Risk versus efficiency.
It's the tension mounted between the legal team and the rest of the organization since the beginning of time -- and it'll exist long into the future. Or perhaps, it won't.
Thanks to the advent of Legal Operations teams, and a shift in strategic thinking, organizations large and small are beginning to balance the legal equation. Contracts are moving faster, consume less-time, and are easier to execute. And, most often, it's been B2B businesses that tend to be the beneficiary. One could spot the historical cost inefficiencies of, say, a software sales contracting process from space, let alone the executive board room. The status quo is no more.
But for B2C e-commerce, efficiency isn't the problem: it's managing risk as millions of agreements are executed digitally, with a click, on a daily basis.
As the pay-per-product model diminishes and the subscription economy rises, it's time for a revolution in strategic legal thinking at every e-commerce organization. In a new marketplace where contracts are just as important as they are in the B2B world, risk is the new inefficiency. And while it might not jump off the page to the executives yet, more and more headlines like this assure it should be the next point of emphasis for any in-house lawyer.
Keep it simple: The foundation of the subscription economy is built with millions of business-to-consumer contracts.
Consider what makes a subscription business really go. There's an initial sale of your goods or services, capturing of a payment, and the delivery of the initial goods. Other than semantics, there's little difference there than what we've seen in the pay-per-product model that seems to be on the way out.
The distinguishing characteristic of a subscription-based business is a contract. Sure, sure -- that's obvious. But consider how that contractual agreement gives rise to everything that makes a subscription-based organization valuable - future goods and services, limitations, cancellation policies. Those important protections and rights that derive from private, contract-created law between you and your consumer.
Here's where, in an ideal world, typical B2C e-commerce organizations could take a lesson from the B2B marketplace. For far longer than in the e-commerce space, recurring revenue models have been the standard for SaaS organizations. Pricing and productized descriptions are important, but cancellation policies and other language to mitigate risk over the long haul are perhaps moreso to the organization's bottom line. There's a reason most enterprise B2B organizations spend millions annually on headcount and technology to ensure contracts are enforceable, well-negotiated, and managed properly. It's to maximize velocity and scale while preserving
The problem for B2C e-commerce organizations? Your organization has to scale for millions and millions of transactions! The way B2B SaaS organizations contract to protect risk and preserve revenue is a complete non-starter. So, let's flip it.
Added legal risk doesn't have to be a by-product of scale for e-commerce organizations.
Just by the way you do business, velocity and scale comes naturally in the subscription economy online. There's no contract managers, internal approvals, contract playbook, or opposing procurement process to navigate. We're working with clickwrap contracts here. Click. Purchase. Boom. Done. Speed isn't your problem. For most e-commerce organizations, the cost drain lies within unkept risk.
Just as B2B organizations had to undergo a revolution of strategic legal thought to develop processes to increase efficiency, in-house legal teams at e-commerce orgs in the subscription have to take that same approach to re-think how to reduce operational risks online. The time and money drain of class-action litigation is a clear and present risk. It's a reasonable foreseeability that general disputes and single-plaintiff litigation should increase over the long haul as more and more organizations move to recurring revenue models, too. What about privacy policies and tracking consent?
Here's four steps every in-house legal professional at e-commerce organizations should take today.
1. Take 30 minutes to dream up your ideal state for customer legal agreements. Take the constraints of the high-velocity scale required of e-commerce off for a moment. Take the practical constraints of working with one blanket set of terms away. What nuance would exist to best protect your organization? What would the process look like? Taking a quick moment to remember risk and efficiency gaps that just seemed like the cost of doing business is step one to rebuilding a legal process.
2. Don't let marketing overpower important legal language. Hey, don't get me wrong, conversion rate is massively important. Without cool, catchy calls-to-action, it's back to the billable hour for all of us lawyers employed by SaaS or e-commerce organizations. I touched on California's auto-renewal statute earlier. Make sure notice of subscription terms is clear and conspicuous to your customers. Do a quick check of the points in your service where customers acknowledge contracts. See if each click-to-accept meets these five criteria.
3. Get familiar with your legal back-end. Consider this hypothetical: A legal dispute centering on an online transaction hits your desk today. You're going to rely on your standard terms of service as part of a defense. Do you know exactly what document or documents you'll be using to prove such an agreement exists?
From my experience, most legal teams have little to no idea what kind of records the product or development team really has when it comes to tracking acceptance or consent to terms or policies. Many don't have anything at all, and even those that do, often don't have enough. It's an area of law that's quickly evolving, and tech teams often believe they have it covered.
The problem? Proprietary systems and logs that could be modified by your team have presented major problems in federal legislation. A best practice fix? Provide the same contract record stored in your system to the customer at the time of purchase. Such transparency can help you ward off disputes before they begin, and will likely look favorably to the court when determining if an enforceable agreement exists.