As law firms take advantage of evolving technologies to launch their own proprietary online legal tools, many are wrestling with a key question: How much should they be charging for them?
According to lawyers, consultants and vendors involved with the new web tools, the pricing equation is still being worked out.
“We are at the beginning of this journey of getting onto the web. We will find different things work for different types of lawyering,” said Scott Rechtschaffen, chief knowledge officer and shareholder at San Francisco-based employment law juggernaut Littler Mendelson.
His firm offers a number of the interactive online tools; some are given for free to clients and others are offered as part of subscription packages through an affiliate, ComplianceHR.
Michael Mills co-founded and serves as the chief strategy officer for Neota Logic, a software company focusing on artificial intelligence that works with law firms nationwide on developing interactive apps. He said firms need to ask themselves what the real business purposes are behind the launch: To make direct sales, keep clients happy, attract new clients, or some combination of those goals? Those objectives, once identified and ranked, should stay at the forefront of pricing discussions, said Mills, a former CIO for Davis Polk & Wardwell.
If raising the firm’s profile among prospective clients is a top-ranked objective, Mills said: “You might give the tools away and treat that as a marketing expense.”
When Littler develops and prices one of its or ComplianceHR’s growing roster of proprietary online legal tools, Rechtschaffen said he recognizes that sometimes, “The competition is Google and the internet.” Current and potential clients can turn to the web and find answers to many basic employment law questions for nothing, even if the information isn’t always of the highest caliber.
Littler offers basic document production web tools, as well as some state-by-state comparisons of labor laws, for free.
“The notion that we would charge a client to tell them what the minimum wage is in their state, that is not viable,” Rechtschaffen said.
Three years ago, however, when Littler launched ComplianceHR as a joint venture with Neota Logic, it was trying to recapture revenues derived from legal work that clients no longer seemed willing to pay for at regular outside counsel rates, but that still required in-house resources to complete. “More and more in-house departments are keeping more and more work in-house. We are trying to recapture work,” Rechtschaffen said.
Rechtschaffen hatched the idea of ComplianceHR when he and other Littler shareholders noticed clients were not calling as often, probably to save on billing, about relatively straightforward labor law questions such as how to navigate federal overtime laws. ComplianceHR charges annual subscription rates for use of its interactive online tools. Employers can then plug in information about a circumstance and get answers about their legal options.
One of ComplianceHR’s tools, for instance, allows employers to plug in information to determine if an employee might fall into a category exempt from federal overtime laws. The ComplianceHR software sifts through a massive number of court decisions and Department of Labor opinion letters for a fraction of the cost of paying outside or in-house lawyers.
ComplianceHR’s subscriptions are tiered, based on expected usage; for subscribers, the price per use drops as usage increases.
U.K.-based Allen & Overy won pioneer status in the field in 2001 when it established aosphere, a wholly owned subsidiary that provides legal risk management products and legal information about cross-border data transfer, marketing restrictions for asset-management, and shareholding disclosure, among other topics.
Over the nearly two decades that aosphere has offered interactive online legal tools, the Allen & Overy affiliate has had time to hone its pricing models.
“Newer products are harder to determine the pricing from the outset—your initial costs are high and you could have zero clients on day one and have a limited view on the long-term demand,” said Marc-Henri Chamay, the CEO of aosphere, which now offers 11 different interactive, online legal tools on a subscription basis.
“We have learnt that it’s a completely different story to traditional law firm pricing. Our model relies on recurring fixed fees, spread across a large number of subscribers. The pricing needs to meet our initial investment and our large internal costs for managing a global service (we have a team of over 30 people maintaining 11 products plus significant local counsel costs),” Chamay wrote in an email.
Aosphere’s annual subscriptions offer clients unlimited use, and subscription prices are tiered and based on the subscribing organization’s industry and size. For example, asset managers are charged based on the number of assets they have under their management.
“Our rationale is that clients want simplicity and the ability to budget easily for the services with no upfront costs. Client size is also the most equitable for our subscriber base,” Chamay wrote. “One of our biggest lessons learnt is to focus on solving clients’ inhouse issues and not to compete on price when you have a quality product,” Chamay answered.
Aosphere has 365 institutional subscribers across its 11 online subscription services, with over 12,000 individual product users. Its subscription renewal rate is around 99 percent, according to Chamay.
It has also delivered new U.S. clients to Allen & Overy , a particular benefit for a U.K.-based firm.
“[W]e have attracted a number of new clients to A&O—notably on the asset management side. It is also helping A&O build its profile in the U.S. where over a third of aosphere clients are based,” Chamay wrote.
The ‘Dark Art’
Beyond Littler and Allen & Overy, the number of firms offering proprietary, interactive online legal tools just keeps growing. The list now includes St. Louis, Missouri-based Bryan Cave; Palo Alto, California-based Wilson Sonsini Goodrich & Rosati; and Miami, Florida-based Akerman, just to name a few. And as the number of web tools proliferate, so do the pricing questions.
“The ‘dark art’ is my term for pricing, particularly when something is new,” said Janet Stanton, a partner in the New York-based consulting firm Adam Smith Esq.
“The beauty of a subscription is the next user doesn’t add anything to the cost,” said Stanton’s partner, Bruce MacEwen.
Pricing calculations sometimes grow even more confounding when law firms develop the online tools as joint ventures with other entities. The arrangements have the advantage of reducing a law firm’s investment costs, but the disadvantage of occasionally mismatched agendas: The nonlaw firm participant prizes only revenues, the law firm, revenues and new clients. “We are talking about two different marketing postures,” MacEwen said.
Even trickier: When multiple law firms and their corporate clients cooperate to develop web tools, as Akerman and other firms have begun to do with companies.
“It comes down to negotiating power,” MacEwen said, agreeing that with the pressures facing most firms these days, it’s usually the clients that have the advantage.
Miriam Rozen covers the business of law with a focus on law firm-client relationships. Contact her at email@example.com. On Twitter: @MiriamRozen.