At some point, the “A” will probably fall off “ALSP.”

That’s the general conclusion of Thompson Reuters’ excellent Alternative Legal Service Providers 2021: Strong Growth, Mainstream Acceptance, and No Longer an “Alternative.”

At their best, ALSPs perform two functions concurrently:

  1. Allow law firm attorneys to focus on their core competencies
  2. Provide services more quickly, transparently, and affordably than law firms can

 

alsp market

“Undisputable Facts”

The report, sponsored by The Center on Ethics and the Legal Profession at Georgetown Law and the Said Business School at the University of Oxford, outlines some “undisputable” facts, among which are:

  1. 79% of law firms and 71% of corporate law departments surveyed are using ALSPs (the ALSP market is valued at nearly $14 billion)
  2. eDiscovery remains the predominant service offered by ALSPs
  3. Law firms retain the highest value services and depths of relationships

The high degree of market penetration is validation that the ALSP market is maturing, if not matured. Private equity-driven M&A, law firms spinning up captive ALSPs, and the COVID-driven technology adoption of the legal market over the last year will ensure these numbers continue to rise. As they do, ALSPs will add ancillary services and become more deeply ingrained in the operations of both law firms and corporations.

Another significant factor to note is the relatively recent rise of in-house legal operations.

Because of the volume of work law firms have and the relationships in many founders’ networks, ALSPs often focus on law firms for early revenue. This necessarily means ALSPs are a step removed from the end-user of the legal services. But organizations like CLOC and Legal Operators are doing an impressive job of educating the in-house legal market and building a culture that is more process-driven and templatized where appropriate.

The next few years are likely to see a significant amount of insourcing for high-volume work, increased outsourcing to ALSPs for work that is more technical and/or project-driven, and law firms will be the providers of the legal counsel, litigation, and risk mitigation. Whether departments are following Lean, Six Sigma, or any other project methodology, the results are likely to be similar: utilize outside resources to supplement skills gaps on the in-house team, and carefully vet those outside providers to ensure they are being engaged for the highest and best use of their time. And, where healthy cultures exist, the report notes this is already being embraced: “In general, this round of research shows an increasing sense of collaboration, rather than competition between law firms and independent ALSPs.”

To  be sure, the full report offers lots of nuance that you should review and apply to your organization’s own situation.

How Are Players Positioning Themselves?

There is commonly confusion about the different flavors of ALSPs in the market. How do I think about engaging different options? Who performs which services? Are they trustworthy?  The report did an excellent job summarizing general market positions:

  1. Independent ALSPs focus on technology and process: knowing which technology to apply to each situation, being expert users of that technology, and not having to compete with practice groups for internal resources means independents continue to to emphasize their legaltech-enabled service. The next iteration of their growth is probably proprietary technology. Stay tuned for further M&A as firms look to build the industry’s first true end-to-end solution (spoiler alert: it will take many years and lots of $$!!).
  2. Big Four leverage scale and organizational ability: in other words, they have the relationships with – and the trust of – large corporations paired with the ability to “see the forest through the trees.” If nothing else, this positions them well to acquire independents or play air-traffic control.
  3. Law firm captives offer a quality-controlled, one-stop shop: in theory, keeping an entire matter under one roof does provide a higher degree of communication and quality. In practice, there is often cultural resistance within firms to fully engage with these resources. Even when the desire is there, the technical proficiency is often not quite at the level of independents, and the billable rates are often not as competitive. There is absolutely a place in the market for captive ALSPs, and the firms that do the best job of growing their capabilities in house or formalizing relationships with independents are likely to see high ROI compared to firms who attempt to cling to the “good old days.”

 

discoverymaster

 

One Potential Solution to Keep Everyone On the Same Page

Despite all of these developments, eDiscovery remains the largest service that ALSPs of any flavor provide. Discovery is the most technical and expensive portion of any investigation or litigation, and document review is the most expensive portion of discovery.

Each stakeholder – the corporate legal team, outside counsel, and ALSP – have a vested interest in building strong relationships to resolve matters successfully. In a services industry without the predictable recurring revenue of, say, pure software providers, the ease of doing business – a combination of technical chops, legal acumen, communication – are essential to deepening relationships that result in future engagements. Ultimately, all of these stakeholders want to know:

  1. What have you found in the documents?
  2. How much has it cost?
  3. When will it be done?

if this sounds familiar, drop a note to contact@discoverymaster.co. We can help.

Discovery Master LLC