Open Questions: (1) Will ALSP Use Grow If There’s a Recession? (2) If so, Would Upward Demand for ALSPs in Legal Continue Long-Term?

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The Point

ALSPs — alternative legal services providers — use sophisticated business processes and technology to perform routine, recurring legal tasks at lower cost, with greater speed, and more accurately than law firms and in-house departments can do with attorneys.

To Question 1:

Yes. Conventional wisdom says that a potential economic downturn is likely to prompt more use of ALSPs to save on Legal costs.

History supports this expectation. (“Producer prices in the legal services industry after the Great Recession”, Bureau of Labor Statistics, 2019).

To Question 2:

It’s more of a jump ball, longer term.

Because of ALSPs’ cost efficiencies, anyone who urges their adoption runs headlong into the law firms’ resistance: Those firms bill clients for services of recent J.D. graduates who are one, two, and three years out of law school . These juniors / trainees are not yet capable of doing sophisticated work on their own, but they can be deployed on routine, recurring law tasks — while their law firm / employers bill clients for such work at hundreds per hour.

That’s why the current usage rate for ALSPs is so low (see here and here).

On the other hand, paying juniors / trainees to do manually what ALSPs can do with their automated systems is a huge waste. Last week The American Lawyer (subscription required) observed:

“The combination of legal departments’ tighter budgets, an openness to explore alternative legal services born out of the pandemic and an increased maturity in [ALSP] services … has created a favorable environment for ALSPs’ market to grow.”

This Matters to Your Business

About the long-term view for ALSP use, Brad Blickstein, who is one of the two or three most insightful legal practice analysts I know of, sees it this way:

“It seems like we are entering a world where there’s going to be permanent cost pressure on law departments … It’s not only do more with less. It’s also just do more.

“So all of that in a way transcends even if it’s a deep, long recession ….

“It’s still a relatively small market share, but it’s growing. If you look at it from the ALSPs’ perspective, it’s growing extremely quickly. If you’re looking at it from the law firms’ perspective, it’s still just around the edges.”

Because …

Why would growth of ALSPs, as a matter of year-on-year percentage growth in legal workflow market share, be still “just around the edges”? Because today the prevailing law firm model makes significant money by billing associate hours to do what ALSPs can do more cheaply, faster, and with greater accuracy.

Wider adoption of ALSPs would erode law firm income from “associate leverage”. Such associate leverage consists of hiring junior / trainee lawyers as employees and then billing them to clients for hundreds per hour — even though these junior / trainee lawyers are not yet fully capable of doing sophisticated legal work on their own (see here and here).

“Associate leverage” won’t yield the hourly billings law firms want if their juniors’ / trainees’ performance of routine and recurring tasks is supplanted by ALSPs’ cost efficiencies, speed and accuracy. If there has to be a recession, here’s to hoping that it nudges client corporations toward ALSPs longer term.¬†¬†

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