This is our original unedited version of an article which our friends at Thomson Reuters’ Forum magazine were kind enough to print in the current issue. Now that they have had it exclusively for a suitable grace period, we reproduce it below for readers of Adam Smith, Esq. who might not be regular readers of Forum.
ALSP’s have become the Talk of Law Town. Coverage of their doings is everywhere you look, ranging from the breathless “Did you see how much money XYZ firm scored in its latest round?” to just-the-facts recaps of startups, mergers, and the acquisitions. How big is this market, actually?
Thomson Reuters’ third biennial survey of the sector is just out. Since the reporting began in 2015, independent (“purpose built”) ALSP’s have grown by over 70% and the entire market now brings in $14 billion annually:[1]
- Independent ALSP’s, with $12 billion in revenue (86%)
- The Big 4, at $1.4 billion (10%)
- And captive law firms’ offerings at $480 million (3.4%)
The relatively insignificant share of the captives—in terms of our “dead end” hypothesis—matters not.. This market is nothing if not young and the future stretches before us.
Meanwhile, the business case for law firms’ launching their own ALSP’s seems compelling: A classic go-to move for mature incumbents potentially under threat from disruptive new entrants is to steal their thunder. Copy, clone, steal, fast-follow, whatever you care to call it: Offer it yourself under your trusted brand name and using your massive “installed base” of clients, professionals, offices, and networks.
And it can work. Remember the “Browser Wars,” when Microsoft responded to first-mover Netscape Navigator by releasing its own Internet Explorer (IE)? Bothersome and frankly inconsequential antitrust charges aside, Microsoft is stronger than ever, whereas Netscape began hemorrhaging market share scarcely a year after its launch when IE was released and faded into obscurity.
It can also fail. Under perceived threat from discount air carriers Frontier and JetBlue, two “majors” launched their own low-cost brands in the mid-2000’s. United’s was “Ted,” Delta’s was “Song.” Both lasted just a few years before being shut down and their aircraft reabsorbed into the mother fleet.
What made the difference? Embedding new features (IE) into an operating system is a core Microsoft competence To launch IE, the good ship Microsoft had to change its DNA not at all. By contrast, consider what Delta and United were up against in running a no-frills airline: Both “majors” had to design, launch, and operate an entirely different business model under their original roof: Different route map, pricing structure, flight operating manual, separate workforce with its own distinct pay scale, aircraft configured in new and incompatible ways, and not least a different customer base. This proved too much to sustain.
What went wrong? After all, “Ted” and “Song” were both airlines; it wasn’t as though Delta or United had to learn how to fly an airplane. Likewise, captive ALSP’s can talk a good game; it’s all legal services! Here’s one unidentified “leader at a law firm captive:”:
“Law firms should win this battle if they can become hybrid law firms embracing a broad range of traditional legal services and alternative services under one umbrella.”
And our friend here has a point. Captive ALSP’s work in theory.
Just not in practice. Launched into the market, they run smack into the United/Ted, Delta/Song realities.
Ask yourself: Are captive ALSP’s “more like” Ted and Song or “more like” IE being embedded into Windows?
To understand how a thoroughly rational strategic response to market disruption can founder on the shoals of organizational dynamics, let’s scrutinize a bit more closely the internal organizational changes a BigLaw firm would have to adopt to give its captive ALSP a chance to succeed.
| Characteristics | BigLaw | ALSP |
| Leadership | Lawyers in charge | Business professionals in charge |
| Key input | Labor-intensive; capital all but irrelevant | Capital-intensive: Far in excess of partners’ personal capacity (or desire) to fund |
| Apex offering | Superb, artisanal, one-off legal counsel | Six Sigma reliability/repeatability, process optimization |
| Operational tempo | Deliberate, studious, meticulous | Urgent and non-negotiable deadlines |
| Fees | Price (no/not much of) an object | Price a foundational buying criterion |
| Profit margin | Rich | Thin |
| Scope creep | Welcome | Anathema |
| Key price determinant | Input: “cost-plus” | Fixed price promised upfront (“output”) |
| Client | Corporate board, C-suite, senior executives | Purchasing department and/or operational business staff |
| Competitive set | Other BigLaw | BigLaw, Big 4, independent ALSP’s, clients doing it themselves |
| Conflicts of interest? | Extremely rare, usually avoidable or waivable | Inherent and built-in; it’s a “captive,” after all |
| Ideal pedigree | Ivy League undergrad, T14 (T10??) law school, prestigious clerkship | Deep experience running processes at scale |
| Talent mix | No mixture required; lawyers can do it all. | Broad range of capabilities: A team event par excellence: Operations, pricing, marketing, engineering, process design and optimization, recruiting, financial cost control, facilities siting, technology, human resources, classic management chops, …. |
| Talent pool/source | Other BigLaw | Corporate America |
| “Continuous improvement:” kaizen | Huh? | KPI |
| Internal organizational preference | Autonomy | Teamwork assumed |
| Role of technology | Marginal/peripheral. Second or third resort. | Core, indispensable. |
| Economies of scale? | Not material | In the long run, the ballgame |
If you proposed launching an ALSP—captive or otherwise—who would you want on your management/leadership team and what would you look for among your supporters?
Given the business imperatives outlined above, you would need people comfortable with making a long-term investment requiring substantial capital long before revenue begins to flow, in a venture with no guarantee of success, who are therefore patient and will be understanding of midcourse corrections, and where lawyers have no role at the head table. Clearly BigLaw partners fit this profile to a T.
Said no one, ever.
Don’t just take our word for it.
Alex Hamilton, a former Latham partner in London launched his NewLaw firm, Radiant, just over a decade ago and in a recently published retrospective on his experience (Radiant is thriving, by the way), had this to say:[2]
Traditional law firms aren’t optimized for cooperation, they are optimized for autonomy of partners.
[In addition,] partnership models are perfectly designed to protect the current power structure and resist change, with the most successful under the old model holding the reins.
Mark Cohen, a co-founder of ClearSpire (an early NewLaw entrant, now sadly shuttered) and a widely read commentator on our world, had this to say about “legal culture:”[3]
Legal culture promotes “lawyer exceptionalism” as justification for its guild-like operation and hubris to perpetuate it. Lawyers are trained to be right, risk-averse and to identify problems, not to be reasonable, weigh risk/reward and fashion solutions
Alex and Mark are both shining a spotlight on the gale force headwinds captive ALSP’s face—from their very own backers and core constituency. It scarcely matters whether the captive “succeeds” in meeting its aspirations, or even, frankly, whether its operations prove competent and fit for purpose. The host (BigLaw) is, sooner or later, going to reject the foreign graft.
For evidence, we pose a question to you: Despite all the fanfare accompanying the launch of Prestigious BigLaw’s shiny new ALSP, how much do you hear about them two, three, or five years later?
The point here is not whether some, or even all, continue to operate at some peripheral level—it’s embarrassing to shut down a new initiative, and I would wager if that has happened it’s safe bet it would not have been announced to the media. Rather, the point is whether any of the captive ALSP’s has changed the law firm. That is the acid test of success.[4]
After all, you don’t launch a captive ALSP in hopes of beating Axiom or Elevate or UnitedLex in the marketplace. Realistically, captives’ addressable market is confined to the “suitable for ALSP’s” work the mother firm throws off. (You think Latham will hire Kirkland’s ALSP or vice versa?) So no captive will “succeed” if the measure has any relationship to market share or revenue.
A “successful” captive will serve a different purpose and result in a different business reality: It will have fundamentally reformed how its BigLaw mother ship delivers legal services and meets its clients expectations.
We’re now past the First Century birthday of the Cravath System, and it’s still turtles lawyers all the way down. As long as that’s the case, captive ALSP’s are a dead end.
Still Standing
Courtesy JetBlue
[1] Can Law Firms Compete Effectively for ALSP Services?, James Jones & Mari Sako, July 2021: https://www.thomsonreuters.com/en-us/posts/legal/forum-alsp-services-infographic/
[2] Alex Hamilton, CEO, Radiant Law, A Different Road, available at https://www.linkedin.com/pulse/different-road-alex-hamilton/ (July 2021). Not incidentally, the thrust of Alex’s piece is why he could not have launched Radiant within and under the Latham umbrella.
[3] Mark Cohen, Goodbye Guild– Law’s Changing Culture (Forbes: July 2017): https://www.forbes.com/sites/markcohen1/2017/07/03/goodbye-guild-laws-changing-culture/?sh=1971bc0970e8
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[4] Aren’t there any exceptions?, you ask. Of course there are. Exhibit A might be Littler’s having so thoroughly incorporated process optimization, repeatability, and a “component parts” architecture into its production and delivery of legal services that it is, indeed, seamless. Littler’s “ALSP-like” processes are embedded within and inseparable from everything else it does. In other words, Littler is a different firm than it was before it embarked on these initiatives well over a decade ago. (Yes, this takes time; follow trends du jour at your peril.)
Thus, Littler meets our “acid test” of changing the law firm itself—so thoroughly that it would be a misuse of English to say that Littler even has a “captive ALSP.”
Seyfarth was embarked on this same path for over a decade before it all tragically dissolved under new management.
