or three years many Web users will have experienced buying a range of goods via the internet. I have bought books, flowers, wine, CDs, software and hardware over the internet, and more recently I have also purchased travel tickets from the Microsoft Expedia 'virtual' travel agency.

Some of these I would class as domestic purchases, and some business ones - for accounting purposes anyway. Which leads me to the most interesting e-commerce statistic of all, which deserves its very own bullet point:

Why this should be is not clear, but it may have something to do with the fact that many commercial procurers of goods and services have desktop access to the Web at work, and use it regularly.

Many Web users would assume that most e-commerce was domestic in nature. The fact that it is not is not only striking, but has significant implications for all professional service organisations - and represents a major opportunity.

So much for the present; what about the future? Well as with all graphs of internet activity, they all go exponential about now, and e-commerce is no different.

As you can see, business to business related e-commerce is set to increase at a much faster rate than domestic sales, up to a global value of over $40bn by 2002. And this is one of the more conservative predictions.

Another forecast, from the Gartner Group, has the total value of e-commerce at between $3.95trn by 2003, which would amount to 10% of global sales.

Sometimes known as 'productisation' or 'commoditisation', the idea of being able to encapsulate, or package, particular types of legal services as products is fairly recent and still not accepted entirely as desirable by all parts of the legal community.

However, in the same way as financial services institutions now talk about financial 'products', it is possible to contemplate a similar approach to many, if not all, legal services.

The first legal e-commerce examples were $40 wills, or in the UK £40 wills, which were generated via an online form on the internet. The user would log on to the law firm's Web page, enter their personal details as requested, and a range of other questions relating to testamentary dispositions and so on, and their credit card details. After the credit card details are processed, the completed tailored will is then e-mailed to the purchaser.

One of the first UK firms to adopt such a process, Kaye Tesler & Co, now offers similarly automated services for change of name by deed poll and powers of attorney, as well as online forms for instructions for a range of matters including conveyancing, unfair dismissal, estates administration, matrimonial and others.

Nevertheless, these initial developments were restricted to high-volume, low-value repetitive 'high street' forms of work - and large firms did not take the concept seriously. An oft repeated mantra was, 'our work is very high value and low volume; and as it is not routine or predictable, it is not amenable to the application of automated techniques'.

In some extreme cases this statement is accompanied by a bohemian flick of the head, a swift hand movement to straighten the hair - and the immortal words, 'I am an artist, everything I do is unique and different every time'.

I never believed that this applied across the board in relation to case management in large firms, and I do not believe it applies to online services provision either.

In any event, Linklaters blew a hole in this argument once and for all when they launched their internet-based Blue Flag service three years ago.

The more prescient competitors were amazed, astonished and galvanised into action - Clifford Chance launched their own Nextlaw service some 18 months later.

Other large firms are still striving to catch up, and some think that Linklaters and Clifford Chance are doing something extremely unsuitable, that all the Blue Flag and Nextlaw users are oddities and if they close their eyes long enough the whole problem will go away.

Well, it won't - as Richard Millhouse Nixon once stated, 'you can't put the toothpaste back in the tube'.

Blue Flag and Nextlaw have shown that online 'productisation' can be applied to high-value legal services, just as Kaye Tesler & Co and others have shown that it can be exploited by high street practices.

As a non-subscriber I have not had a chance to see Nextlaw, but there is now a Blue Flag sample available to play with on the Linklaters website (www.linklaters.com).

Blue Flag provides extensive up-to-date information regarding the various primary, secondary and tertiary regulations that apply to the sale and supply of financial instruments throughout the jurisdictions of the European Union ('EU'). If you look up a topic in relation to, say, France, then you can jump sideways to the same rules that would apply to the same activity in any other EU country.

It even advises on inter-jurisdictional issues; for example, if you look up the rules for cold-calling to sell insurance in Spain, it is not only capable of telling you whether a call can be made within Spain, but from any other EU country to Spain, and vice versa.

Blue Flag UK is more extensive and has flow charts with built-in automated logic. For example, if you want to know whether a person is guilty of insider dealing, you can follow the flow chart through answering each 'Yes/No' question (having regard to the explanatory notes and definitions that are available via hypertext links) which lead through to the conclusion. The history of your 'Question & Answer' ('Q&A') is then displayed in another browser frame for easy reference and editing. This insider dealing example is the one available on the Linklaters website.

There is now a Blue Flag Asia, and Blue Flag Funds - which is directed at providing advisory services to investment fund managers. One can only speculate on what the next generation of Blue Flag 'products' will do, but there is good reason to suppose that it will include the ability to generate draft documents according to artificial intelligence reasoning.

In a related e-commerce move, Linklaters and the document management system vendor, Documentum, (who provides the technology behind the content management for Blue Flag) have jointly launched a CD-ROM service called 'Blue Flag Confirms' which uses Linklaters know-how and Documentum technology to build very complex documents for sophisticated derivatives transactions.

This service happens not to be delivered, at present, via the internet - nevertheless, but it is still an example, and a leading edge example, of commoditisation and e-commerce.

The Clifford Chance Nextlaw service offers information and advice regarding a range of data protection issues.

Not all legal services are suitable for this 'commoditisation' process. Despite my cynicism of the blanket protestations of expensive lawyers it is true that that is more likely to happen to work towards the lower end of the value scale, and thus the higher end of the volume scale.

Nevertheless, it is also, I believe, equally likely to happen in relation to some high value, low volume work as well - in a sliding scale.

The vertical axis represents the extent to which legal work can be automated, and the horizontal axis represents the type of work, from high volume, low value to high value, low volume.

As work is identified as that which can be so commoditised, the law of Web commerce states that it will be so commoditised - as I have argued, we can see this already.

As commoditisable work is commoditised then rates - or more accurately the charges - for that work inevitably fall. With cheap services (to the left of the chart) this happens immediately to reflect the lower costs of providing such services; over time it also happens to the more costly services (the right side of the chart) as the set-up costs are recovered, and more competitors enter the fray.

I believe that the corollary of this trend is that the charges for the follow-on non-commoditised elements will be maintained, or even get higher, as it is the kind of work for which one should be able to charge a premium.

As stated, it is in the nature of business that the work that is capable of being commoditised will be commoditised. It is then likely that more and more law firms will enter this arena and that there will be increased competition and intense price competition.

If this sounds unlikely, just consider the example of Internet Service Providers in the UK over the last 18 months. It was an established and broadly profitable business for a range of providers at prices between £8 and £20 per month. Then one supplier, Dixons' Freeserve, upset the apple cart by offering a free service, on the basis that the kickback from the local BT access charges and the opportunities for selling follow-on goods and services made it economical to do so.

Suddenly we have over half a dozen new vendors offering free internet access, and a stampede of existing providers, such as MSN and AOL, changing their business to the new model. In a short time it has become very difficult to sustain a fee-paying service unless there is a perceived added value or unique feature.

Other topical examples of businesses giving information away include the Encyclopaedia Britannica - who have announced that they will be providing free access to their data - and Capsoft UK, who on their Everyform site (www.everyform.net) are giving away hundreds of free forms.

A firm which provides a range of commoditisable and non-commoditisable services in a competitive environment will realise that it is in their interests to give away the commoditised services on the basis they will obtain the higher value added and high cost follow on work. They will be able to do this as, by then, they will have recovered their investment in the automated services.

Other law firms operating in the same sector will be forced to follow suit. All hell will then break loose, and it is difficult to forecast with any accuracy what will happen then, but the existing model of charging and delivering of such services will be changed forever, and some firms will come off very badly in the process.

There are increasing numbers of examples of high street type services being delivered via the internet. For some time, there have been a plethora of US firms offering $40 wills, and we have since seen the £40 will in this country from Kaye Tesler and others. There are also high street firms with sites offering a range of other services, such as:

Dixon's Freeserve internet service, or 'portal', has gone one stage further, and the 'Desktop Lawyer' on their website offers a wide range of documents prepared automatically using the Rapidocs system, with follow up telephone support - some for as little as £10.

Larger firms at the other end of the value scale that have made e-commerce announcements include Denton Hall, Hammond Suddards, Berwin Leighton and Fox Williams: see 'Competition'.

Recently we have seen the best example of value added legal services being given away by a law firm on the site of the London firm Kemp & Co. Their site (www.comlegal.com) provides online services of great depth and detail that rival some of the commercial services for which other firms charge high fees.

The latest development in this area is that Lovell White Durrant, a large and prestigious city law firm, has announced that, as a 'taster', it will be giving away some legal services on its website (www.lovells.com).

So what are the risks associated with selling legal services as an e-commerce utility. There are the standard commercial risks.

If you do not 'productise' those legal services that are amenable, then some other law firm(s) will, and you will not be competitive.

If you do 'productise' services that are not amenable then at worst you may be open to professional negligence litigation, or at best you will have spent a lot of effort on developing something no one wants to buy.

There are also three specific risks that run with legal e-commerce which must be addressed:

Convergence with Websites, Know-how and Extranets

Legal e-commerce services will need to integrate with exiting forms of electronic communications with clients.

Many firms have client-specific extranets for such purposes and are starting to use 'push' technology to deliver elements of their own internal know-how and current awareness material to clients - these provide an excellent medium for selling electronic services.

Without strategic management, there is a danger that the firm's various initiatives in these areas will not be co-ordinated and will result in a hotch-potch of e-mail, Web and other services which simply confuses the client.

The Service

There are some ground rules for the type of topic you choose to provide over the internet:

you can't compete with Linklaters or Clifford Chance on their chosen subjects or price, so don't bother;
it must be something you know well;
you should be able to perform added value work in that area, as that is where the jam will be – there is even an argument that the commodity stuff will end up being given away – certainly Linklaters could now afford to do that with Blue Flag if it made commercial sense as a lever to win higher value follow on work;
there must be a market for it, more specifically:
- regulatory materials;
- an area of fast moving law;
- multi-jurisdictional; and
- decide whether your service is directed at lawyers in the inhouse legal department, or the client's end users or both; and
it should be an area where there is plenty of opportunity for expensive mistakes for the clinet base – either in financial or PR terms.

The Competition

The really amazing thing is that there are not more examples out there from other top 20 practices - although there are many large firms with initiatives to do so. Some have already made announcements about future electronic products, such as Denton Hall and others, but few are delivering them. In a related move, Fox Williams has announced that it will be delivering document assembly via the internet.

Most of the putative large-firm initiatives are at the low volume, high value end of the scale. Hammond Suddards, on the other hand, has announced that it has invested £1m in developing a leading edge service at the other end of the scale, for domestic conveyancing. This service, HammondsDirect, will be delivered in association with mortgage lenders and apart from automating the conveyancing process, will deliver up-to-date progress information to the house purchaser and the lender, as well as to associated estate agents.

The second most amazing thing is that at a US conference last year, at a Web session by a large US legal technology consultancy, it became apparent that:

they had never heard of Blue Flag;
neither had any of the lawyers present; and
there are no US examples of high value legal Web services.

Although one large US firm has announced that it is buying technology with a view to developing e-commerce applications, no high-value internet-based services have yet been launched.

Thus, apart from financial services and data protection, the field is wide open and the opportunities are enormous, as are the potential rewards. Imagine the economics of a legal service that you perform once, with staff that could be located anywhere, and that you can sell many times over for almost no marginal cost.

It also means that you are building closer and closer electronic ties to clients and would-be clients for traditional legal services - and if you don't, someone else will.

Some of the services that you could provide are not immediately obvious, and they don't have to be 'legal'. For example, you could:

I have been talking to law firm clients recently and am in no doubt they want these services.

If you have a closed subscription service such as Blue Flag you are in control of your e-commerce client base. If you provide access to services (advice or document assembly, for example) for direct payment then you need to take steps to ensure that only the right kind of clients, those for whom the service is directed, use it.

Otherwise, to use a trite example, Richard Branson may order a £40 will (perhaps, just for fun) and then die - leaving an estate managed by a wholly inadequate will, and a vast legacy of litigation.

The dangers here are so great that only a belts and braces approach will suffice, you will need to qualify out those potential users that are inappropriate, and qualify in those who are.

The best ways to do this will probably include a rule-based Q&A session as well as plenty of descriptive text, finished off, of course, by a wad of disclaimers.

I still foresee an eruption of professional negligence litigation against lawyers for delivering what would have been perfectly good advice, had it been delivered to the client.

If you 'encapsulate' know-how in the old-fashioned sense - a wad of tired and out-dated precedents - then at least a lawyer gets to correct known mistakes before they are used. If you 'encapsulate' know-how in an electronic service which clients use unfettered, then you could, to paraphrase the 'White Queen', commit six acts of professional negligence before breakfast; without even knowing it.

For this reason, firms will need to ensure that they have taken every conceivable step before making such materials directly available over the Web. It is a truism that most know-how within law firms is not in a fit state to be delivered to clients, even for free. What I believe that many firms will under-estimate is the amount of work that will be required to make commoditised law of the requisite quality.

You can't do what firms do with internal know-how, ie put the least busy, least productive and least good fee earners on it. It must be the opposite - only the best people should do it, and then the very best should quality assure it. Nothing less will suffice. Linklaters, for example, have stated that no one less than eight years qualified did any work on Blue Flag. If a firm is not willing to contemplate this kind of investment in quality, then they should not venture into this area at all.

Nevertheless, many will. The risk of selling bad advice, or to inappropriate clients, remains high, and the profession as a whole, via the Solicitors Indemnity Fund, will end up paying for those mistakes. It could end up expensive.

However, do not be misled - the option is not to avoid selling electronic legal services over the internet - if law firms do not do it, plenty of other organisations will.