(photo by W.Carter via Wikimedia)
Spring is a time of awakening and renewal. Because I’m a huge nerd, this reminds me of The Matrix. Neo had a choice: take the blue pill and remain blissfully ignorant of the real world around him, or take the red pill and “stay in Wonderland and see how deep the rabbit hole goes.”
We, at this column, have long argued that lurking under the surface of the traditional legal world (law firms, corporations and government counsel) there is another world — a strange and rapidly shifting world of alternative legal companies. Over the past few years we have offered strong opinions, personal stories, and anecdotes of success, but little in the way of proof — no “red pill” to suck you out of the traditional legal reality. Until now.
Earlier this year, some smart people at Georgetown Law, the University of Oxford Saïd Business School, and my company (Thomson Reuters Legal Executive Institute) did their homework, spoke with users of alternative services, and published a detailed report on the alt.legal trend. Inelegantly titled the “Alternative Legal Service Providers report,” it describes an “emerging and rapidly evolving” trend in the legal economy that will hopefully act as a wake-up call to non-believers. (“The Report”).
The Red Pill: Waking Up To a New Legal World
Essentially, what we call alt.legal companies, The Report calls alternative legal service providers (ALSPs). Typically, an ALSP is a company (not a law firm) working to solve legal or quasi-legal problems by leveraging technology, a globalized workforce and business processes (although some law firms have worked to build their own, with mixed success). The report opens strong, concluding that “in recent years” an “influx of new start-ups and new entrants [have entered the legal market] looking to challenge the long-standing services model offered by law firms.”
I took the red pill years ago, and personally I see a world of opportunity. Opportunity to improve access to justice. Opportunity to make a great living with your law degree outside of Biglaw. Opportunity to solve huge problems at scale. That said, many others see threats and not opportunities.
Whoa (like Neo)! So What’s Really Going On?
According The Report, today, the ALSP market stands at $8.4 billion per year and growing, with the largest component consisting of independent LPOs and ediscovery and document review providers. While this may seem like a drop in the bucket of a $700 billion legal economy, The Report calls ALSPs “one of the most dynamic segments of the legal services industry” who are “likely to continue to play a role as competitors and disruptors for years.”
And their adoption is already fairly widespread. Specifically, 60% of corporate legal departments are using an ALSP for at least some type of work (and no, not just for ediscovery; think M&A diligence, contracts, and regulatory compliance work). An additional 14% expect to start using an ALSP in the next year.
Why is this happening? The study found that the number one reason legal departments are using ALSPs is for specialized expertise not found in-house, followed by cost-related drivers. That’s right, the main reason is specialized expertise, NOT cost savings.
The Report also found that an increasing number of law firms are using ALSPs (51%), with an additional 21% expecting to use an ALSP in the next year. Unlike corporations, though, law firms are mostly using ALSPs for litigation-related services like document review and ediscovery. However, the drivers of adoption are much the same: specialized expertise first, followed by cost-related factors. And Biglaw beware, it’s your small-firm competitors who are the most likely to adopt ALSPs over the next five years. If they can use ALSPs to level the playing field, the advantages of scale diminish.
Law firms are also recognizing that there are components of the legal process, whether they be more technical or process-driven in nature, that are better and more cost-effectively served by outside providers that specialize in those niche areas. This simply makes sense. After all, did you become a lawyer to implement quality control processes, manage contract attorneys, or de-crypt load files? I know I didn’t (yet here I am!).
The study also revealed that enterprising law firms are proactively seeking partnerships with ALSPs. Together they are developing new, innovative joint-offerings for their clients. In these scenarios, the law firm maintains the direct relationship with the corporate client and provides all legal guidance and advice, while ALSPs work behind the scenes to deliver a holistic solution. The law firm is still the hero.
I Should Have Taken The Blue Pill
Have you awoken from your slumber yet? If you are like many lawyers I talk to, you may regret opening your eyes, and may wish to go back to a time before globalized legal workforces, intelligent algorithms, or robot cops in the backseat — but you can’t turn back the clock on progress.
If, however, you are interested in the actual future of the legal and alt.legal world, I encourage you to take a closer look at The Report. It offers many more insights. Even if you’re not ready to join the majority, it’s undeniable that change is underway, and waking up is the first step to ensuring you are not left behind.
Welcome to the desert of the real.
P.S. Super-special thanks to Kendra Mancusi for the desperately needed help on this piece!
Joe Borstein is a Global Director with Thomson Reuters Legal Managed Services, delivering Pangea3 award-winning legal outsourcing services and employing over 1800 full-time legal, compliance, and technology professionals across the globe. He and his co-author Ed Sohn each spent over half a decade as associates in BigLaw and were classmates at Penn Law. (The views expressed in their columns are their own.)
Joe manages a global team dedicated to counseling law firm and corporate clients on how to best leverage Thomson Reuters legal professionals to improve legal results, cut costs, raise profits, and have a social life. He is a frequent speaker on global trends in the legal industry and, specifically, how law firms are leveraging those trends to become more profitable. If you are interested in entrepreneurship and the delivery of legal services, please reach out to Joe directly at joe.borstein@tr.com.
