A glance at the headlines over the last few years would lead one to believe that an all-or-nothing battle is playing out between traditional law firms and alternative legal service providers (ALSPs) across the country and around the world. For every corporate legal engagement secured by an ALSP, a law firm loses out, and vice versa—at least that’s how the issue is commonly framed. Accordingly, it would seem that the future will be marked by intense competition to win a zero-sum game.

As someone who co-founded an ALSP nearly 25 years ago, that’s not how I see it. In today’s market, not only are law firms and ALSPs co-existing (revenue and profits across both segments are increasing across the board), but the healthy competition is forcing all participants in the legal services delivery ecosystem to get better, faster and more innovative. ALSPs may be disrupting the legal industry, but they’re doing so in a way that helps traditional law firms, rather than harming them.

A ‘Coopetive’ Model

There’s no doubt that there’s some fierce competition among providers of legal services. What much of the conventional wisdom misperceives, however, is that competition among law firms and ALSPs can result in a “win-win”—not merely a “win-lose.” To date, both parties are winning.

According to the “Alternative Legal Services Providers 2019” report published by the Thomson Reuters Legal Executive Institute, Georgetown Law Center on Ethics and the Legal Profession, and Acritas, ALSP revenue grew from approximately $8.4 billion in 2015 to $10.7 billion in 2017, a 12.9% annual increase. According to data from Wells Fargo and Citigroup, Inc., law firms among the Am Law 200 realized revenue growth of 5.9% and average net income growth of 7.6% in 2018.

Whether the emergence of ALSPs is a cause of law firms’ strong financial performance or merely a correlation is not clear. What is clear is that legal services providers of all types are competing in a growing market, and not just fighting over scraps in a stagnant one. While the strong economy has certainly buoyed the amount of legal spending in the marketplace, I believe that another important factor has been that buyers of legal services are getting greater return on investment for their legal spend. Put simply, the product is getting better so buyers want more of it.

Competition is fueling this transformation. But it’s not the cutthroat variety. Across many industries, cooperative, collaborative competition (often involving joint ventures and cooperative research) among rivals has resulted in joint benefits. Increased “coopetition,” as the term has come to be known, is benefiting participants up and down the legal services supply chain as well, and allowing clients to receive better work and value in the process.

Friends, Not Foes

Law firms are grappling with the emergence of ALSPs in different ways. In June, Greenberg Traurig announced the formation of a subsidiary called Recurve for the purpose of providing ALSP-like services. The “if you can’t beat ‘em join ‘em” mindset behind this move was articulated by chairman Richard Rosenbaum to Law.com: “For a U.S. law firm to say we are going to keep up with public companies, private equity-backed companies and other major technology players that have access to greater amounts of capital for technology and other major capital outlays is not realistic.”

Many other law firms are opting for a more coopetive approach. Instead of directly competing with ALSPs, they are partnering with them to procure a wide range of services, such as e-discovery, legal research, litigation and investigation support, and document review—services which many law firms used to provide themselves but are now more appropriately outsourced.

The ALSP Report found that compared with 2016, large law firm use of ALSPs for certain functions such as legal research and document review increased significantly in 2018, from 21% to 54% and 38% to 52%, respectively. While midsize and small law firms’ adoption of ALSP services is not as widespread, the percentage of firms in those categories using ALSPs is growing rapidly.

According to the ALSP Report, the reasons law firms cite for using ALSPs include: “to save money; to access specialized expertise; and for client satisfaction.” In my experience, another critical effect, if not a motivating cause, of law firms partnering with ALSPs is that doing so allows lawyers and law firms to perform to their highest and best potential for clients.

Lawyers were meant to solve difficult problems, not pore through documents and implement technological systems, and the resources ALSPs make available help give them the capacity to solve more (and more difficult) problems better than ever before. By leveraging ALSP resources for work that law firms struggle to perform at a competitive cost, law firms can focus on their core competencies—and better satisfy clients in the process.

Law firm and ALSP coopetive partnerships take many forms. Some are driven by the need for additional resources. For example, for years we have provided outsourced document review services for a regional Am Law 200 law firm when demand outstrips its capacity. Our law firm client provides us the assignment details, such as the quantity and experience level of reviewers required, the length of assignment and conflicts questions, and we identify, screen and place the appropriate contract attorneys at the client’s location to complete the assignment. The law firm can meet its client obligations without taking on additional head count to cover episodic events.

Other partnerships are driven by economic pressures. We provide document review services for the clients of an international law firm. It was not economically feasible for the firm to provide such services using its own internal resources. By utilizing an ALSP, it was able to retain the work—and the client relationship—and oversee its completion in a supervisory capacity.

In other cases, a law firm’s working relationship with an ALSP comes as a result of a directive from a client. For example, we have a Fortune 500 client who hires both law firms (to do the complex legal work) and ALSPs (to do the document review work) on litigation assignments, and sets the expectation that the parties work together. In other contexts, such as the review and management of a corporation’s commercial contract portfolio, corporation’s look to ALSPs to design and manage a structured contract review process, which includes the identification of complex or particularly important contracts that should be sent to outside legal counsel for review.

According to the ALSP Report, “The number of corporations who say they are encouraging their lawyers to use ALSPs came in at 23%, up from 17% two years ago.” Corporations are putting increasing pressure on large law firms, in particular, to use ALSPs. The ALSP Report indicates that 39% of large firms (up from 18% in 2016) are facing increased pressure from clients to partner with ALSPs.

The Ecosystem of the Future

Two hundred years ago, British textile artisans called Luddites smashed mechanized looms for fear that they would eliminate their jobs. Indeed, throughout history there have been countless doom-and-gloom predictions about how advancements in technology and innovation would disrupt and displace entire industries and classes of workers. In some cases such predictions have been borne out—just ask the buggy whip makers.

Despite persistent prognostication to the contrary, the ostensible competition posed by ALSPs to law firms is not something to fret about. The nature of work that lawyers and law firms do may shift, but this shift will largely be a positive one that enables law firms to focus on their core competencies.

Law firms are increasingly recognizing that partnering with ALSPs offers them a competitive advantage. According to the ALSP Report, “About half of all law firms say that ALSPs can help them scale and expand their business.” The key to a successful partnership is robust communication and collaboration, and a recognition of what ALSPs do best—technology, process, project management—so law firms can optimize for what they do best, which is solving complex legal problems for clients.

The legal ecosystem is changing. And it’s a future full of abundance, not scarcity.

Dave Galbenski is the founder and executive vice president, strategic initiatives, of Lumen Legal, an ALSP specializing in commercial contracts outsourcing, secondments, document review, contract staffing and legal spend analytics. He is the author of “Legal Visionaries” and “Unbound: How Entrepreneurship Is Dramatically Transforming Legal Services Today.” Follow him on Twitter @davegalbenski.