Data is the New Oil: Legal Management Lessons from John D. Rockefeller and Standard Oil

A few years ago, a journalist asked Ann Winblad, the name partner of Hummer Winblad Venture Partners, what would be the next big thing. She answered, “Data is the new oil.” The expression has an immediate, intuitive ring of truth. Data, like oil, will be a major financial opportunity, and will enable many other sorts of commerce.

But beyond the obvious comparisons, what does it mean to say that data is the new oil — and more importantly, can the history of the oil business teach us important lessons about the information age?

One important parallel is scarcity, especially at the beginning of the data age. Think of all the decisions that law firms make on a daily basis, and without data. Decisions such as: How much is my case worth? Where is it most advantageous to file suit? What is this judge like, and how is she likely to rule in this case? How long will it take to reach a disposition? What’s my likely exposure? What will the legal fees be? Should I accept this settlement offer? How many important precedents exist, and what’s the most important one in this case? Is this contract clause standard?

These aren’t abstract questions. They’re core to the practice of law, and for clients, these are the major questions they face about legal services, and in some cases, about the very future of their business. For individual clients, this class of questions is existential — it will profoundly affect their family, their financial future, or their medical care after an accident.

And we answer these questions with hunches. Usually bad ones.

“How much is my case worth?” isn’t a question that’s answered with a number. The answer is a distribution of outcomes from similar cases. “What is this judge like?” isn’t a collection of war stories, or about who threw a fundraiser for the judge in her last election.

Lawyers have terrific experience, but that experience typically covers very small data sets, limited in time, geography, and practice area. Even inside law firms, lawyers are very challenged to share that experience across offices, practice areas, or even among colleagues in the same practice group.

When faced with the choice, every client would prefer decisions made with more information, not less. But sophisticated lawyers and law firms nevertheless are primitive with the collection and sharing of crucial data about their daily practice. There is a huge latent demand for this kind of information and insight gleaned from data — but it remains a scarce resource at law firms.

Lawyers have terrific experience, but that experience typically covers very small data sets, limited in time, geography, and practice area. Even inside law firms, lawyers are very challenged to share that experience across offices, practice areas, or even among colleagues in the same practice group.

Many friends of mine became lawyers so they could be safe from math and science in school, and they have stayed that way for their entire careers. The bad news for them: this mode of delivering legal services is doomed. The day of hunches is ending.

Data and analytics similarly have transformed many industries, from stock trading to medical diagnostics, from Major League Baseball to Jeopardy. There’s no reason in the world — exactly none — to think that law will be different. Data will eat your hunch for lunch.

The First Oil Boom

So if data is the new oil, the history of the oil industry might be our guide as we embark on this new age of data-driven decision-making. When you study the history of oil in America, you have to start with Standard Oil founder John D. Rockefeller.

Rockefeller started from humble beginnings — his mom was a struggling homemaker and his dad was a hustler who sold herbal remedies as a traveling salesman. But by the time of his death, his work at Standard Oil had made him the world’s first billionaire, whose worth was estimated at $1.5 billion — or $336 billion in today’s dollars. He remains (by far) the wealthiest American who has ever lived.

Rockefeller got his start opening a refinery in Cleveland near the end of the Civil War. It was a time of great upheaval in America, and in addition to political unrest, an industrializing America was using refined oil for heating, as a substitute for whale oil. Refining oil resulted in industrial byproducts, including gasoline, which refiners of the time would simply pour into nearby rivers.

One innovation of Standard Oil was to reconsider the waste byproducts of refining oil and to make new products from them. Standard Oil was refining at the dawn of the Age of the Automobile — it would not be pouring gasoline in the river for very long. Rockefeller was a successful refiner, but he didn’t make his fortune in a silo. He made his fortune crossing into new disciplines, vertically integrating shipping, refining, production, and transportation of oil.

Refining oil resulted in industrial byproducts, including gasoline, which refiners of the time would simply pour into nearby rivers.

Among the many reasons that oil is such a rich metaphor for data is the good fortune of timing. Just as John D. Rockefeller was refining with fuel oil before the Age of the Automobile, so too are we on the cusp of a great Age of Data Analytics — for many industries, but certainly for law.

This is a huge opportunity for people working in knowledge management. We are refining information at the cusp of a time when data will be more valuable than ever to law firms and their clients. Like oil refineries of the late 1800s, law firms fail to collect or discard valuable data about matters, work flow, billable hours, the cost of tasks, the pattern of lawsuits, the outcomes — all poured into the river as a waste byproduct of the main product, billable hours.

Industries everywhere are finding valuable data in information that was once ignored or discarded. Perhaps the best example of this is Pixie Scientific, the company behind the world’s first “smart diaper.” The company’s founder, Yaroslav Faybishenko, was driving with his wife and daughter one day, when his wife asked if their daughter’s diaper was wet. Like a true entrepreneur, he said, “I realized that she was sitting in data.”

A baby’s urine is full of health data, about dehydration, urinary tract infections nutrition and health. Until now, diapers had only one sensor, the baby sitting in them. Now sensors in the diaper can alert parents to all kinds of health problems using data that until this point had been thrown away.

It’s time for lawyers and firms to recognize that we’re sitting in data — from the duration and cost of matters, to the pattern of activity across clients and the value of deals. This data may be the byproduct of deliverable legal services, but we should further refine it instead of pouring it into the river.

Lessons from John D. Rockefeller

Here are a few things we can learn from the history of John D. Rockefeller and Standard Oil:

1. You don’t need to be born an oil baron. Rockefeller wasn’t born in a top hat. And many of our tycoons weren’t born that way — Bill Gates, Steve Jobs, Elon Musk. In each case, our tycoons, by an accident of birth, came of age in a fortuitous time, much like the one law finds itself in today, and seized an opportunity. This is our challenge today in law.

2. It helps to have a head start. You don’t have to be born an oil baron, but it helps to have a head start. CIOs, data specialists, law librarians, managing partners all have an advantage in new era. They are already working with the key information and metrics of the firm. Just as Rockefeller was working with fuel oil just before the Age of the Automobile, we are already working with the crude oil of legal data analytics — attorney work product, billing information, lead generation and origination data, client analytics, data about judges, settlement and outcome data. The firm’s KM department has a huge head start.

3. To make data valuable, have to integrate vertically and horizontally — arguably the most important part of Standard Oil’s success (so much so that it was broken up as a monopoly). If you’re in the library, you need to get access to billing data. If you’re the CIO, you need lead generation and conversion data from marketing and settlement info from litigators. There are very few people at law firms who can collect the right information, distil it, and make it actionable — this should be a key function of the KM team. Rockefeller could have been Cleveland’s best fuel oil manufacturer, but his ability to cross disciplines made him a colossus.

4. Data may be the new oil, but it’s crude oil. In order for it to be useful it must be refined. Data is just like crude oil. It’s valuable, but if unrefined it cannot really be used. It has to be refined into fuel oil, petroleum products, plastic, and gasoline to create value; so must data be collected, structured, formatted, broken down, and analyzed for it to have value.

5. Data will eat your hunch for lunch. Oil isn’t useful for its own sake — it’s useful for what it allows you to do — power cars and airplanes, heat homes and office building, manufacture durable molded plastic products. And data isn’t useful for its own sake — it’s useful for what it allows you to do: run a more profitable law firm, hire the right people, grow intelligently, and most importantly, help your clients to make better, more informed decisions.

Colophon

We are at the front edge of a revolution in the use of data to understand our clients and our law firms. And many of the raw materials are right here in front of us. What data would help your clients make better decisions, and how can you collect it and refine it? Data is the new oil, but it won’t be useful underground. You’ll need to take some risks like John D. Rockefeller, and like Standard Oil. You will have to work across different teams at the firm. Just like Standard Oil, there will be big winners in the coming Age of Data Analytics in Law.