This is the final installment in a three-part series examining the forces reshaping the legal industry. Part One and Part Two covered the macro dynamics of the AI industrial revolution and also the bending of UPL as consumers turn to AI products such as ChatGPT, Claude and Perplexity for legal advice.

Consumer behavior will lead, and regulatory change will follow. As with any system under stress, energy redistributes. More efficient structures emerge, and institutions must adapt. The pressure does not stop with consumer behavior; it will affect law firms and legal work supporting businesses.

Part 3 examines how these forces are reorganizing the structure of legal work and who will perform it.

Expansion of (Alternate) Legal Services

One of the first pressure releases appears in the production of legal work itself. Alternative legal service providers (ALSPs) are gaining market share. According to a Thomson Reuters Institute report, in 2023, ALSPs generated $28.5 billion and grew at an annual rate of 18%. Litigation support and contract review are examples where ALSPs are making inroads. AI should sustain or accelerate this growth. (Note: By now, ALSPs should be referred to as “legal service providers.”)

Managed Services Organizations (MSOs) are ALSPs that focus on repeatable, productized services. They focus on efficiency and scale. Renovus Capital just created a 4,500-person MSO, Opensity, with over $400 million in revenue, making it comparable in size to a firm at the bottom end of the AmLaw 100.

Not all legal tasks require legal advice. MSOs will leverage the capital flowing into legal tech to automate information-based legal tasks. Where necessary, they can provide a lawyer in the loop.

For corporate work, MSOs have the advantage of being out of scope from outside counsel guidelines (OCGs), as they are not law firms providing advice.

Expect personal injury firms to lead the move to captive MSOs.

A class-action lawsuit can illustrate the potential of MSOs. When there are thousands of plaintiffs who require outreach, regular communication and documentation of medical conditions, the work is principally data collection. Developing AI-based systems to support these tasks can drive efficiencies, enabling staff to be reduced or redeployed to other tasks.

Alternative Business Structures

Capital and ownership structures are evolving alongside delivery models. Utah and Arizona are the main U.S. test beds for experimentation in non-lawyer ownership of firms. The primary intent is to support access to justice, and most ABS firms focus on consumer needs.

But KPMG is also registered in Arizona, and MSOs are using the ABS model for areas such as contract review, IP management and even federal securities work.

The ability to take on capital and deploy technology in an ABS will lead to some creative experiments that test the edge. Assuming some successful outcomes, UPL will bend further, especially with the tailwind from AI and consumer behavior.

AI Native Law Firms

While some players optimize the existing model, others deconstruct and re-envision the next generation of law firms. What would a BigLaw firm look like if it were started from scratch? This is what AI-native firms are doing.

Norm AI recently raised $50 million from Blackstone and launched Norm Law, offering AI-native legal services like regulatory compliance for financial services. It recently added the former chairman of Sidley Austin’s executive committee to its leadership. This is no small-time play. Norm Law may not intend to become a BigLaw firm, but its actions suggest it intends to compete for BigLaw work.

Legal Technology Hub tracks AI law firms covering a diverse set of practice areas. Some follow the traditional law firm model, while others operate as an ABS. One firm has no associates, just partners.

AI-native firms are redesigning work for automation first and then applying human lawyer expertise where judgment truly adds value.

What work will move in-house?

Pressure reshapes suppliers and buyers. Automation will also push more work in-house. Law firms and MSOs will charge for value and outcomes, but businesses will have the alternative to take some work in-house. This will create downward price pressure.

Additionally, publicly traded corporations are regulated by the SEC. Mandatory filings include risk disclosures, which will lead to requests from suppliers, including law firms, about AI use.

When law firms disclose how AI enables automation, clients gain a roadmap for what can be brought in-house.

Not all work will move. Outsourcing remains desirable when tasks are episodic, highly specialized, or operationally distracting. But transparency will accelerate the insourcing of work that should naturally move.

BigLaw’s Response

Incumbents rarely move first, but pressure increases. The defensible core of BigLaw remains high-value advisory work, complex negotiations, regulatory navigation under uncertainty, and high-stakes litigation.

BigLaw will lean into its core and rely on its reputation and relationships while making incremental changes. They will deploy more technology, reduce the ratio of associates per partner, and make changes to training and workflows.

This approach will hold until pressure from AI-native firms and MSOs disrupts the traditional model.

When this happens, they will be forced to tease out legal information tasks and legal services that don’t require advice to remain competitive. BigLaw will begin to develop captive MSOs.

Private equity is lurking, waiting for its opportunity to invest. Reports last fall highlighted that McDermott Will was entertaining private equity. There is currently chatter that another firm may be entertaining offers.

A decision to take outside investment for greater efficiencies is hard to undo. It’s a one-way door in the Jeff Bezos decision-making framework. I believe the pressure will eventually force a few BigLaw firms to open that door.

Conclusions

The legal industry is not confronting a single disruption but a redistribution of work, capital, and regulation across a system under stress. As in physics, pressure does not disappear until the system optimizes. AI creates new capabilities, and capital investment will fund the design of new components in the system for greater efficiency and scale.

Enforcement is currently difficult as AI-assisted outputs are used by consumers, corporations, firms, and the courts. The boundaries of UPL in the near term may be defined more by what regulators must allow than what they restrict.

Consumers have new access to the legal system, and there is a unique opportunity for regulation to follow that would support a more effective system.

As the systems stabilize, regulators will eventually navigate the ethics, economics, technology, and politics to define new rules that work going forward.

Those new rules must address technology as both a tool and a means of providing advice. They will need to re-evaluate non-lawyer ownership. They should look to the medical industry as a model for specialization. Not every medical task requires a doctor’s advice, and not every legal task should require a licensed attorney’s advice.

Law firms will not disappear. But their shape and value will evolve. Legal tasks will be optimized across the system and will move to the organizations and models best designed to perform the work.

The new physics of legal tech are no longer theoretical. They are already reorganizing the system.

AI was used in support of this article.

Ken Crutchfield has over forty years of experience in legal, tax, and other industries. Throughout his career, he has focused on growth, innovation, and business transformation. His consulting practice advises investors, legal tech startups, firms, and others.

As a strategic thinker who understands markets and creating products to meet customer needs, he has worked in start-ups and large enterprises. He has served in General Management capacities in six businesses.

Ken has a pulse on the trends affecting the market. Whether it was the Internet way back in the 1980s or Generative AI, he understands technology and its impact on business.

Crutchfield started his career as an intern with LexisNexis and has worked at Thomson Reuters, Bloomberg, Dun & Bradstreet, and Wolters Kluwer. Ken has an MBA and holds a B.S. in Electrical Engineering from The Ohio State University.