Electronic Marketplaces Gain Favor

Information Week's Roma Nowak offered a crumb of good news about large corporations' use of electronic commerce and exchanges. Welcome sunshine it was the chill of 2002's economic winter.

The June 2002 "Wave 6: Still Waters Run Deep" presented survey data from a sample of 375 North American firms. Among the findings is more than 60 percent of companies with more than $1 billion in revenues are experiencing a surge in electronic buying and selling through e-marketplaces and online exchanges. Among the world's largest firms, electronic transactions are the standard way to do business because of cost efficiencies and savings. (A summary of the study was available online at www.informationweekresearch.com.) Both goods and services are routinely bought and sold online.

Even with Enron and similar snow crashes, lawyering isn't what it used to be. Financial pressures have forced many corporations with more than $100 million in revenues to hire staff attorneys to tackle legal work-legal work that once went to outside attorneys. In many corporations, when outside attorneys are retained, reputation and price are tightly bound. With more than one million practicing attorneys in the U.S., competition for the available work makes an online exchange for matching those wanting legal services with lawyers looking for clients an appealing niche. A search for lawyers on FAST Search & Retrieval reports more than 7.6 million hits.

Most efforts are essentially Yellow Page directories with a touch of online dating functionality added as spice. Not surprisingly, the oligopolistic online legal information services (which shall not be named) are dabbling somewhat circumspectly in matchmaking between corporations wanting lawyers and lawyers wanting corporate clients.

At this time, most "find a lawyer services" are listings. Free or fee, the user logs on and looks for an attorney with the geographical location, background, and characteristics required. Attorney fees are not usually listed. Some directories may charge lawyers for listings. Other services offer a directory as a benefit of membership in a legal society.

To match a corporation with a specialist such as a patent attorney, substantive, fact-rich profiles are necessary. However, a quick review of the Los Angeles Lawyer Referral and Information Service (membership-based directory), Legal Match (small business focus), PageBid (a request for proposal matching service), Niku (a provider of electronic marketplace infrastructure warranting a comment at the end of this column), my favorite, Shark Tank (a matching service for attorneys and junior high schools), among others, and Legal Path (a multifunction service with matching as one component) reveals variations on the traditional professional services directory. The basic information is available, but much telephoning and screening falls to the person looking for legal counsel. Getting a competitive price quote is a Sisyphean task.

Some services are going beyond the Yellow Page and dating service limitations. For example, Sacramento-California based Legal Path says that it offers "a Web-based application that automates the day-to-day activities associated with locating and retaining outside law firms, assigning matters and tracking their progress, billing and collecting key performance metrics." (The buzzword matters in legal jargon means a billable project. Most attorneys work on one matter at a time. Billing is by time and expenses. In North America, fees are variable. The customer does not know what a legal matter will cost until the case is closed and the invoices opened.)

Stupendous legal fees are usually associated with big cases and equally substantial clients. Litigation between the U.S. government and Microsoft generates cash flows that would make finance minister in Argentina wish the trial was in Buenos Aires.

Making a Market for Competitively Bid Legal Services

What if an electronic exchange existed where major corporations could post their need for bulk legal services? What if qualified firms and attorneys could bid for fixed price work? The payoff for the corporation is obtaining a fixed price for certain legal fees on a competitive basis. The participating law firms have an opportunity to compete for legal work that generates millions in fixed fee revenue?

Washington, D.C.-based eLawForum operates this type of online exchange. Wolters-Kluwers, owners of Commerce Clearing House and other professional publications, holds a stake in eLawForum. Unlike most online services designed to match clients and lawyers, eLawForum blends person-to-person interaction and an online exchange. According to John Henry, Harvard University and Columbia Law School graduate, eLawForum is a highly-focused service. The company seeks as clients corporations with $20 million or more in legal work that wants to bid blocks of legal "matters" competitively. eLawForum then brokers these deals. The deals are then consummated using eLawForum's proprietary online system.

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Mr. Henry says,"Corporations are reacting to skyrocketing legal fees. Corporations want a better deal than they can currently get with a sole source business model. We are riding the crest of a very big wave-aggregating demand for fixed fee in a competitive source business model. Fixed-price services for legal work are unusual in the United States. "According to Mr. Henry, "Fixed-price relationships are somewhat more common in Europe. Our service continues to expand within Europe,the Pacific Rim, and elsewhere."

The payoff for the eLawForum customer is cost reduction plus personal service from eLawForum's attorney consultants. "eLawForum," says Mr. Henry, "uses online as part of its service delivery infrastructure. We are not an Internet or a Web company. We are a company that allows a global Fortune 1000 firm to slice zeroes off its legal expenditures. We are like investment bankers."

The firm is generating double-digit growth and breaking revenue goals. Mr. Henry declines to provide financial data for his privately-held firm. He says, "We have more than 2,000 law firms registered with our service representing the best legal specialists in the United States, Europe, and Pacific Rim."

Two points warrant comment.

First, eLawForum's system must be the personification of trust and security. "The information about the type of legal service required is of the most sensitive nature," says Mr. Henry. "The dossiers we develop about the law firms in our system provide solid facts about the lawyers' track records. Our data must be secured so that the likelihood of unauthorized access is effectively zero."

Second, the type of customers with high volumes of legal work are among the largest, most visible organizations in the world. Mr. Henry says, "A firm wanting to contract for a specific number of patent matters or some similar type of legal service has exceptionally demanding requirements and standards. The fact that such an organization wants to establish a relationship on a competitive basis with exceptional legal talent is information of considerable sensitivity."

A security gaff in an electronic exchange for professional services is not a minor glitch. Such a misstep might well slow a fast-growing market segment for high-end professional services.

Security Matters

eLawForum's online system uses a multilayer security architecture. The company makes use of specialized log on procedures, encryption, and other mechanisms that the user does not see. "Our system was designed, built, and tested by InfoZen, Inc. (Germantown, Maryland). The principals of the firm have experience developing software and online systems for such organizations as Reed Elsevier, the Office of Management & Budget, trade associations, and such manufacturing firms as Boeing, Inc. InfoZen," says Mr. Henry, "worked on the security plan for a White House online service."

Says Mr. Henry, "Our software provides corporations with 24-hour, year-round access to top legal talent worldwide. The most important aspect of our system is virtually no training is required. We have a patent pending on our point-and-click access to matchmaking, bidding, and contracting mechanism."

The eLawForum online system offers a wide range of functions. In addition to providing authorized users with access to requests for legal service price quotations, the system supports private messaging, secure document access and exchange, and collaboration tools. The contract between the corporation and the law firm providing services is developed and executed online.

eLawForum's professionals do much of the intermediating work for corporate clients and bidding law firms. Legal screening and filtering is handled by eLawForum professionals who tap numerous sources - including its own database of registered firms and its network of former general counsel - to conduct a comprehensive search for the most qualified lawyers. Once those lawyers are identified, eLawForum's staff continues to provide personal support to its clients throughout the selection process.

One of eLawForum's competitive advantages is what Mr. Henry calls" personal relationships at the highest level of the corporate world." He adds, "We meet general counsel and establish a good understanding of the service we provide. Then we move through a process that can often take months to establish the credentials of the lawyers and firms providing services. Finally, we have to make a business case that $20 million or more of legal fees should be handled by eLawForum's marketplace. We do not deal on a matter-by-matter basis. The Web and technology are a component of our larger system."

"Our technology providers [InfoZen, Inc.] are enabling us to operate one of the most advanced Web services today," he says.

"We don't rely on technology alone, however," continues Mr. Henry. "We remind our customers that attorney-client privilege is operating. Each participant in our marketplace signs a user agreement with quite specific provisions. Finally, the relationship between the corporate client and the law firm providing the service binds the parties to the deal. Documents, references, and other information about sensitive legal matters can be searched, sliced, diced, and analyzed with our secure system."

"One secret of our success," he notes, "is that we transfer the risk from the buyer to the seller. In the traditional legal marketplace, the lawyer's client is never sure how much a particular matter will cost. In our marketplace, the corporate client knows going in how much so many insurance, patent, or liability matters will cost."

Niku and Business Engine Security Tussle

Will the electronic marketplaces for high-value services be blindsided by security concerns? One little-known and potentially significant "matter" concerns Niku Corporation, mentioned above. Niku is a purveyor of software and systems for building and operating a high-level online exchange. Niku's Web site touts consultants' praise for the firm's software and systems.

But-and it's a significant but-exchange software service provider Niku Corporation obtained a Temporary Restraining Order (TRO) against Business Engine on August 15, 2002. The security at Niku was allegedly breached by competitor Business Engine (San Carlos, California). Niku's system allegedly was breached so that the highly sensitive data about the parties to online transactions was accessed by unauthorized individuals. The outcome of this scuffle will spotlight the need for systems that protect highly sensitive information.

With electronic marketplaces for professional services beginning to gain momentum, one wonders if the apparent conspiracy of silence is a happy accident of the August vacation season, what William James (1842-1909) described as "a certain blindness." The Business Engine public statement was posted on August 20, 2002 and may be viewed at www.businessengine.com.

It seems obvious: high-end marketplaces must offer exceptional security and relationships. Otherwise, big companies will have to fall back on personal referral or plodding through the digital Yellow Pages in search of a better deal. The promise of online business streamlining draws its lifeblood from high-value information, a measurable payoff, and security.

Niku Corporation
Business Engine
FindLaw or directory.findlaw.com
InfoZen, Inc.
LegalPath
PageBid
Reed Elsevier
Thomson Corp.
www.westlaw.com
Wolters-Kluwer
Shark Tank

Stephen E. Arnold President Arnold Information Technologies
Postal Box 320
Harrod's Creek, Kentucky 40027
Voice: 502 228 1966
E mail: sa@arnoldit.com
Web site: www.arnoldit.com

Mr. Arnold is an independent consultant working from Harrod's Creek, Kentucky. He resides in the USA with two boxer dogs and seven new multiprocessor servers. He is at work on his sixth book Content Management: A Roadmap for Non-Information Companies Becoming Publishers. Mr. Arnold specializes in information strategy, competitive intelligence and technology analysis for organizations worldwide.