Law site’s IPO evokes a future beyond dying firms

May 16, 2012

By Reynolds Holding
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

LegalZoom’s planned initial public offering evokes a future beyond dying law firms. It’s coincidence that the U.S. self-help legal website’s $120 million filing has landed just as New York partnership Dewey & LeBoeuf is evaporating. But the rise of the online provider of legal documents sends old-line lawyers a sharp warning.

Founded a decade ago, LegalZoom is one of the first companies to file for an IPO under the newly loosened U.S. regulations for emerging enterprises. Its prospectus reports $156 million of revenue and $12.1 million of net income in 2011, after losses the two previous years. Document orders and subscriptions for legal advice have risen steadily, hitting 490,000 and 228,000, respectively, last year. Having served about 2 million customers, the company’s plan now is to attract more long-term subscribers and expand internationally.

Lawsuits, appropriately enough, pose a risk. LegalZoom has already been accused in several cases of unauthorized legal practice, though not of botching documents or services. While the cases have been settled, more are likely. LegalZoom almost certainly can’t be deemed to be practicing law when it supplies forms for customers to complete, and it offers legal advice only through an attorney network. But lawyers probably won’t give up suing to protect their turf.

That, however, is ultimately a losing strategy: Small businesses and individuals can often handle simple legal problems on their own. And when they need lawyers and basic documents LegalZoom can typically supply them cheaply. Other players with low overheads like Mindcrest and DirectLaw also offer creative ways to navigate legal issues, often through websites. All represent a challenge to traditional law firms that a rearguard action won’t defeat.

But it doesn’t need to be a fatal threat. Smaller traditional firms may thrive by beefing up services online while touting personal contact with clients, something the LegalZooms of the world can’t offer. Behemoths, meanwhile, can invest in cost-saving technology while stressing sophisticated lawyering. And the profession in general could take a lead from the UK and Australia and allow outside investors to inject financial heft.

It looks past the point of no return for Dewey, crushed by debt, a divisive culture and the greed of prima donna rainmakers. But plenty of work awaits surviving legal eagles – just not the ones who fear change and innovation.

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