In law school, no one ever warned us of impending competition with cheap labor overseas. I mean, lawyers don’t exactly make a living with their hands, which is typically the kind of work that gets outsourced, right?

Wrong. As it turns out, people overseas not only know how to wield a hammer for lower wages, they’re also quite intelligent. Recent survey shows that over half of the participants have outsourced or are considering outsourcing legal work. In my opinion, lawyers will not adjust their business models to accomodate these changes until it’s too late. Lawyers will never be commoditized due to our unique skill sets (unless our judicial system changes, it will always take a professional to navigate the procedural nuances of the law). But nevertheless, lawyers will be forced to drop their rates in order to compete with the other lawyers that will be leveraging offshore assistance.

I’m seeing more and more rhetoric of the large law firm paradigm crumbling. I wouldn’t really say that it’s “crumbling.” They’re more or less re-vectoring their resources to fit the realities of the market. There’s been a number of mergers occurring in the south. Also, I’ve seen more talk of legal work migrating overseas, commonly referred to as legal process outsourcing. In a recent article about the LPO industry, the author writes,

Every student thinking about going to law school needs to take a step back. Look at the global economy, look at the cost of attending law school. Use a calculator if you need to. It’s still a good deal for some people, but don’t get into this racket expecting milk and honey.

In my opinion, the legal services industry was an enormous bubble and it’s going to take a long time for it to correct itself. Whenever there is a monopoly over a product or service, you can charge whatever you want. Now that technology has officially flattened the earth, work will float downstream to people that can do quality work at a lower price. And like I’ve said before, there will always be large law firms, but I don’t think there will be as many.

The folks at Zoho don’t seem to think so. They’ve prepared the below spreadsheet explaining why they think Google will run from business productivity programs. As everyone knows, Microsoft built its empire by standardizing business applications i.e. Word, Excel, Power Point, Outlook, etc. Google plays in a different sand box. Can Zoho compete with Microsoft as they create low cost solutions for businesses? Click on the spreadsheet to see a larger version. On its blog, Zoho said, “Google is perhaps the most stunning technology success story ever, but we simply don’t believe Google has the rational business incentive to get too deep into the business/IT software category. The lower revenue and profit per employee figures would be tolerable if there were huge growth opportunities there, but when very successful companies like Adobe and Intuit pull in revenues well shy of a Yahoo, when even the enterprise software leader SAP is smaller, and slower growing than Google (Google makes nearly as much in profit per employee as SAP or Oracle Salesforce make in revenue per employee), it is fairly clear this market is not going to make a material contribution to Google’s growth and profitability objectives. So what is Google’s plan here? It is fairly obvious they are in it to put Microsoft on the defensive on its home turf, so that Microsoft’s offensive capability in the internet is diminished. It is also perfectly clear why Microsoft wants to be an internet player – as Google has shown, it is a higher margin business even than its monopoly-profit core business.”

Ronald Reagan was known as “The Great Communicator.” Barrack Obama will have a similar legacy. Agree with him or not, the man is a powerful communicator which gives him and his party a tremendous advantage in selling ideas. Barrack leveraged technology and social media to extend his reach to his audience. Blog posts mentioning Barrack outnumbered his opponent 3 to 1. Barrack had 24 times the followers on Twitter than McCain, which means Barrack had a much more engaged and energized constituency. As noted by Phil Ayres, Barrack’s vision and leadership played a large part in mobilizing his supporters (you can’t have influence with people if they don’t trust you). But vision and leadership aside, he leveraged technology to spread his message at historical levels. And this trend will continue…

Traditionally, the president gives a weekly radio address to the nation. If you happen to be standing next to a radio when he gives the address, or when it’s played back, you get to hear it. Personally, I’ve never heard a single radio address…I don’t listen to talk radio. I’ve heard clips played back, but I’ve never heard the full thing. Now, Obama announced he’ll do his weekly updates via YouTube. What does this mean? It means that people will now subscribe to his weekly messages and play them back at their own convenience. It means millions more people will have Obama staring them in the eye each week. It means Obama will be able to make the hard sells to the American people to get things done, much like Reagan did. It also confirms that traditional television is no longer the primary medium for spreading news and ideas. Pure genius. I really don’t agree with his world view and a lot of his policy objectives, but I admire his intelligence and style. Technology is changing everything…politics, business, social life, everything.

I’m currently reading a fantastic book titled ‘Here Comes Everybody.” The books is primarily about “crowdsourcing.” Crowdsourcing is about leveraging large, interested communities to accomplish enormous tasks i.e. Wikipedia, Flickr, etc. Crowdsourcing is like outsourcing, but on steroids. The book states that for most of modern life, our desire for collaborative effort has been filtered through rigid institutions. Hierarchical institutions were/are necessary because of the complexity of managing groups. The more complex the problem, the more people required, which necessitates management. One of the most important benefits of management is the control of communication between members in the group. There are usually multiple layers of management separating CEOs from the low-level employees. There is nothing wrong with this structure. Hierarchies will always be necessary for most businesses.

Now, groups are assembling and working WITHOUT managerial oversight. In the past, there were transaction costs associated with assembling groups. There were multiple factors to consider before joining a group: travel, gas, are there enough people, do you have the time, etc. Today, there are zero transaction costs associated with joining like-minded groups. People can easily aggregate together and accomplish amazing things. Wikipedia is just the start.

The book states that when transaction costs fall, the largest firms increase in size. The upper limits of size is inversely related to management costs, so when you lessen the management costs, there’s opportunity for growth. Also, small companies become more effective at doing more business at lower costs than larger companies that maintain high transaction costs.

Do I think lawyers will go by the way of Encyclopedia Brittanica, having the bulk of work done by a large, committed community? Nope. I think knowledge workers are insulated from this occurring. People will always need specially trained lawyers to analyze issues and give counsel. The law is complicated and the skills necessary to interpret the law will not be commoditized. BUT, the “business of law” will see dramatic shifts. Lawyers can now network with each other like never before, they can outsource the easy stuff, hire virtual assistants, manage their documents in the cloud i..e Zoho or Google Apps, which dramatically reduces technology costs.

As the book says, when there’s high overhead, institutions have to be selective with the work they do. It has to be profitable. Instead of asking “Why,” lawyers can now ask “Why not?” It might take a while, but the legal industry is about to decompress and clients will be the beneficiary.