Back in January of 2010, we published a post that the legal industry could be in for a technology disruption on the scale of newspapers. The signs abound that a disruption is now underway.
I recently ran across this chart in The Business Insider from famed internet analyst Henry Blodgett that provides vivid detail as to exactly the degree to which traditional newspapers have been dislocated:
The legal industry has already experienced a lot of turmoil in recent years, as a number of law firms, including some former heavyweights, have dissolved. Even worse, the economic model at many law firms remains under intense pressure. The Wall Street Journal notes that a few of the largest law firms in New York have seen profits grow, but for everyone else, the “outlook is grim.” They note that firms that have any money are not investing in new business, but are socking it away in the hopes that a cash reserve will help them survive. Most distressingly, legal industry consultant Kent Zimmerman noted, “law firm expenses are growing faster than revenues during the first half of the year.”
That’s just not sustainable. The journalism industry was actually enjoying record profits and extraordinary growth in the years leading up to the ongoing collapse. But they never adapted to rising costs and the disruption of their business model from the Internet. As noted in the Business Insider article above, the newspaper industry’s peak year was the same year blogging software first appeared. Since then, smaller, more nimble, Internet startups like the Huffington Post have enjoyed explosive growth while traditional players like the Chicago Tribune have had to seek bankruptcy protection.
So the question is, have we already passed the peak law firm revenues? Is it possible that law firms can go through the same type of structural decline in the demand for their services and survive? The traditional law firm partnership model is under pressure from many directions. It’s not hard to imagine Big Law giants might one day be replaced by lean, hungry startup law firms, staffed with refugees from large law firms- much like newspaper veterans who moved to the Internet to start digital dynamos like Politico.
The most important question now is what growth drivers might be on the horizon for the traditional legal services. Are there reasons to believe the legal industry is not going to endure the same kind of upheaval?