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Alternative legal services providers hit $20.6B share of legal market, new report says

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Alternative legal services providers, or ALSPs, have shown accelerated growth and now make up $20.6 billion of the legal market, according to a report published Tuesday.

The Thomson Reuters Institute’s biennial report found that growth of ALSPs has “dramatically accelerated.” It is up 45% since the last report in 2021, with a compound annual growth rate of 20% for fiscal years 2020 and 2021, according to the report, titled Alternative Legal Services Providers 2023: Accelerating growth & expanding service categories.

The Center on Ethics and the Legal Profession at the Georgetown University Law Center and the Saïd Business School at the University of Oxford issued the report that surveyed 649 respondents (407 law firms and 242 corporations) and included qualitative interviews with ALSP leaders.

The most common reason for firms to use ALSPs is for specialized expertise. But the lines between ALSPs, firms, corporate departments and technology and software firms are “rapidly blurring,” according to the report.

Mike Abbott, the head of the Thomson Reuters Institute, told the ABA Journal that in the past, there had been a “disconnect between law firms and their clients,” especially in terms of how firms could use technology to drive efficiency.

But the growth of ALSPs is an indicator that if firms and ALSPs collaborate and work together, it is “better for the legal industry in terms of efficiency, productivity [and] delivering better legal work,” Abbott says.

Consulting on technology was one of the fastest-growing use cases for firms, according to the report. More than one-half of large firms and more than one-third of midsize and more than one-third of small firms use ALSPs for those services. Regulatory risk and compliance and legal research are the top two use cases for corporate legal departments, and 50% and 48%, respectively, of corporations use ALSPs for those purposes. E-discovery is now the third most common use case for corporations, according to the report.

Abbott says some firms could be using technology consulting to advise clients or to improve their technological capabilities. According to the report, during the COVID-19 pandemic, firms had to contend with a “difficult-to-manage proliferation of legal software solutions,” which has driven work toward ALSPs.

According to the report, firms have also gravitated to ALSPs because of a “stronger appreciation” for their specialized expertise, their cost effectiveness and ability to improve efficiency. They can also help firms and corporations manage their head counts, according to the report.

The report adds that shifting attitudes toward remote work have benefited ALSPs.

“During the [COVID-19] crisis, ALSPs were well suited for flexible models of work because many of them already had the enabling technology and cultures in place,” according to the report. “In interviews with ALSP leaders, many reported that clients have become more open to remote staff, partly because so many have now worked remotely themselves.”

According to the report, independent ALSPs make up 87% of the market. “Captive” ALSPs, which are those owned by firms, are six times as numerous as they were in 2015. ALSPs from the Big Four accounting firms—Deloitte, Ernst & Young, PricewaterhouseCoopers and KPMG—represent $1.5 billion of the market.

Marcus Belanger, an analyst for the Thomson Reuters Institute, says he expects the upward trend to continue.

“We’re seeing in the overall legal industry work move downstream, specifically in things like litigation, where there’s definitely a cost pressure that firms are feeling at the top of the market,” Belanger says. “Just based off of how the overall legal industry is performing, we can already tell that there’s going to be substantial growth.”

See also: “Legal services company Axiom opens ‘reimagined law firm’ to directly serve clients, thanks to Arizona approval”

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