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Editor’s Note: This story is adapted from ALM’s Mid-Market Report. For more business of law coverage exclusively geared toward midsize firms, sign up for a free trial subscription to ALM’s weekly newsletter, The Mid-Market Report.

A lot has been written about the growth of alternative legal service providers and how they are disrupting the legal market. But how big a threat are ALSPs to mid-market firms, and what should midsize firms do to stay competitive?

Talk to law firm consultants and mid-market firm leaders, and not surprisingly, there isn’t any consensus.

But even those who didn’t see them as an immediate threat for midsize firms generally acknowledged they had the potential to take work away from them.

Several said there doesn’t appear to be an immediate threat because the bigger ALSPs—the Big Four accounting firms, Axiom, UnitedLex—are focused on servicing larger clients outside of most midsize firms’ client bases.

“They are going after really large companies,” said Robert Kaplan, the leader of Virginia-based Kaplan Voekler Cunningham & Frank. Kaplan’s firm does a lot of business law, business litigation and REIT work. He estimated that 80% of their work is national and outside of Virginia: “I think midsize firms are really kind of insulated.”

Consultant Marcie Borgal Shunk, president and founder of the Tilt Institute, echoed that sentiment.

She said the ALSPs have been more focused on Fortune 1000 companies and less on middle-market companies because the larger companies have higher-volume work.

But she cautioned that mid-market firms shouldn’t be lulled into thinking they’re completely safe.

“It depends on the focus of the firm and the type of work [less on the size of the firm],” she said. “Run-the-company work [as opposed] to bet-the-company work is more vulnerable.”

“Employment, discovery, document review, due diligence, IP… that work is going in-house or to the ALSPs,” Borgal Shunk said.

Nicholas Bruch, director of ALM Intelligence Fellows Institute & principal analyst, agreed that the bigger ALSPs were focused on going after bigger clients. But he said that didn’t mean mid-market firms were in the clear.

“The mid-market firms, they should be nervous,” Bruch said. “Not today, but down the road.”

Unlike Kaplan, James Goodnow, president and managing partner of Fennemore Craig, a Mountain West firm based in Arizona, said ALSPs do pose a threat to midsize firms.

“You better believe midsized firms need to be worried about ALSPs,” Goodnow said in an email to the Mid-Market Report. “The pace of growth and speed with which ALSPs are gaining market share is staggering. But firms with their heads buried in the sand might not notice. Clients rarely send emails announcing they are pulling work. Instead, they move it silently. ALSPs are taking direct aim at law firms by marketing against them—decrying the ‘black hole’ of law firm legal fees and offering fixed flat fees and tighter budgeting.”

Others are less convinced.

Aric Press, the longtime former editor-in-chief of The American Lawyer (and former colleague) and partner at PP&C Consulting LLC, said the threat depends on the types of work midsize firms do.

“[ALSPs] will be a threat to some and not a threat to others,” he said. “I think it is a very extremely splintered market. It’s very hard to generalize.”

Press said that over the last three to four years, he has spoken with hundreds of clients and “for the most part, it’s not a topic that comes up.”

“I don’t see it being a threat to most midsize firms,” he said.

Given his experience as a journalist, particularly years spent covering the legal industry, Press said that he understood why it’s “attractive to think the next big thing is around the corner.”

That is, he added, “until you realize later that corner is a lot farther down the road.”

How Big Is Their Share?

Press acknowledged that people are interested in what ALSPs are doing, and they are growing, “but it’s a tiny part of the market.”

They can’t negotiate a deal like a high-end transactional lawyer or litigate like a top tier trial attorney, he said.

“Unless and until the ALSPs are capable of doing that high-level work … until they can do that, why is the client going to change?” Press asked.

But Bruch said the ALSPs are adept at identifying mid-level work and finding solutions that turn it into low-level work, allowing them to expand their market share. So there’s no reason to believe they won’t stop growing.

How big a part of the market will they be? Bruch asked rhetorically. Five percent? Ten percent?

“Let’s assume it will be 20%,” he said. Given how they use process improvement, engineering and software, mid-market firms can’t compete in terms of the technology and the investment ALSPs apply to certain types of work.

Online Providers Take Work Too

Since technically ALSPs include everything from the Big Four to e-discovery companies to online service providers like LegalZoom, there are some unique challenges for midsize firms.

Kaplan said online providers “from a market perspective, they aren’t much of a competitor for our firm,” and added that if one of his firm’s clients winds up using an online outfit, “nine out of 10 times,” his firm is redoing the work.

But he admitted they’ve still had an impact on his firm.

“The obstacle for us is that they really create unrealistic expectations for the consumer market,” he said.

Henry L. Bowden Jr. of Bowden Spratt, an 11-lawyer Atlanta trusts and estates firm, noted that the elimination of the estate tax for any couple with less than $22.4 million in assets eliminates some need for complex legal work around trusts and estates. He said he assumes ASLPs like LegalZoom “can step into the breach and do a good job” for people who want simple wills that leave everything to a spouse or child.

The tax law changes means that only 0.2 percent of the people in the U.S. have assets that can still benefit from wills and estates established to work around the 40% tax rate for inheritances over $22.4 million per couple. Some of those in that rarified demographic are his firm’s clients, said Bowden.

“We are fortunate to represent some pretty wealthy people,” he said.

Lizzy McLellan, Jonathan Ringel and Mark Bauer contributed to this report.

Editor’s note: Next week we will look at how ALSPs are operating and taking market share, and what mid-market firms can do to compete.