LegalZoom's Achilles' Heel: Free Legal Forms

For those of you following the LegalZoom IPO, which was scheduled for Friday, August 2, 2012, it was postponed for the usual stated reason that market conditions were not suitable. This really means that the offering could not get off at the $10-$12 price per share that the selling shareholders wanted. Instead the maximum price institutional buyers were willing to pay was reportedly $7-$8 a share, which would have reduced the valuation of the company by one-third. The reasons that were given for this lower valuation were comparisons with other transactional-based companies like www,ancestry.com which is selling at a price to earnings ratio of 21.73, compared to a projected price to earnings ratio for LegalZoom of over 40x.

Perhaps the research analysts on the buy side perceived a more fundamental flaw in LegalZoom's business model.

The LegalZoom product offering at its core is still the provision of legal forms offered up to recently, without the option of the legal advice from an attorney. The pricing for these legal forms are comparable to the pricing of paralegal prepared  legal forms offered for example by the many legal technicians in the State of California who work with consumers off line in face-to-face meetings, like lawyers.  

Thus for example LegalZoom charges $299  for no-fault divorce forms, and $139 for name change forms. Many virtual law firms now offer comparable legal form services but bundled with legal advice. See for example www.morrisfamilylaw.com  where a no-fault divorce is offered with the full accountability and the backing of an attorney for a fee of $275. For another example see FlashDivorce a virtual law firm service that offers  no-fault divorce in four states for $199.

Law firms are going virtual and are finally figuring out ways to compete against LegalZoom on its own playing field. To be sure, these small law firms don't have the capital and marketing budgets of a LegalZoom, but as thousands of these law firms eventually migrate to delivering online legal services they will not only offer a better value to consumers, but they will constrain LegalZoom's growth and dominance.

The problem with the LegalZoom pricing model is that automated legal forms are digital goods whose marginal cost is zero. Eventually a pure digital good has a marginal cost of zero and will be made available a price which is either free or close to free. It is for this reason that a song, for example, on iTunes cost only .99. [I wrote about this idea previously at Legal Forms for the Price of a Song on iTunes? which identifies other legal start-ups moving into the free legal forms market space.]

LegalZoom itself has aggressively argued that it services are essentially software-powered and its document assembly processes are publications entitled to the same First Amendment protections as other kinds of commercial speech. Its products are therefore, it argues, immune from organized bar claims that their services constitute the unauthorized practice of law. By its own admission, the professional review of legal documents by LegalZoom is very limited and does not constitute legal advice.

If this is the case, once consumers figure out that the product that they get from LegalZoom is essentially the same digital form that can be purchased from many automated legal form websites at a price which is 10% of LegalZoom’s existing selling prices,  -LZ's revenue should implode, in theory. I say, "in theory", because LegalZoom has done an excellent job in persuading consumers that what they have to offer is a better service than what they get from the typical lawyer.

Because of the overwhelming advertising that LegalZoom pushes into multiple channels the LegalZoom brand  is likely to remain intact, because the truth about the nature of LegalZoom's product offering is obscured by their aggressive advertising messaging.

For many consumers,  if a service does not appear on page one of a Google search, they will look no further, and the opportunity to avoid using a lawyer in solving a legal problem is often the controlling decision factor.

For example, many consumers are still unaware of the fact that the US Legal Services Corporation has subsidized the creation of free automated legal forms available to people of all income levels that are available for  free from a network of state-based legal information and legal document web sites. These free legal form services have no budget for marketing, certainly nothing like the $40 million a year that LegalZoom's spends on marketing and advertising.

These legal forms are  fully automated, web-enabled, automated,easy to use, and often employ a visual graphical interface to help users navigate through online questions and courthouse procedures. The program is not limited to low- income people.

Even without a marketing budget, last year more than 500,000 legal forms were downloaded by users in 34 states using this program. This transactional volume already exceeds LegalZoom's annual volume and it is increasing as more legal forms are automated and the number of states participating in this program increases.

State courts have also jumped into the free legal forms market in response to the demands of pro se filers looking for free legal help. See for example Online Court Assistance in Utah and Maryland Family Law Forms.

Even the US Bankruptcy courts are prototyping a free online set of Chapter 7 bankruptcy forms to be used by self-filers. This service will eventually be rolled out nationwide to every US Bankruptcy Court Website.

I can think of other ways that the development and distribution of free automated legal forms can be monetized, without the need to charge a transactional fee to the consumer. (This is the subject of a future blog post).

Free legal forms are here and the supply is expanding. Lawyer's won't like the fact, any more than LegalZoom, that this development will disrupt their business models. The reality is that both kinds of suppliers of legal solutions will have to accept the challenge of the accelerated pace of technological change.

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In accordance with the   FTC 16 CFR, Part 255: "Guidelines Concerning Use of Endorsements and Testimonial in Advertising" I am disclosing that I have a material connection to some of the companies referred to in this Post. I am the Founder/CEO of MyLawyer.com, a smart legal forms Website, and Founder/CEO of DirectLaw, a virtual law firm platform provider. The opinions expressed here are my own. I did not receive any compensation from any source for writing this post. DirectLaw sponsors this blog by paying for the costs of hosting.

LegalZoom is a trademark of LegalZoom, Inc.

Nolo Announces Law Office Concept for Members of its' Law Firm Directory

Nolo, the leading self-help legal publisher in the United States, launched a Law Firm Directory several years ago. I have listed my virtual law firm in this Directory for several years and found that it yielded pretty good results for the amount of money invested as the Nolo web site is a high traffic web site that attracts consumers looking for a lower cost way of getting their legal problems resolved. Since my law firm offers "unbundled legal services for a fixed price online" it is a perfect fit for the Nolo Lawyers Directory.

Nolo recently announced their concept of the Nolo Law Office which brings even more value to a law firm listing in the Nolo Law Firm Directory. This may sound like a commercial, but it isn't. I just wanted to share the information about this high value concept that is a great complement to law firms using not only our DirectLaw Virtual Law Firm Platform, but other law firms delivering legal services online, as well as law firms that have a more traditional office-based practice.

If you sign up for the Nolo Law Firm Directory, you also get these goodies:
 

  • Your website is linked to Nolo's website which can contribute toward enhancing your firm's visibility on the Internet.
     
  • You get priority placement on Nolo's partner lawyer directories which include: the Justia Lawyer Directory; the LLRX Lawyer's Directory, Cornell University Lawyer Directory, and the Oyez's Lawyer Directory.
     
  • Up to 15 Nolo articles are licensed free of charge which you can published to your web site. This is excellent content that, if selected carefully, can add to a law firm's web site.
     
  • You can access over 300 fillable Adobe .pdf forms which can be used internally in your practice. These forms are not web-enabled in the sense that they can be completed by a client using an online questionnaire, but they are very useful as an adjunct to the range of document products you can offer. For example, a law firm using the DirectLaw platform can upload a fillable .PDF to the client's secure MyLegalAffairs web space and the form can be sold bundled with legal advice through DirectLaw's ecommerce functionality that supports non-Rapidocs forms and documents.
     
  • You can access 160 ebooks available for download at no additional charge. This effectively gives you an in-house law practice library for free. Almost the entire Nolo catalog is available for a free download.
     
  • You have unlimited use of Nolo's OnlIne Will and Living Trust Applications that can also be used internally. These applications are not client facing, like the DirectLaw web-enabled automated document applications, but they can be used effectively internally. (Nolo does offer these applications directly to consumers).
     
  • Finally you have use of the web-based MYCASE Law Practice Management System. This gives you a law practice management system essentially for free, the same kind of system that other vendors charge $49.00 to $69.00 a month (for solos practitioners). This is a new company that has entered the SaaS law practice management industry and competes with the likes of CLIO and RocketMatter. I haven't done a detailed comparison of MYCASE with other SaaS practice management solutions, but its certainly worth evaluating because it is free to subscribers of the Law Firm Directory.

The fees for listing in the Nolo Lawyer's Directory vary by practice area and territory, so I would experiment to see what combination has the highest return on investment. Having access to the Nolo Law Office concept is a real bonus that gives the entire package real value for even the smallest law firm.