Law thrives on definitions, categorizations and rules versus exemptions. This shapes the terminology lawyers use for their business concepts such as “alternative fee arrangements” or “alternative business structures” by which “nonlawyers” can share in profits generated from the provision of legal services. The most recent darling of “nontraditional” concepts is the rise of “alternative legal services providers,” often abbreviated as “ALSPs.”
It is somewhat congruent that a definition of ALSPs which expands beyond the delimitation from “traditional” providers, i.e., law firms, is hard to come by. Early examples of ALSPs that emerged about 10 years ago were today’s brand names like Axiom and Pangea3®, who provided certain legal services without practicing law or being a law firm. Plenty more players followed in their footsteps, especially in the electronic discovery support and legal process outsourcing spaces. Nowadays, the ALSP spectrum must include technology solution providers who offer to automate certain legal services or augment and upgrade the human tasks involved in them.
ALSPs’ novelty and threat to “traditional” lawyers and law firms have garnered much legal media attention as well as scrutiny from legal services regulators and bar associations, albeit with unclear motives. All this is driven by the potential future effect that ALSPs may have on the legal market. Their share of today’s legal spend is insignificant, estimated at around $2 billion or less than half a percent for B2B legal services. The engagement of ALSPs by corporate purchasers of legal services is still overwhelmingly in the exploratory phase. In all but a few cases the ALSPs augment work done by traditional legal service providers and are considered for what is often described as commodity work.
The share of B2C services (for individuals and small businesses) may be higher, especially because of technology-driven solution providers such as LegalZoom and Avvo. However, it is difficult to gauge how much of their revenue growth has been at the expense of lawyers rather than the result of these services expanding demand by offering services in a faster, cheaper and simpler way.
While the rise of ALSPs is arguably a global phenomenon, it is most advanced in the US and the UK followed by other English-language jurisdictions. Most service and technology offerings are first developed for those markets and then other languages and especially civil law jurisdictions follow where risk capital is harder to raise for novel ideas in the legal space and economies of scale are less obvious.
With growth rates in excess of 30% p.a., ALSPs will become a more significant threat to law firms and lawyers. In the B2C space especially, technology- driven ALSPs have the potential to fundamentally change market dynamics. Web-based services can aggregate demand for legal services from consumers, entrepreneurs and others and thereby inject themselves between the client and the lawyer. This will lead to rapidly deteriorating (income) prospects for lawyers focused on this market. It does not take much imagination to have such tech-enabled ALSPs largely servicing legal needs through technology and referring customers to “phone banks” staffed by lawyers where such needs arise. Despite much outright objection from representatives of bar associations today, it appears inevitable that the approach will be designed in such a way that it meets regulatory requirements where necessary.
On the B2B front, the technology-focused ALSP will continue to augment the work performed by lawyers, whether in-house or in law firms. Technology will not replace law firms or lawyers. The key battleground in this segment is the approach to servicing the overall corporate legal work for a client. It includes disaggregation and redistribution of work done by its in-house legal team, by its outside counsel firms and by ALSPs in light of technological solutions that can replace parts of the work traditionally done manually. Hence, the entire legal spend of corporate clients is “up for grabs.” Even if that work is ultimately handled by the incumbent providers including in-house legal teams, the distribution among them may be very different. To achieve desired efficiencies, this requires a complete overhaul of the modus operandi. For the past decade the motto has been “more for less” even though progress, innovation and adoption have been slow so far. But the pressure on legal budgets despite ever-increasing business and legal complexity is relentless and will only increase in the future.
All except the largest legal departments lack the resources to be solution drivers in this regard; they will need to rely on outside providers to bring them solutions. A key skill for winning in this environment is being able to help the corporate clients figure out how to reduce legal spend by reorganizing the delivery of legal services using all constituent parts, such as in-house lawyers, external counsel and ALSPs, while deploying better processes and technology across the legal services provider community.
From whom will clients buy such transformative solutions? Law firms are clearly the front-runners, where they are seen as the trusted advisers. However, they will face increasingly stiff competition from consulting organizations (including the large accounting firms) and other ALSPs which migrate their service offering up the value chain to include complex managed services.
…the entire legal spend of corporate clients is “up for grabs.” Even if that work is ultimately handled by the incumbent providers…
Many law firms’ reactions to all these developments have been to ignore or belittle the threat. More proactive firms have begun competing with ALSPs by establishing their own delivery centers in lower cost locations (e.g., Herbert Smith Freehills in Belfast, Norton Rose Fulbright in Minneapolis, Torys in Halifax) and/or offering flex-staffing through related brand names (e.g., Berwin Leighton Paisner’s Lawyers On Demand, Eversheds Agile, Pinsent Masons’ Vario). Other firms have begun to explore collaborative partnerships with service and technology-focused ALSPs (e.g., Akerman with Thomson Reuters Legal Managed Services (formerly Pangea3) and Neota Logic, Allen & Overy with Deloitte, Ashurst with Axiom).
Over time, every law firm that is competing for corporate legal spend will need to find its answer to the changing dynamics in its marketplace. Building its own solution may be within its comfort zone, but requires considerable investment and patience. Collaboration with ALSPs, including the accounting firms and other consulting organizations, requires a leap of faith but allows the firm to address immediate client needs faster. And a firm may choose to do a combination of both “build” and “buy.”
Whatever solutions will emerge over the next 5+ years, an era of co-opetition between and among different providers of legal services will emerge and significantly change the landscape of legal services delivery. We should not be surprised to see acquisitions and mergers between “traditional” and “alternative” providers which will finally render the distinction between them obsolete.
Read more from Forum Magazine in the Know 360 app