Yet the growth rate shown in the most recent report still came as a bit of a surprise: a 20% compounded annual growth rate (CAGR) for the past two years, resulting in a current market size of $20.6 billion. In interviews with leaders from more than a dozen ALSPs, respondents said they expected standout growth in the sector to continue, and survey data from the client side supports these expectations. Among respondents from the largest law firms, 26% said they plan to increase spending on ALSPs, while only 3% said they expect their spending to fall. Within corporate law departments, 21% expect to be spending more on ALSPs in the future, with just 8% expecting spending to drop.

Interview respondents consistently referred to the ALSP market as “opening up” over the past two years, citing a variety of catalysts: changes wrought by the global pandemic, the impact of the Big Four auditing and accounting firms, and the shrinking size of many corporate legal departments, among others. ALSPs are taking advantage of those changes to greatly expand their service offerings; and while the industry is young, a number of ALSP leaders said they’re beginning to see a trend more commonly associated with mature industries: consolidation.

More growth ahead?

A sales director at a U.S.-based ALSP says that ALSPs have moved through the very early stages of the growth curve associated with any new innovation and are now poised for accelerated take-up. Among customers, the innovator and early adopter segments of that base have been using ALSPs for years, and their positive experiences are clearing the way for a wider mass market. “All of a sudden, people will say, ‘Okay, it’s safe now,’” the sales director says, “which will lead to even more expansion.”

He also pointed out that the traditional legal market leaves behind a lot of unmet demand. “Clients simply cannot afford all of the legal and regulatory advice they need to buy,” he says, especially if law firms remain wedded to the billable hour. “There’s this latent demand out there, and if you change your model, you can grab more market share, because [clients] just cannot afford to buy answers by the hour.”

The Big Four have also had a positive effect, says the founder and CEO of a U.S.-based ALSP, admitting that “this is going to sound strange.” The Big Four have convinced many general counsel, CFOs, and CEOs that business and law shouldn’t be so separate, the founder explains. “We found that the Big Four moving into the space has actually just opened up the top of the funnel — it’s so much larger now.”

ALSPs also get a boost from the fact that corporate law departments are shrinking — even though their workloads are not. A founder of an independent U.K.-based ALSP echoes that sentiment. “One of the things we see is that a bigger client doesn’t mean a bigger law department,” the founder says. “Inside legal counsel and inside legal operations are shrinking.” Meanwhile, he adds, inside teams have too much work, or work that isn’t a good fit for their capabilities. Legal departments are even bringing in procurement professionals — a relatively new part of the legal landscape — to try to close that gap in a cost-effective way.

Not surprisingly, the pandemic had an impact as well. “The stigma of offshore support has worn off,” says the vice-president of a U.S.-based ALSP. “We all ended up working from home, and we learned it doesn’t matter where the person is that you’re talking with.”

New opportunities

Together, these trends mean opportunities for ALSPs. The largest seems to be in regulatory & compliance work and advisory work, as well as in technology consulting. ALSPs are also looking to expand into specific service areas, such as labor & employment law, and into new geographies.

The impact of regulations such as the General Data Protection Regulation (GDPR) in the European Union and the California Consumer Privacy Act (CCPA) have produced “a huge focus” on privacy, says a U.S.-based ALSP leader. His firm is partnering with a technology company to provide faster and more focused data breach review. They’re also spending “a significant amount of time” helping clients update their contracts to reflect the new laws.

The new regulations are especially hard to navigate for those organizations that do business across countries and regions. “It’s increasingly complex to operate businesses in multiple jurisdictions and try to manage all of them,” explains the CEO of a law firm captive ALSP in the U.S. “For a lot of our clients, some of their biggest needs are just better use of some of the tools that exist that make it easier to have a good lens on the range of matters our clients have in different jurisdictions.”

Technology consulting, as mentioned in the ALSP 2023 Report, is also a growth area — one that overlaps significantly with legal operations. A partner at a law firm ALSP says his firm is regularly asked to weigh in on matters such as how to manage work, how many lawyers to hire, and where those lawyers should be located. On the technology side, his clients want advice about which technology solution to buy, how it should be implemented, and how it can be made to work best for them. The partner described a typical request as one in which clients say: “I bought some technology, and it’s crap, and it doesn’t work. Help me, because I’ve spent half a million pounds on it, and I can’t admit it doesn’t work.”

Growth through acquisition

As ALSPs grow, it’s not surprising that they become more attractive acquisition targets, fueling consolidation. “In the early stage of this industry we were trying to say, ‘Who do we acquire?’” says the co-founder of a U.S.-based ALSP. “There was nobody of any size to acquire. They were all tiny.” Another ALSP founder expects consolidation to continue, as companies that are strong in one service area — for example, discovery — look to buy a competitor that is strong in a complementary area, such as legal operations.

A partner at a law firm ALSP is already noticing that his competitive set is smaller. “Four or five years ago, I think there were 10-plus providers in the market. There might still be, but you certainly don’t see them. You probably see three or four at the most.” Now, he’s finding his clients are using ALSPs quite heavily, and hire just a handful of providers. His diagnosis of his market segment could just as well apply to the ALSP market as a whole: “It’s grown up,” he says. “It’s matured as a service offering.”

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This growing trend was highlighted recently published Alternative Legal Services Providers 2023 Report, a data-driven report produced every two years by the Thomson Reuters Institute in partnership with The Center on Ethics and the Legal Profession at Georgetown Law and the Saïd Business School at the University of Oxford.

And the growth message wasn’t lost on the report’s survey respondents. As one U.S.-based CEO and co-founder of an independent ALSP says: “We’re probably at literally 10 times the number of conversations from a year ago about, how do you mature your legal department? How do you adopt the next tech? How do you do a three-year tech plan? How do you do the organizational change? How do you transform your services?”

Interviews with more than a dozen additional ALSP leaders found that more strategic considerations are becoming a routine part of ALSP discussions across multiple service areas. For example, concerning using ALSPs to fill secondment arrangements, one partner in a law firm ALSP explains: “It has become much less of an emergency service — it always used to be, ‘Someone’s left, we’ve got a gap.’ Now it has become built into the way that large clients manage talent.”

You can download a copy of the Thomson Reuters Institute’s Alternative Legal Services Providers 2023 Report here.

In other service areas, this ALSP leader says client requests “are far less ad hoc in their nature, and clients are increasingly looking to explore how they can do things differently.” Once clients use the ALSP’s services in one area, they’re quick to see the ALSP’s applicability to others, and they’re putting their other partners on notice. “Some of them are very clear,” notes one survey respondent. “They are preparing the market and their suppliers. They are saying, ‘This is coming. We are going to shift work and we want it delivered in a different, more cost-effective way, and you need to start getting ready for that.’”

Data strategy is another opportunity for both ALSPs and their clients. “I’ve met with a few [General Counsel] (GCs) over the years and one of my questions was, ‘Tell me about your data strategy’ — and five, six years ago, they looked at you funny,” says the chief innovation officer of a U.S.-based law firm ALSP. “Now they understand they’re sitting on a mountain of data.”

Indeed, some ALSPs are helping clients with work related to the General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA). Others are giving GCs better visibility into the activities of their teams, both internal and external. “It’s a one-pane-of-glass view for a general counsel of what’s going on in their organization which, believe it or not, a lot of general counsels don’t have,” says the sales director of an independent U.S.-based ALSP.

The influence of procurement & legal operations teams

This newfound reliance on ALSPs as both business and legal partners has several causes, according to the interviews. First is the maturation of the ALSP market itself. As ALSPs have grown, law firms and corporate GCs see them as more stable partners, less likely to run out of funding or be bought by a bigger player that may not be a good fit. Corporate clients are increasingly requesting that their law firms perform more efficiently, and ALSPs can present a good long-term solution to that request.

However, larger factors in the rise of ALSPs seem to be the increasing importance of legal operations and procurement teams within corporate law departments themselves, as well as ALSPs’ standing as experts in legal technology and processes.

No longer does a GC rely only on relationships to find outside legal partners. With procurement and legal operations teams joining in the decision-making, efficiency and cost become more important. The result, says one founder of a U.S.-based independent ALSP, is that “now we’re able to sit down at the table with them and talk about utilization of contract lawyers as a strategy — not to replace your outside counsel.”

“We’re probably at literally 10 times the number of conversations from a year ago about…”

More tech-forward ALSPs use similar meetings “to help customers design what their strategy should be, their target operating model, their technology strategy, their key performance indicators (KPIs), their sourcing, their spending, and their supply management,” says the founder, chairman, and CEO of a U.S.-based independent ALSP.

In these cases, ALSPs benefit from offering a more integrated solution. “We’re definitely past the part of the movie where the CIO or CFO buys discrete parts for the IP management group and the litigation group and the commercial and contracting group and the antitrust and legal ops group,” says the CEO and co-founder of an independent U.S.-based ALSP.

Instead, corporate clients and law firms are looking for a holistic solution with a true partner that has both business and legal expertise — and in an increasing number of cases that means an ALSP.

For public legal departments — like the offices of district attorneys, public defenders, or city and county attorneys — that meant holding online meetings and virtual hearings. Beyond that, it meant that much more work was being done remotely using technology that may have been new to many government agency leaders. And now, as the worst of the pandemic ebbs in many regions of the country and the rest of the world, government agency law departments have had to adapt to the new reality again, deciding which innovations to keep and which to jettison in favor of more traditional ways of conducting business.

To examine these developments further, the Thomson Reuters Institute has published the new 2023 Government Law Agency Report, which summarize the findings of recent Government Trends Survey, conducted in 2022 by Thomson Reuters’ Market Research and Competitive Insights team with attorneys in public agencies at the Federal, State, and County/Municipal level. The objective of this survey is to gain some insight into the opportunities and challenges that legal professionals at public law departments are facing.

You can download a copy of the Thomson Reuters Institute’s new “2023 Government Law Agency Report” here.

In the report, we identify where the main challenges now are for government law agencies, what their current work processes involve (especially around technology use and outsourcing), how they are managing staffing issues, and what has been the ongoing impact of the pandemic.

Indeed, the report reveals that while many government law departments were resilient in handling a myriad of challenges, they were still vexed by some long-standing issues that were evident even before the onset of the pandemic, such as staffing and succession. Beyond staffing issues, many of the challenges government law agency leaders cited fell into several major areas of concern, including the growing complexity of the legal work they see, the ongoing challenges of remote working, problems of technology adoptions, and security fears.

How the leaders of government law agencies and other legal departments navigate their teams through these challenges will likely determine how effective and efficient their legal organizations will remain now and in the future.

Other important insights in the report include:

• • • Staffing issues were the top challenges cited for government agencies, while recruiting new talent (64%) and loss of institutional knowledge due to retiring staff (60%) increased dramatically as top concerns.
    • While 49% of respondents say tech investment within their agency has increased in the past two years, 59% say their technology resources lag behind the private sector. Worse yet, only 23% say they are confident that they have the necessary tools to do their job effectively.
    • On average, government law agencies report that more than one-third (37%) of their legal research issues are complex, and that there is less time to thoroughly research complex items. In fact, almost two-thirds of respondents said they have seen increases in the complexity of the legal issues they face, and 59% saw an increase in the variety of issues. However, only 17% said they have seen an increase in the amount of resources provided to address these needs, and hiring of outside counsel remains low.
    • Most respondents said their work environment contains either hybrid or remote arrangements, indicating that many of the changes made during the pandemic have remained.
    • At least 28% of government law departments or legal agencies have experienced security breaches or malware infections.

Even as government law departments and government legal agencies continue to adapt to the many changes and challenges brought by the pandemic, they look to forge a new future in which they can take the best of the new technology and innovative work processes they used during the crisis — such as virtual meetings and remote working, for example — to make themselves even more effective and efficient.

Yet, staffing issues, security concerns, and the growing complexity of their own work has made the jobs of many government legal professionals more difficult as easy solutions continue to be elusive.

That means, of course, that public investment in these agencies is necessary in order to give agencies the tools, technicians, and highly trained legal staff these teams will need to work to their maximum abilities on behalf of the American public.

But now, as newer and more complex regulations are flooding the market, and critical challenges — such as environmental, social & governance (ESG) issues or cybersecurity concerns — that had largely been hidden by more pressing matters beforehand emerge as major challenges, the corporate law departments of many Canadian companies are taking action. Many have shifted their mindset and their approach to managing how their needed legal work gets done and what they’re willing to pay for it.

To examine this more carefully, the Thomson Reuters Institute has published the 2023 Canadian Legal Market Update, which highlights the results of a survey of corporate law department leaders in Canada that sought to gain their perspective on key issues such as growth strategies, client relationship development, strategic investments, and performance management. (The report was taken from the results of 272 interviews with Canada-based respondents within the corporate in-house legal community in various legal roles within their companies, which were conducted among multiple different industries. These interviews were conducted throughout 2022.)

Our survey shows that many Canadian corporate law departments have shifted their mindset and their approach to managing how their needed legal work gets done and what they’re willing to pay for it.

Not surprisingly, this year’s report identified certain key developments that are now reshaping many aspects of the Canadian legal market, including:

An aggressive focus on risk — Since 2020, the percentage of Canadian corporate law departments talking about more aggressively preventing and mitigating risk for their companies has nearly doubled, the survey shows.

Hiring and retaining talent has become paramount — Talent in the legal industry became a flash point in 2021 — not only in Canada but everywhere — and more Canadian corporate law departments have made investing in talent a top strategic priority for 2023.

Requiring business savvy from their legal providers — While the attributes that Canadian corporate law departments look for in their external legal providers are similar to those sought by other corporate law departments around the world, business savvy — how well a law firm understands the client company’s goals and can offer advice that is practical and proactive in nature — is an attribute upon which Canadian corporate law departments place even more emphasis.

Indeed, the report offers some crucial insight into the minds of Canadian law department leaders, providing other parties — such as their external law firms — with a road map on what exactly these clients are looking for in their outside counsel.

“I like law firms that are practical, give me timely advice, and give me very commercial advice,” said one corporate law department leader in Canada. “So, if a law firm gives me a 20-minute rendition of the law and all the risks and everything, but doesn’t really give me a good answer, I’m not really interested in them. If you give me really practical advice that’s commercial that’s timely — that’s why I like you.”

All legal organizations in Canada should take note, as this report shows the attitudes, priorities, and mindset among Canadian companies’ law departments are shifting toward more aggressive risk mitigation, managing critical talent issues, and seeking more valued outside counsel.

You can download a full copy of the Thomson Reuters Institute’s 2023 Canadian Legal Market Update here, by filling out the form below:

In the latest Australian Legal Market Midyear Update, published by the Thomson Reuters Institute, we see how firms continue to see lower levels of legal demand compared to the midpoint last year; yet the pace of this contraction in legal demand has slowed throughout FY 2023. While this is good news for many law firms, struggles still remain, such as the ongoing growth in expenses. However, a deeper dive into the midyear data shows that there are reasons for some cautious optimism.

Demand decline & rate growth

As the Midyear Update shows, demand for legal services began the year in negative territory, when compared against the highwater marks of FY 2022. Even though Q2 of FY 2023 saw less of a demand contraction, the midyear measurement still showed an overall decrease compared to last year, which is still concerning.

This is happening at the same time as firms see strong growth in agreed-upon rates throughout the midpoint of FY 2023. While agreed-upon rates remained in record territory for many Australian law firms, the net effect of this rate performance combined with the continued demand downturn saw firms experience essentially flat growth in fees worked for the first half of the financial year. (Fees worked reflects the year-over-year percentage change in the product of rates multiplied by billable hours in the relevant time period.)

This overall flat performance in YTD fees worked is concerning, especially as Australian law firms find themselves under increasing inflationary pressure in which low revenue growth effectively results in a net loss of buying power. Added to this mix is that many Australian law firms also saw a decrease in their billing realization rates, which saw all lawyers experiencing a declining percentage of their work being billed to clients as compared to the previous fiscal year.

Finally, growing expenses remain a constant threat to many law firms’ balance sheets. Compared to the beginning of the pandemic era in Q3 FY 2020, Australian law firms on average have seen their direct expenses — lawyer compensation — grow more than 20%. Indirect expenses — essentially everything else, from office rent to office supplies — declined in the early days of the pandemic due to work-from-home initiatives, but now have returned to pre-pandemic levels.

Signs of a potential rebound?

While all this may indicate a tough road through the second half of FY 2023 for many Australian law firms, the Midyear Update did contain some hopeful indicators. For example, expense growth — which hung like a heavy weight around the neck of many firms — appeared to show that it was slowing by midyear. Further, there are also strong signs that legal demand may be on a slight upswing.

On a further positive note, slightly more buyers of legal services in Australia report that they anticipate spending more over the next six months, with 31% of buyers saying they expect their legal spend to increase in that time frame. This was just slightly higher than the percentage of legal buyers who said they expect to their legal spend to decrease in the next six months. While just a slight net positive, many more buyers of legal services in the specific practice areas of regulatory, labor & employment, and disputes services said they expect their legal spend in these areas to increase as compared to those that said they expect it to decrease.

Interestingly, these spending expectations may reflect what we’re seeing in the broader economy, both in Australia and around the world. For example, increasing inflation, for all its negative impacts, can also influence larger workforce trends, leading to an increased need for legal counsel on labor & employment matters. Increased efforts by the government to stiffen regulations, too could easily result in an increased need for outside counsel.

As the Midyear Update illustrates, the remainder of the fiscal year will be a delicate balancing act for many Australian law firms as firm leaders need to keep a keen eye on levels of legal demand and rate growth, while managing their expenses (especially headcount).

While Australian law firms may be in a slightly more favorable position than many firm leaders might have thought after the dismal first quarter of FY2023, achieving success through the remainder of the year will depend on how fast, flexible, and informed their strategic decision-making will be as they continue to manage ongoing and new risks in today’s legal market.

You can download the latest Australian Legal Market Midyear Update here.

Even before the pandemic, however, courts needed to be modernized. And once the pandemic occurred, courts were pushed rapidly forward into a new world of virtual hearings, video conferencing between litigants and their lawyers, and other previously seldom-used innovations. And in just a few short years, these innovations in how the nation’s courts operate —on the federal, state, and county/municipal levels — have benefited citizens’ access to justice, making it easier for many people to participate in the court system when necessary.

Examining the impact of these trends, a new report by the Thomson Reuters Institute, the 2023 State of the Courts Report, looks at what judges and court professionals are saying about the challenges still rampant in the court system today, such as hearing delays and the need for advanced technology and digitization. Indeed, the report also looks at how many courts are continuing to leverage the new technology that was brought on by the pandemic such as video conferencing and what the impact of those innovations has been.

This report represents the findings of an online survey that was conducted with 201 judges and court professionals from November 1 to 17, 2022 by Thomson Reuters to better understand challenges in the judicial system, specifically around hearings, evidence, caseloads, and technology in the post-pandemic world.

Watch our on-demand webinar Strategies for Advancing Technology within the Courts, now

The report describes how steep challenges to our nation’s courts remain, specifically around the issue of hearing delays, which can have a cascading effect on the remaining cases on the court docket. In fact, a majority — as much as 79% in some instances — of judges and court professionals say they are experiencing delays in their hearings. Often, these delays impact other cases slated for that week, creating a burden on the entire court docket.

And even as the report lays out how improvements and updates in the use of virtual hearings have improved access to justice for many litigants, it shows that hurdles still remain, especially around outside internet and network access for many litigants with lower levels of digital literacy. Further, the report observes that more widespread use of technologies such as evidence management systems and document automation could go a long way to bringing the court system out of its previous reliance on paper files, overstuffed dockets, and failed in-person appearances that all still contribute to case-delays and calendar backlogs.

Key findings in the report

There were several significant findings throughout the report that came from the results of Thomson Reuters’ comprehensive survey, including:

• • • More than three-quarters of respondents (76%) say that virtual court opportunities increase access to justice for litigants — a significantly higher result compared to the previous report in 2021.
    • A majority of survey respondents say they are either conducting or participating in virtual hearings and expect to continue to do so in future. Currently, about 40% of respondents say the majority of court hearings in which they are involved are being conducted virtually.
    • Almost three-quarters of respondents say they do not use digital evidence management systems; yet, two-thirds of those report that they would benefit from doing so.
    • Almost 40% of respondents say they have introduced new or improved work methods, processes, or service innovations within the past 12 months.

Overall, what comes across in the pages of this report is a court system in which tremendous progress has been made in areas of improving access to justice and technological modernization, but much more still could be done. Indeed, as courts at all levels settle into a growing comfort with the technology they’ve employed since the pandemic, many are seeing new challenges that need to be addressed now in order to better move all legal system participants into a new age of digital efficiency.

You can download a full copy of the 2023 State of the Courts Report, here.

According to the Alternative Legal Services Providers 2023 Report, published recently by the Thomson Reuters Institute, the Center on Ethics and the Legal Profession at Georgetown Law, and the Saïd Business School at the University of Oxford, law firms are not only using ALSPs — a market that has grown to more than $20 billion in size — but are creating ALSPs themselves.

Indeed, 22% of global law firms said they already have established an affiliate that provides legal software in conjunction with service offerings, up 7% from just two years ago; and 17% said they offer an interdisciplinary ALSP with a mix of services, up 8% from 2020. And more than 10% of global firms said they offered a general consulting or accounting firm, or a legal process outsourcing firm, each representing an increase in the past two years.

This represents substantial growth for a law firm captive market that largely didn’t exist even 10 years ago. Mirroring the broadening of services that has seen the wider ALSP market, law firm captives today are increasingly moving up the value chain and focusing more on services.

“The lesson I learned was in the messaging, explaining that it’s not a comparison of a true vendor or a captive… It’s that we’re really a hybrid and that we’re bringing a little bit of something different to the equation.”

For example, Troutman Pepper’s eMerge subsidiary was one of the first in this category, founded in 2012 as Troutman Sanders eMerge before the firm’s 2020 combination with Pepper Hamilton. Alison Grounds, eMerge’s founder and managing partner (alongside her role as a litigator at the firm), notes that at the beginning eMerge was largely being utilized for technical work, primarily around e-discovery. But quickly, Grounds says, she found that some potential clients were “lumping us into what I would say is false equivalencies, comparing us to what a true non-law firm affiliated vendor would do.”

The value proposition of a law firm captive, Grounds explains, comes specifically because it is tied in closely with the firm, rather than set apart from it. “We are part of the law firm. Our lawyers are practicing lawyers at the firm,” she says. “We also happen to be able to do some things more cost effectively and efficiently than traditional law firms have done. So, the lesson I learned was in the messaging, explaining that it’s not a comparison of a true vendor or a captive, if you will. It’s that we’re really a hybrid and that we’re bringing a little bit of something different to the equation.”

That journey to find the captive’s increased value mirrors what Bryon Bratcher found with Gravity Stack, a subsidiary of Reed Smith. Bratcher, director of practice solutions at Reed Smith and managing director of Gravity Stack, says that the subsidiary was originally focused heavily on products. But while product development is still part of Gravity Stack’s remit — and one he’s proud of — these days the captive is more focused on fitting into a client’s overall strategy.

“We found that there’s such a variety of legal needs, business needs, and technology needs from clients that it’s better for us to have the expertise to be able to be more technology-agnostic and be able to implement a solution that works for the actual corporate client, rather than trying to push something down their throats that is a proprietary tool,” Bratcher says.

Focusing on strategic areas

It’s perhaps no surprise then, that some of the largest growth areas for law firm captives occur in more strategic areas of the firm’s business, according to the ALSP Report. For example, litigation and investigation support is now global law firms’ third-most likely area in which to establish a captive; and 42% of firms said they were at least somewhat likely to establish this type of captive in the recent survey, as compared to 33% in 2020. M&A due diligence, legal research services, and non-legal/factual research also saw large percentage increases in those respondents saying they were at least somewhat likely to establish this type of captive.

However, while establishing law firm captives is certainly on the rise, their usage isn’t universal. For instance, large firms are much more likely to have captive ALSPs: 75% of large firms said they were using either captives only or a mix of direct ALSPs and captives for e-discovery services, while just 30% of small firms said the same.

Those numbers didn’t surprise Grounds, who emphasizes how difficult it can be to establish an ALSP, especially without a large volume of clients and original investment capital coming from the parent law firm. Further, many firms don’t feel like they have a core competency in the type of work many law firm captives perform, meaning that establishing a captive takes not only financial commitment, but leadership buy-in as well.

“What we found is, you get what you pay for,” Grounds says. “If it’s a loss leader and you’re not making investments in the technology, the technology is not going to be as strong as it could be. Whereas if what you’re selling to the client as a valuable service is not just hosting data somewhere, but hosting it in a customized industry-leading tool that reduces overall cost and improves the accuracy of the legal work that you do, then yeah, that’s worth a penny.”

Bratcher agrees that law firm captives can be risky, particularly on the smaller firm side. However, those that have been successful, he adds, are the ones that are actively integrated into the firm’s strategic planning. A captive “can’t just be a marketing ploy. It’s got to actually be in that strategic plan,” he adds. “I think it’s a concerted effort and acknowledgement by law firms that they have the capability to provide an additional breadth of services for their clients and be their trusted advisor. And I think the firms that have been really smart about it have really infused that thinking into their strategic plans.”

Indeed, Bratcher believes more firms are coming around to this way of thinking, which is why the market is continuing to grow. “I think there’s plenty of room for the entire industry to continue growing, mainly because these law firms are specifically focused in the legal sector and their relationships with legal compliance risk,” he explains. “I think that there’s plenty of market for everybody, but I do think that law firms will continue to grow from that respect.”

Grounds agrees, noting that she’s seen a shift in law firms’ philosophies towards ALSPs and alternative ways to conduct business even in the 10 years since Troutman Pepper eMerge began. “Law firms weren’t thinking about how to do things faster and more efficient in the past, and now we are, and we’re excited by it,” she says. “The practice is changing, and I think it’s changing for the better.”

Indeed, ALSPs now comprise a $20.6 billion segment of the legal market, according to the Alternative Legal Services Providers 2023 Report, published today by the 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 biennial report shows that ALSPs experienced a compounded annual growth rate (CAGR) of 20% from 2019 to 2021, a significant jump from the 15% CAGR recorded between 2017 and 2019. Overall, it reveals an evolving legal market in which the boundaries between alternative legal services providers, law firms, corporate law departments, and even technology and software firms are rapidly blurring.

“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 and the report’s lead author. “Meanwhile, ALSPs are expanding the services they offer to law firms and corporate law departments by providing specialized services, improving cost efficiency, and delivering greater flexibility in headcount.”

A dynamic market

While independent ALSPs are the largest segment of the market, representing 87% of all ALSP revenue, captive ALSPs — those owned by law firms — are a smaller segment, but it’s also the fastest-growing, posting a six-fold increase since 2015, the report notes. ALSP services from the Big Four consulting firms also account for a portion of this market.

The growth in this market is not surprising given that an increasing percentage of law firms of all sizes expect to either maintain or increase their outside spending on ALSP services. Among the largest law firms, 26% said they plan to increase spending on ALSPs, while only 3% foresee decreased spending on these providers.

Among corporate law departments, the picture is a bit more mixed. Those departments that are not currently using ALSPs report an increased interest in doing so; yet, among departments that already use ALSPs, 21% said they plan to increase their ALSP spend, while a roughly equal percentage (22%) said they are either decreasing or are uncertain of their spending plans on ALSPs. This apparent dichotomy may suggest that corporations and their law departments may have reached an inflection point of sorts that is causing them to reassess the value and potential uses of ALSPs, according to the report.

Increasing ALSP usage

The report also illustrates how law firms and corporate law departments have been aggressively exploring the ways in which they could better utilize ALSPS in their own legal work, whether than involves pulling in ALSP experts in project management, technology, or consulting. Further, it shows that many large and midsize law firms have become increasingly aware of the ability of ALSPs to help them retain their best corporate clients, with substantially larger percentages of survey respondents citing this benefit compared to two years ago.

Indeed, ALSPs have been employed in consulting on legal technology at a fast-growing rate, the report shows, with the most common uses for ALSPs in this area being technology support, technology training, and expertise around what legal technologies are available.

The report reveals an evolving legal market in which the boundaries between alternative legal services providers, law firms, corporate law departments, and even technology and software firms are rapidly blurring.

More than one-half of large law firms use ALSPs for consulting on legal technology — in fact, it was that segment’s second-most common reason to use an ALSP, according to the report. More than one-third (37%) of midsize law firms and 31% of small law firms also use ALSPs for legal tech consulting. Given that utilization, this legal tech use case looks to be a very promising avenue of business for tech-savvy ALSPs.

“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.”

The report is based on an online survey of contacts in decision-making roles at law firms and corporate law departments in the United States, United Kingdom, Canada, the European Union, and Australia. In total, 649 respondents (407 law firms and 242 corporations) completed initial survey questions related to the use or non-use of alternative legal services providers, and a total of 349 respondents completed at least one section related to an alternative legal service.

You can download a full copy of the Alternative Legal Services Providers 2023 Report by filling out the form below:

The on-demand recording is now available! 

In the most recent Thomson Reuters Institute Insights podcast, available on the Thomson Reuters Institute Insights podcast channel, we dug a bit deeper into some of the themes discussed in the report, and in particular some of the things that media coverage may have overlooked, with Jim Jones, Senior Fellow at the Center for the Study of the Legal Profession at the Georgetown Law Center and the report’s chief author.

Following the surprisingly strong performance of 2020 and the outstanding results firms experienced in 2021, the downturn of 2022 was not unexpected, yet was still understandably troubling for many law firm leaders.

While the report has garnered widespread media coverage, this podcast is one of the relatively few opportunities to hear directly from the author on what may lay behind some of the headlines. For example, much of the media coverage has gravitated toward the findings from this year’s report that the average lawyer produced roughly $98,000 less in fees for their firm in 2022 compared to 2007 due to declining productivity. In this podcast, we discuss why that may be the case and what law firms may be able to do about it.

The topic of mobile demand, another key theme from the report, is also revisited. Clients seem intent on continuing to explore ways to optimize the distribution of their outside legal work to maximize return while controlling costs. As a result, the continued migration of work throughout the legal market, and especially downwind to lower cost legal service providers, seems likely to continue.

Jones also shares his thoughts on why he is a bit surprised that so much of the media coverage of this report has focused on the negative aspects of law firms’ financial performance in 2022. “There is the problem of the ‘what have you done for me lately’ attitude,” Jones says. “When you’ve gone through a couple years of real economic success, whenever there’s a dip after that, it feels like civilization is coming apart, when actually it could be a return to a more normal level of performance, which could, in fact, be what’s happening.”

Following the surprisingly strong performance of 2020 and the outstanding results firms experienced in 2021, the downturn of 2022 was not unexpected, yet was still understandably troubling for many law firm leaders. As firms look to set or even perhaps re-examine strategic goals going into 2023, beginning that exploration with as complete a picture of the current state of affairs in the legal market and what the near future may hold will help leaders arrive at the strategies that could yield more favorable results.

You can hear all about the “2023 Report on the State of the Legal Market” with Jim Jones here, on the most recent Thomson Reuters Institute Insights podcast.