Shake is a Digital Application that affords users the opportunity to create and edit legally binding contracts from pre-existing templates. Shake has prospered in a highly competitive digital market by recognising the opportunity that exists in simplifying legal contracts. Shake makes the law accessible, affordable and understandable for everyone (Geiger A. 2013). Shake has recently been acquired by LegalShield which was formerly known as Pre-Paid Legal Services. This company was acquired by MidOcean Partners, a private equity firm, in 2011 LegalShield, as its former name suggests, provides legal cover to clients who pay a monthly or yearly fee for this service. Their acquisition of Shake recognises the synergies that exist between the app and their current business model; Shake is essentially a client oriented resource designed to simplify small business conduct. Careful examination of the creators and new owners of the app suggest Shake can create sustainable value as a subsidiary or integrated component of LegalShield. The success of Shake was predicated on the Freemium (Free or Premium) business concept where users can access a free limited service or choose to pay for extra or unlimited features.
Shakes digital application is designed to target consumers, freelancers and small businesses affording the ability for its users to legally protect themselves utilising technology they already have access to (Clark P. 2013). Shakes unique proposition targets a previously untapped niche in the market; none of its closest competitors offer a free service. LegalZoom offer subscription services whilst Docu Sign and EchoSign (Adobe) provide limited digital signature services priced individually. Shake describes its purpose is “…to combine the simplicity and convenience of a handshake with the protection of a legal agreement” (Shake Law, 2015) Jon Steinberg (president of Buzzfeed) and Jared Grusd (General Counsel at Spotify) conceived the concept whilst venture capitalist Stuart Ellman was the catalyst, introducing them to his student, at Columbia Business School, Abe Geiger. Geiger was convinced of the legal apps potential and uniqueness as Ellman confirmed “we saw online DIY providers putting confusing legalese online without a mobile presence, and mobile signature products with no content.” (Ellman S, 2013).
Michael Porter was a proponent of the theory that the strength of a company relied on one of two determinates; a company’s strength was ultimately defined by a cost advantage or by differentiation (of product or service). Shake is difficult to define in this context; as a standalone app, the free version is undeniably aimed at market penetration whilst its mobile platform and freemium model combine to differentiate it from others in the market.
In a blog commenting on the model start-up services concept, Stefan Washietl questioned the value of free services. Similar to the opportunity cost theorem which concludes that every choice involves a cost (not always monetary), Washietl argues that any free service is being subsidised by someone. This argument has greater relevance to Freemium models like Shake where the basic service is regarded by some, as being effectively subsidised by those paying for arbitrary premium content.
It is logical that Shake should focus on its paying subscribers if it is to create a sustainable model and usually you do this by focusing on the core product; Washietl recognised this stating “A paid subscription model … forces the developers to create a product that offers real value and it creates better relationships between user and developer.” (Washietl S, 2014)
Backed by SoftBank Capital and other venture capital to the tune of $3 million Shake launched with the claimed intention of monetising the app through premium services. However, many popular startup models launch with the principal intent of being acquired. Washietl declared “If a company hires 30+ people in an office in central London and gives away their product for free the only goal can be to be bought out by somebody with deep pockets.” (Washietl S, 2014). On 22/04/2015 a company with deep pockets bought Shake. LegalShield a business lacking in technological skills, particularly in the mobile sector, acquired Shake. Max Eddy, whilst reviewing LegalShields I.D. theft service for PC magazine commented “…the service is hard to use and isn’t mobile friendly.” (Eddy M, 2010).
The acquisition of Shake was intended to combat this shortfall as its CEO Jeff Bell explained, “Shake will fast forward LegalShield’s advancement into mobile solutions, following on the member app we released last fall.” (Geiger A, 2015).
Shake will be vertically integrated into LegalShield, a business that operates predominately in the sector of legal insurance. Vertical integration is associated with cost leadership strategies because controlling the processes in the value chain of a business generally results in cost efficiency. LegalShield consequently leverages its cost advantage in the relatively narrow sphere of legal insurance confirming its low cost, focus strategy (see table entitled Porters generic strategies).
Shakes acquisition by LegalShield should theoretically result in reciprocal benefits related to being a part of a vertically integrated value chain. The 1.4 million clients of its new parent will now become an enhanced growth opportunity for Shake as it seeks to extend its subscriber base. However, Washietl‘s preference for a narrowly focused subscriber base echo’s (Washietl S, 2014).
Porter’s cautionary words; he describes the risks of expanding a company as strategically hazardous stating “Efforts to grow blur uniqueness, create compromises, reduce fit, and ultimately undermine competitive advantage.” (Zenger T, 2013)
One must assume Porter intended to encourage small, differentiated companies like Shake, to adopt clear strategies before embarking on expansion as the words themselves belie the existence of the likes of Amazon.
Porter’s generic strategies of cost leadership, differentiation and focus are defined within a broad or narrow scope. He believed the effectiveness of cost leadership and differentiation strategies was negated when the strategies were used simultaneously. His updated report in 2001 examined the theories in relation to market forces created by the internet. He concluded that the generic nature of the strategies have provided an adaptable model that remains relevant to today’s internet businesses.
Porter’s view of cost leadership and differentiation are in many respects now considered counterintuitive. Cost leadership is touted as a broad market strategy with limited scope for differentiation due to economies of scale; differentiation meanwhile focuses on creating a unique product or service that is perceived to be better than its competitors and is difficult to replicate.
Fast, secure distribution channels have proved a popular differentiation in e-commerce. As Amit and Zott (2001) discovered, “locking in “customers can be achieved through security and trust. (Eonsoo K, 2004) Shake has its own lock in, it allows users to create their own templates for transactions but they can only be exported to PDF. Consequently, those who commit to utilising this facility must continue using the app to utilise the templates they have created.
Shake adopts both low cost and differentiation strategies defined as stuck in the middle by Porter, meaning the competing strategies would cancel each other out, negating any competitive advantage. However, a study by Kim et al (2004) concluded that a focus strategy was a “competitive imperative rather than a competitive option” (Eonsoo K, 2004) in e-commerce due to the scalability of companies. They defined an integrated strategy which sat between cost leadership and differentiation and was strategically preferable and more profitable than either of them individually. Kim et al would conclude Shake is following an integrated strategy, which is a hybrid combination of cost leadership and differentiation as utilised in e-commerce.
Cost leadership is considered a destructive strategy in an environment (the internet) where pricing is more transparent and fierce than the High street. Pioneers and early movers have a slightly better chance of pursuing a successful cost leadership strategy but to acquire increased market share, a company needs to reach a critical mass of consumers as soon as possible (Arthur, 1996) (Eonsoo K, 2004). On a positive note, whilst Shakes business proposition wasn’t unique when it launched, Ruiz-Ortega and Garcia-Villaverde (2008) concluded that a company with a combination of I.T. skills and a low cost strategy benefited from enhanced performance capabilities regardless of when they entered the market (Yan & Ghose, 2009).
The differentiation and hybrid combination strategies perform better than cost leadership but clicks and bricks are identified as the strongest internet strategy. The enhanced value of a bricks and mortar store fully integrated with an online store provides the security of a tangible presence to an intangible market.
The physical presence of Shake and its parent company tends to be vested in affiliates and associates rather than a high street presence. LegalShield provides support through a framework of associates and affiliated attorneys and is a multilevel marketer with a chequered history and reputation. Consequently, Shake and its parent lack the intrinsic value of a click and brick enterprise and their reputations are entwined with affiliates in an industry that often offers more than it delivers.
Strategy and sustainability are also entwined in the practical implementation of theory. Tod Zenger noted “An effective corporate theory is company-specific; it identifies those assets and activities that are rare, distinctive, and valuable.” (Zenger T, 2013) Walt Disney identified complementary activities and resources that would evolve from his core business, providing benefits across the corporation from shared synergies. A copy of a map of his theory of value creation is in the appendix.
In order for Shake to become a sustainable proposition it must heed these principles and perhaps be cognisant of modern wisdom. These principles can be categorised in relation to the business core; the steps are Recognise, Build, Expand and finally Redefine the core. Disney flies in the face of conventional wisdom as it hasn’t redefined its core; however, the ability to redefine core strategies is seen as a natural transformative development of the lifecycle of a company. Rita McGrath believes a proactive strategic approach helps maintain sufficient differentiation for sustainability (McGrath R, 2013). This theory is called Transient Competitive Advantage.
Shake is thriving in what is essentially an intellectual property industry. Once it creates a legal document, its costs for distributing it to one client or a hundred clients is virtually the same. Its recent acquisition by LegalShield provides it with the opportunity to focus on its core to create growth whilst benefiting from the synergies it shares with its parent company. It is ideally situated to expand its customer base whilst retaining a focus on its niche market. Shakes founders have considerable experience in start-ups and corporate strategy and optimised the app to work on a mobile network. Shakes integrated strategy suggests it can compete on both cost leadership and differentiation fronts. Further, the changing nature of work practices resulting in more on demand services, suggest Shakes market will expand.