The rise of the replaceable lawyer

In economics, “substitute goods” are products perceived by the market as sufficiently similar that raising the price of one increases demand for the other. If you consider McDonald’s and Burger King pretty much interchangeable, you’ll go to McDonald’s if Burger King raises its menu prices, or if the closest Burger King is inconveniently located.

Traditionally, legal services have been considered immune to the law of substitute goods, in part because law has often been considered (by lawyers, anyway) as a “credence good,” one whose value is not fully clear to the consumer even after using it. 

Another more salient reason is that competitors to lawyers in the legal market were banned through regulation. Doing what lawyers did, without being a lawyer, constituted the Unauthorized Practice of Law and was duly prosecuted.

Maybe the most significant of all the trends buffeting the legal profession today is that substitute goods for legal services are now emerging. They’re developing de jure — in Ontario, for example, where the Law Society of Upper Canada regulates independent paralegals.

But substitutes are also developing de facto, in the absence of official authorization. Companies like LegalZoom and Rocket Lawyer sell millions of dollars’ worth of interactively created legal documents despite protests from the Bar. Software programs are carrying out document review and due diligence tasks, and artificial intelligence promises even more sophisticated performance of legal tasks in the near future.

Even worse for law firms, clients can now buy legal services from contract lawyers, project lawyer agencies, and legal process outsourcers, much less expensively. 

Call it a flourishing array of substitutes for lawyers’ services. 

Some are far from perfect, which is why paralegal regulation hasn’t reduced the price of lawyers’ services in Ontario. Paralegals mostly aren’t competing with lawyers at all. They’re competing for business that lawyers don’t want and their ability to substitute for lawyers would increase only if the law society liberalized the scope of their practice. Feel free to predict how soon that’s going to happen.

But other types of substitutes are rapidly approaching perfection. Machine learning in legal document review is almost certainly superior to human lawyers’ efforts in the same area. Predictive coding is faster and cheaper than lawyer document review. A product or service that’s more expensive than its perfect substitute has zero future.

Lawyers, faced with this reality, likely will fall back on our self-assessment as credence goods: clients can’t find substitutes for us because they can’t measure the quality impact of our services in any meaningful way.

But even this argument is becoming vulnerable, because sophisticated clients are beginning to formulate quality metrics for lawyer activities. Cost efficiency, timeliness, accuracy, outcome per se, and outcome measured against expected results are examples of the categories now being explored.

The days when lawyers were the only game in town are over. Regulatory reform and technological advancements have breached our walls. Transactional, clerical, research and knowledge tasks that have powered millions of billable hours in the past are re-routing to lower-cost but sufficiently competent substitutes.

What should you do? I see two possibilities. One is to develop a range of substitute goods yourself: pick up the tools of disruptive innovation and create lower-cost offerings that deliver much the same outcomes as your traditional services, but branded with your name and reputation. In effect, disrupt yourself before others do. Substitute goods drive down the price of the goods for which they substitute; if you can deliver your goods profitably at that lower price, you have a good shot at staying competitive. For now, anyway.

The other is to push your practice in the direction of goods and services for which substitutes are very hard to find. The highest-value services performed by lawyers involve skills and attributes such as advocacy, negotiation, counsel, judgment, strategy, and even wisdom. Make these the foundation of your service offerings, and it should be quite some time before anyone can come up with a realistic substitute for you.