January 31, 2023
Alternative Legal Services Providers Growth Is Dramatically Accelerating, Making Up $20 Billion of the Legal Market
- Technology consulting is one of the fastest-growing use cases
- Law firm captives are the fastest-growing segment, Big Four are the slowest-growing
TORONTO, January 31, 2023 – Alternative legal services providers (ALSPs) now make up a $20.6 billion segment of the legal market and growth is accelerating dramatically, according to the Alternative Legal Services Providers 2023 Report. The report is issued biennially by the Thomson Reuters Institute; the Center on Ethics and the Legal Profession at Georgetown Law; and the Saïd Business School, University of Oxford.
ALSPs experienced a compounded annual growth rate (CAGR) of 20% from 2019-2021, a significant jump from the 15% CAGR from 2017-2019.
The report states that ALSPs are finding new ways to serve both law firms and corporate legal departments, and the boundaries between all three are becoming increasingly blurred. Independent ALSPs are the largest segment, making up 87% of the ALSP market. While captive ALSPs owned by law firms are the smallest part of the market, they are also the fastest-growing – up nearly six-fold since 2015. ALSP services from the Big Four consulting firms account for $1.5 billion of the market, growing at 5% CAGR.
“Both law firms and in-house counsel are increasingly seeing the value of alternative legal services providers,” said James W. Jones, a senior fellow at the Center on Ethics and the Legal Profession at Georgetown Law. “Meanwhile, ALSPs are expanding the services they offer to law firms and legal departments by providing specialized services, improving cost efficiency, and delivering greater flexibility in headcount.”
More Growth Ahead
A growing percentage of law firms of all sizes expect to either maintain or increase their ALSP spend. Among the largest law firms, 26% plan to increase spending on ALSPs, while only 3% foresee decreased use.
For corporate legal departments, the picture is mixed. Corporate law departments that are not currently using ALSPs report increased interest in doing so. However, among corporations that already use ALSPs, 21% plan to increase their ALSP spend, while a roughly equal percentage (22%) are either decreasing spend or are unsure of their spending plans. The report suggests corporations may be reaching an inflection point to reassess the value and appropriate uses of ALSPs.
The 2023 State of the Legal Market Report, issued earlier this month, concluded that corporate clients are increasingly seeking more cost-effective options for high-quality legal work, including moving work to smaller firms.
Technology Consulting One of the Fastest-Growing Use Cases
For law firms, most of the top use cases have remained fairly steady, including e-discovery, legal research, litigation & investigation, and document review & coding. However, consulting on legal technology is now one of the fastest-growing use cases. More than half of large law firms (51%), and about a third of midsize (37%) and small firms (31%), have used ALSPs for this service. The most common uses are for outsourcing technology support, technology training, and learning about what legal technologies are available in the market.
“ALSPs are demonstrating value in helping law firms identify and implement the right technology solutions as well as providing training and support,” said Michael Abbott, head of the Thomson Reuters Institute. “The ALSP market increasingly includes software companies and providers of comprehensive legal technologies. Law firms – both large and small – view this specialized tech expertise as a means to help them more rapidly adopt technologies that can enable them to provide quality legal work with greater scale and efficiency.”
For corporate legal departments, regulatory risk & compliance and legal research remain the top two use cases, with about half of corporations using ALSPs for those services. Meanwhile, e-discovery is one of the fastest-growing uses and is now the third most-common use by corporations.
Growth is Strongest in the United States
Use of ALSPs is strongest in the United States for both law firms and corporations, ahead of the UK and Canada. However, usage varies; for example, legal research is the top use case in both the UK and Canada, with e-discovery being the top use case in the United States. Law firms in all three countries expect their use of ALSPs to continue to rise, particularly in the United States.
“Law firms are increasingly comfortable both using ALSPs and creating their own captive ALSPs,” said Mari Sako, professor of Management Studies, Saïd Business School, University of Oxford. “Corporate usage is a more mature market, and legal departments are now optimizing how they can best strategically deploy ALSPs. At the same time, among the alternative providers, the Big Four are in a unique position to compete with law firms for certain types of legal work. All of this bodes well for continued robust growth of the market.”
Download the Alternative Legal Services Providers 2023 Report here.
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The Center on Ethics and the Legal Profession at Georgetown Law is devoted to promoting interdisciplinary research on the profession informed by an awareness of the dynamics of modern practice; providing students with a sophisticated understanding of the opportunities and challenges of a modern legal career; and furnishing members of the bar, particularly those in organizational decision-making positions, broad perspectives on trends and developments in practice.
Saïd Business School
The Professional Services 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 services firms, and the impact of new technology on professional work and careers. For more information, go to www.sbs.ox.ac.uk/research/professional-services-firms.