Tuesday, July 31, 2012
Solo extraordinaire Carolyn Elefant at MyShingle.com wrote this post pointing out that Wall Street is not as enamored with LegalZoom as the legal futurists who believe it's going to put many lawyers out of business. Ms. Elefant notes that Wall Street's skepticism is due to the fact that despite a big advertising budget, LegalZoom so far hasn't generated much profit. That's because, she believes, unlike flesh and blood lawyers who develop relationships with their clients that often lead to repeat business, LegalZoom and similar providers offer a "one-off" experience which means they have to continually scare-up new customers to keep the proverbial lights on.
Academics and legal futurists may be enamored by the Legal Zoom business model, the market sure isn’t. As Legal Zoom readies to launch an IPO at $10 to $12 share, sources like Reuters and The Street are questioning whether a $483 million valuation is a tad “feisty” for a company that generated $156 million in revenues, but earned only $12 million in profits. Combine that with looming lawsuits over UPL, and the fact that more than half of the stock is coming from existing shareholders (raising the question of why they’re not sticking around), and the future of Legal Zoom is looking just about as dim as the future of lawyers.
Or worse. Legal Zoom’s $156 million in revenues are paltry in comparison to the $1 billion+ take of the 15 top firms in the AmLaw 100. And while big law attorneys work hard for their money, Legal Zoom works even harder. According to this site, in 2011, Legal Zoom’s SEC filing said that it had 490,000 in 2011 – or 1300 a day. Moreover, LegalZoom spent $41 million on ads to lure them in a cost of around $81/lead. All for a measly $12 million in profits – which is the equivalent take home pay for three partners at Quinn & Emmanuel.
Legal Zoom may be a new company, but the lesson is ancient: volume law practice is a struggle. Even with all of the technology in the world, with a volume practice, you’re always on the prowl to drum up more clients to feed the beast. That’s partly because volume practice requires bodies to serve, but also because volume work consists largely of “one-off’s” (clients with small matters who don’t come back) so you can’t leverage your existing marketing efforts.
Continue reading here.