Westlaw rises to legal publishing fame by selling free information

St. Paul company outprofits Gannett, McGraw Hill, New York Times

The road that leads to Opperman Drive is quiet, in a modest Minnesota manner. A few concrete-walled industrial structures line the highway. Patches of prairie grass fill in the open spaces. The scenery is so dull that a driver, lulled by its calm, might not notice a massive building lying just west of Highway 149—home to the most powerful company in the history of legal publishing: West.

Inside the monstrosity—2.8 million square feet of brick and glass and concrete data centers —7,500 employees labor over the law. They are attorneys, computer scientists, and MBAs.

West makes its money by selling free, public information—specifically, court documents—to lawyers. On this simple model, the company raked in $3.5 billion in revenue last year, placing it on a par, sales-wise, with retail giant Abercrombie and Fitch. But its operating profit margin really impresses: At a whopping 32.1 percent, West outpaces that of tech giants like Google (19.4 percent), Amazon (3.4 percent), and eBay (20.8 percent). Westlaw excels at one simple task: saving lawyers time by making legal information more readily accessible. The company charges a firm of six to ten lawyers as much as $30,000 a year to access its state and federal databases. But since attorneys' time is worth a lot of money, the service pays for itself. After all, the more work they can do, the more money they can make.

It all started back in 1872, when John West, a book peddler for a St. Paul bookstore, noticed that the judges and lawyers he called on were frustrated by the long wait times for legal documents. State court clerks often waited as much as a year before issuing court decisions in a bound volume—and by then new precedents would have been set. What's more, local attorneys had trouble getting legal books from East Coast publishers. This made it extremely difficult for lawyers to do the research they needed to build the arguments for their cases.

West had a solution. Together with his brother Horatio, John West founded West Publishing in downtown St. Paul. The brothers began issuing a serial publication they called a "reporter," which included all the latest court decisions. They started with Minnesota, then added Wisconsin, and eventually expanded into a network of regional publications that included all the states. Within a few years, West Publishing's National Reporter System was the standard for up-to-date court information.

The company rolled merrily along until the mid-1970s, when advances in technology dramatically changed its business model. A nonprofit startup associated with the Ohio Bar Association commissioned West Publishing's first significant competitor: Lexis, which offered a computerized law library. In 1975, two years after Lexis's debut, West Publishing presented its own computerized system, Westlaw.

Competition between the two companies was fierce. In 1995, West's management decided to put the company up for sale. Thomson Corporation, a Canadian information mega-firm, purchased West for $3.45 billion. Though the Department of Justice antitrust division got involved, Thomson West came out controlling about 40 percent of the legal publishing market.

At the time, people said Thomson paid too much. They doubted that Thomson would be able to squeeze more profit out of West, which was already posting 25 percent returns. But since its takeover, Thomson has consistently managed to attain 30 percent or higher profit margins. Legal information seems to be the sponge that won't dry.

Last year, Thomson acquired Reuters, the financial information and news firm. In its first year as a single entity, the combined company earned $11.7 billion in total revenue—more than any American-held printing and publishing company, including Gannett, McGraw Hill, and the New York Times.

Westlaw is one of the great successes of the information age. At a time when major newspapers are falling into bankruptcy, it's worth paying attention to what worked.

Rule 1:

Find a niche with growth potential

When John B. West founded his publishing company, the population of the United States was relatively small. Most people hadn't been to college. That meant that few people became attorneys. Disputes were often informally resolved out of court, often before a sheriff or marshal.

These factors meant that the volume of court cases—and the attorneys who needed access to court information—wasn't particularly high. In 1872, for instance, the Minnesota Supreme Court had only three judges, and there was no court of appeals. There was just one federal judge in the state, who roamed from St. Paul to Duluth to Fergus Falls to administer justice. A trio of circuit court judges traveled throughout seven Midwestern states to hear federal appeals.

As the country expanded westward and the population grew, so did the need for courts and attorneys. In 1880, there were 64,000 lawyers in the country. By 1920, that number had nearly doubled, to 122,000. As lawyers multiplied, so did the number of cases in court. West's National Reporter System had plenty of new case law to fill its reports.

West may not have realized it at the time, but the trajectory of the nation—its movement westward and its ever-growing population—meant that the demand for readily accessible legal information would expand exponentially.

What's more, the pool of information that lawyers required would never diminish. In most markets, there is a saturation point reached when all the potential buyers for a product have purchased it. Then a company tries to sell new and improved versions of its product, and the old model becomes obsolete.

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