Why are alternative legal service providers gaining market share

Alternative Legal Service Providers (ALSPs) were born into the trenches of the legal industry out of a need for outsourced, low-cost grunt work. For years now, ALSPs have sat on the periphery of the legal world, struggling to gain recognition from their law firm counterparts. However recent studies have found that ALSPs have gained nearly $14 billion in market share globally, and are used by nearly 80 percent of law firms and 70 percent of corporate law departments. Thomson and Reuters have made the call that they are no longer really 'alternative'. So why all the interest in ALSPs, and why now?

Let's start at the beginning. The legal industry is a services industry, and lawyers are in the business of delivering professional services to their clients.  The key ingredient is a lawyer's time. Every client a lawyer advocates for will have their own unique set of circumstances and it is a lawyer’s job to understand and apply the law on a case-by-case basis. This work is not typically repeatable or reusable, it differs for every client, which means it is often difficult to accurately price before the work is completed.

That said, as the legal industry has grown legal services have become more and more commoditized. Over the past three decades the sheer amount of data generated has increased exponentially. This has changed the way we practice law and now, along with the lawyer's time there are more ingredients such as technology and other professional's time required to deliver legal advice. For instance, if a barrister went to court on an employment case in the 1990s the discovery process would have involved collecting evidence that consisted of contracts, letters, a small amount of written material and perhaps witness statements.

Now there are thousands if not hundreds of thousands of emails lawyers may have to trawl through to compile evidence for such a case. If a large corporation is required to look at all employee emails from the past seven years, they may be dealing with millions. This work isn’t something lawyers can deliver efficiently without technology and specialists to make aspects of the process repeatable and reusable. As the world we live in has evolved, so too have the tools and services lawyers use to help them deliver advice. Technology created a problem by drastically increasing the volume of legal work and technology driven ALSPs are the solution.  

The vast majority of law firms and corporations now work with ALSPs to some extent. The latest reports show that 79 percent of law firms and 71 percent of corporates engage ALSPs. This makes sense as law firms working with ALSPs can improve efficiency and reduce costs on low-value legal work, allowing them to focus on more lucrative and exciting strategic work.

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"ALSPs and law firms tend to partner because they bring different skill sets to the table" says William Bremner, Head of Law Department Management at the global legal consulting firm Consilio. "In general, ALSPs are selling anything that can be commoditized whereas law firms provide specialized legal services. They work well together since they aren’t competing to provide the same service."

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Although collaboration between law firms and ALSPs is growing, research shows many firms still harbor doubts about ALSPs. Some of these concerns are valid, such as the need to protect the confidentiality of client information or uphold the quality of the final work product. Many law firms have created their own 'captive' ALSPs that they utilise for high-volume work, which has the twin benefits of helping alleviate their concerns at the same time as ensuring they retain all the client's business. At the end of the day, the market share ALSPs are gaining is coming from somewhere and so it is worth treating law firm critique with a healthy degree of skepticism.

Corporations will always have a need for high-value legal advice, and so top tier law firms will never cease to exist. The right legal advice at the right time can make or break a company and so cost should not be an object to retaining a decent lawyer. Because good legal advice is indispensable, it is also price inelastic. A rate increase won’t materially diminish the amount of legal services a client will consume, and this unfortunately means there is little incentive for top law firms to be competitive on pricing. Incorrect legal advice is worthless. Given this, it would be foolish for General Counsel to solicit cheap lawyers and risk the business for the sake of saving a few dollars. Law firms have a place in a General Counsel's panel and that is not about to change.

However, high-value legal advice is not the entire legal industry. A huge component of modern legal services is commoditized repeatable work that is not best suited to top tier law firms operating with a traditional business model. ALSPs using an alternative pricing model are much better placed to complete this work effectively.

Knowing how or when to avail yourself of an ALSP can be difficult, but here are some helpful guidelines:

1. Distinguish between ‘bet the company’ and ‘run the company’ work. Pay a premium for bet-the-company work, but not for routine work.
2. Use your in-house team for industry specific work, use a platform to route all routine contract review out to tech + low-cost, third-party providers.
3. Put processes in place to ‘productize’ anything repeatable in-house. For example, if you consistently send NDAs out to a third party for review, invest time in creating a standard template and put a process in place that enables the sales team to approve the standard form themselves for low-value deals.
4. Put technology in place that will help you ‘productize’ repeatable work. For example, if your team is consistently spending time copying information out of contracts into your CLM system, invest in a product that will automate that or parts of it.
5. Put technology in place that will make it easy for you to manage your team and track their capacity. If over the course of a year you can show that you were consistently low on resources and prove it was costing you more to send the overflow out to a law firm than it would to hire more resources, you will have a strong business case for hiring rather than outsourcing.
6. The relationships you have with your former colleagues in your old firm are valuable, but you should make a concerted effort to build new relationships with lawyers in different firms with different business models. There is a smorgasbord of talent out there and it would be a pity not to explore it.