Growth of alternative legal services providers is accelerating

ALSPs are finding new ways to serve both law firms and corporate legal departments

Growth of alternative legal services providers is accelerating

Alternative legal services providers now make up a US $20.6 billion segment of the legal market and growth is accelerating dramatically, according to the Alternative Legal Services Providers 2023 Report.

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.

“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.”

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.

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.”

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.

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.

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