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.
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.
This article was written by Friedrich Blase.
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