NEW YORK — The legal industry is being significantly impacted by a growing force of alternative legal service providers (ALSPs) that are offering a wider array of more sophisticated legal services to corporate clients and forcing law firms to consider how ALSPs fit into their business strategy going forward.
This impact of the ALSP market was discussed at a panel at the recent Legalweek 2019, titled “Alternative Legal Service Providers 2019: Update from the Biannual ALSP Study”, sponsored by Thomson Reuters. The panel featured key insights from a new report, “Alternative Legal Service Providers 2019: Fast Growth, Expanding Use and Increasing Opportunity,” published in late-January by Thomson Reuters Legal Executive Institute, the Center on Ethics and the Legal Profession at Georgetown University Law, the Saïd Business School at the University of Oxford and Acritas, a UK-based research firm.
James Jones, a Senior Fellow at the Center on Ethics and the Legal Profession at Georgetown University Law Center and one of the co-authors of the report, discussed with the panel the main findings of the ALSP report, which included:
- The ALSP industry has made dramatic progress in the past two years;
- Growth in corporations’ use of ALSPs is stronger than projected;
- Law firms are actively experimenting with ALSP strategies; and
- ALSPs are offering more sophisticated services to more customers.
As Jones explained to the panel, revenues for alternative legal services providers have grown to about $10.7 billion in 2017, which represents a compound annual growth rate of 12.9% since 2015, the previous year such a survey was conducted. Interestingly, Jones said, the growth in the ALSP market is being driven by two main factors — an increasing number of ALSPs now operating in the legal industry; and a growth in revenue among individual ALSPs.
In fact, as the report suggests, some of this growth is coming from ALSPs taking a bite out of the corporate legal service market that law firms traditionally had all to themselves. Indeed, the Big Four accounting and auditing firms — which have worked to ramp up their legal service offerings and have seen impressive growth as a result — have become significant competitors to law firms. About 23% of large law firms say that they have competed for, and lost, business to the Big Four within the past year, according to the report.
“There’s no doubt that the ALSP market is increasingly taking a significant chunk out of the legal industry,” noted Jones.
You can download a copy of “Alternative Legal Service Providers 2019: Fast Growth, Expanding Use and Increasing Opportunity” here.
As the panel discussed, the dynamic of the ALSP market has changed how both corporate clients and the law firms that serve them engage with ALSPs and approach the market for legal service delivery. In fact, several panel members noted that the ALSP market may have gotten its birth during the Great Recession following the Financial Crisis when corporate general counsel were seeking to decrease their legal spend. Now, however, more corporate clients are looking to ALSPs for a wider variety of services as well as more sophisticated, new services that they may have difficulty obtaining from their current panel of law firms.
Not surprisingly, the ALSP report also points out — and the panel discussed in depth — that corporate use of ALSPs is not only growing, but it’s growing at a rate that surpasses even what corporate law departments themselves predicted just two years ago. Overall, almost three-quarters of corporations surveyed in the report said they use ALSPs in at least one service category; and 25% of corporations say they plan to increase their spending on ALSPs in the future.
One corporate legal officer on the panel, Diana Geseking, Acting General Counsel of Dyson, says that now her legal team is asking those outside counsel law firms that respond to the company’s request for proposals (RPFs) how they will utilize ALSPs in their delivery of legal services and how that use will benefit Dyson. It’s unclear thus far, if law firms are getting that message, and that’s unfortunate, because as Geseking explained, using ALSP to clients’ benefit and expressing that to clients could be a real differentiator when clients are trying to choose law firms. “In a recent RFP that Dyson issued, if a single law firm had stated how they were going to strategize with an ALSP to offer services to us, they would have stood out,” Geseking said.
The report also demonstrated, and the panel also noted how ALSPs themselves are changing the way they approach the legal industry and legal clients. The report offers that “ALSPs are steadily moving up the legal value chain to offer more sophisticated services” often using technology like artificial intelligence to expand and improve their service menu to cleints.
Jae Um, Founder and Executive Director of Six Parsecs, a research firm focused exclusively on legal markets, said that ALSPs may be more in-tune with the way their clients think, and are better able to focus on thinking in client-centric ways about how to package and price legal services to bring to market.
The top three uses of ALSPs for corporations are litigation and investigation support, legal research, and regulatory risk and compliance services, and more than one-third of corporate clients say they use ALSPs for these purposes, according to the report.