February 11, 2021
Alternative Legal Service Providers Are Quickly Becoming Mainstream for Law Firms & Corporations, Creating a $14 Billion Market
ALSPs are now less “alternative,” according to comprehensive study by Thomson Reuters, Georgetown Law and Oxford Saïd Business School
MINNEAPOLIS-ST. PAUL, WASHINGTON, D.C., & LONDON, February 11, 2021 – Alternative legal service providers (ALSPs) have accelerated their growth to a nearly $14 billion market share globally and are quickly becoming a mainstream segment of the legal market. Competitive concerns are diminishing, and law firms and corporate legal departments are increasingly open to partnering with ALSPs to stimulate growth and reduce costs.
Those are among the findings of Alternative Legal Service Providers: 2021 Report – Strong Growth, Mainstream Acceptance, and No Longer an “Alternative,” the newest edition of a biennial study from Thomson Reuters Institute, the Center on Ethics and the Legal Profession at Georgetown Law, and the Saïd Business School at the University of Oxford. The report examines entities that provide legal services via models that depart from the traditional law firm delivery model.
“The ALSP market is rapidly maturing to the point where it is becoming a mainstream legal option and less of an ‘alternative,’ paving the way for additional growth,” said Mike Abbott, vice president of Market Insights and Thought Leadership, Thomson Reuters.
Among the key findings of the study:
ALSP Growth Has Accelerated
The study found that 79% of law firms and 71% of corporations now use ALSPs, driven by the needs to reduce costs, improve efficiency and leverage cutting-edge technologies.
This has helped ALSPs grow to an estimated $13.9 billion market for legal services by the end of 2019, compared with $10.7 billion as found in the previous survey in 2017. This most recent figure represents a compounded annual growth rate of 15%, a marked acceleration from the 12.9% growth rate of two years earlier.
Law Firm Captive ALSPs Growing Fastest, Big Four Adjusting Strategies
The fastest growth has been among ALSPs that law firms have formed as captive subsidiaries. While it is the smallest segment of the ALSP market, it is growing at a rate of about 30% a year. Firms are increasingly adopting a hybrid model where they reap the benefits of ALSPs, such as cost reductions for clients, while retaining full control.
Meanwhile, independent ALSPs, which make up the largest share (approximately $12 billion) of the ALSP market, grew at about 15% a year.
ALSP services provided by the Big Four accounting firms grew at a more modest 8% a year, but they are increasingly focusing on two of their areas of strength that could reaccelerate growth: consulting services and international expansion.
“Awakening” As Collaborations Rise, Concerns Drop
Both law firms and corporations have “awakened” to the benefits of collaborating with ALSPs, rather than viewing them as competitors to law firms. They both increasingly realize how ALSPs can improve operational efficiency and reduce costs, while firms can still retain and even grow higher-value work.
Over half of law firms and corporations still have concerns about using ALSPs, such as quality of services and ensuring confidentiality of client information, but those levels of concern are dropping.
“We found a surprising amount of collaboration between law firms and ALSPs,” said James W. Jones, a senior fellow at the Center on Ethics and the Legal Profession at Georgetown University Law Center. “ALSPs themselves are reporting less tension and suspicion in their dealings with law firms. This is encouraging and bodes well for further expansion of collaboration across a growing number of services.”
ALSPs Increasing Role as Technology Consultants
One of the fastest-growing services where law firms are engaging ALSPs is consulting on legal technology. ALSPs are often nimble early adopters and innovators for cutting-edge technologies such as artificial intelligence, blockchain, predictive analytics and smart contracts.
“ALSPs are no longer merely low-cost providers of services for firms and corporations to outsource, such as document review,” said Lisa Hart Shepherd, vice president, Research Strategy, Thomson Reuters. “The focus of ALSPs on technology innovation gives them a critical edge and makes them ideal partners to take on increasingly important tasks, such as project management and consulting on legal technologies.”
As the ALSP market continues to grow globally, the report found differences in how ALSPs are used in regional markets. Australian firms engage the broadest range of ALSP services, while UK firms, on average, use the least; U.S. and Canadian firms are in between. U.S. and Australian firms are more likely to use ALSPs for litigation-related services.
“Not surprisingly, we are seeing different levels of adoption of ALSPs in different geographies,” said Mari Sako, professor of Management Studies, Saïd Business School at the University of Oxford. “But as expected, we are seeing increased penetration of ALSPs across all geographies for a number of reasons, including COVID-19 pandemic-related pressures for cost efficiency. In addition, their expanded offerings to consulting on legal technology and legal operations underpin emergent partnerships among law firms, ALSPs and legal tech providers.”
ALSP Market Maturing, More Growth Anticipated
While law firms and corporations say their spend on ALSPs will continue to increase over the next year, they may do so at a slightly slower pace. However, as firms and corporations become increasingly comfortable with ALSPs and service offerings expand, it may open additional avenues of long-term growth.
Law firms and corporations say that over the next five years they expect to nearly double the average number of ALSP service lines they use. The report concludes, “if anything, we’re just at the start of a steeper growth trajectory.”
Alternative Legal Service Providers: 2021 Report – Strong Growth, Mainstream Acceptance, and No Longer an “Alternative” can be downloaded at: http://www.legalexecutiveinstitute.com/wp-content/uploads/2021/02/ALSP_2021-Report_FINAL.pdf.
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The Center on Ethics and the Legal Profession at Georgetown Law is devoted to promoting interdisciplinary research on the legal profession informed by an awareness of the dynamics of modern practice; providing students with a sophisticated understanding of the opportunities and challenges of modern legal careers; and furnishing members of the bar, particularly those in organizational decision-making positions, broad perspectives on trends and developments in practice. For more information, go to www.law.georgetown.edu/legal-profession/.
About Saïd Business School
The Professional Service Firms (PSF) Group at Saïd Business School, University of Oxford, engages in teaching and research about key challenges confronting the professional services sector, including law. The Group conducts inter-disciplinary research on issues faced by professionals, their clients and regulators, such as the development and management of professional expertise and ethics, the internal and external dynamics of professional service firms, and the impact of new technology on professional work and careers. For more information, go to www.sbs.ox.ac.uk/research/professional-service-firms.