As Law Firms Start Layoffs, Alternative Legal Services Providers Grow Like Gangbusters
Biglaw firms that haven't entered the ALSP market might want to get a move on.
Most law firms aren’t in the process of laying off associates. But Cooley and Goodwin have been upfront about force reductions and other firms seem to be… less upfront about it. While we have no reason to believe the layoff bug will spill over to the rest of the law firm landscape, even limited layoffs cast a pall over the industry.
But while law firms nervously eye the future, Alternative Legal Services Providers are lighting cigars with $100 bills.
The latest iteration of the Alternative Legal Services Providers 2023 Report compiled 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 reveals that ALSPs now make up $20 billion of the legal market. That represents a compounded annual growth rate of 20 percent from 2019-2021.
Of course, this pales in comparison to the $800+ billion total legal market, but it’s all in the growth. Demand for legal services remains stagnant and clients will only countenance fee hikes for so long. ALSPs have a greased runway to start soaking up business.
And while most of that business flows to independent ALSPs and the Big Four always loom in the background, the fastest growing segment of the ALSP world are the “law firm captives,” the internal ALSPs law firms have built to keep business in house.
Law firm captives, while the smallest part of the ALSP market, are also the fastest growing of the groups. Law firms create captives in multiple ways: with a tight integration (often via an acquisition or equity stake) with an independent ALSP; through an incubator or accelerator for technology-enabled service providers; or by starting a new company or line of business within the parent firm. Such entities now account for about $1 billion in revenues, showing 117% growth since our last report and a CAGR of 47%. Since 2015, the captive market has grown by 589%.
Even without keeping the business inside the firm, the report notes substantial increases among both large and midsize law firms citing ALSPs helping them retain clients.
It’s not all good news though. Corporate law departments already using ALSPs are divided on where they plan to go from here with 21 percent planning to increase ALSP spend, while 22 percent are either decreasing spend or are unsure. Still, that’s likely a net increase when all is said and done and the report also notes that law departments that don’t currently use ALSPs have increased interest in doing so.
There’s a lot in this report, but the primary takeaway is that if there were ever a battle between law firms and ALSPs for work, that’s over. The strategic challenge of the next decade is figuring out which industry players — law firms, in-house, accounting firms — best leverage ALSP concepts.
Alternative Legal Services Providers 2023 Report [Thomson Reuters Institute]
Joe Patrice is a senior editor at Above the Law and co-host of Thinking Like A Lawyer. Feel free to email any tips, questions, or comments. Follow him on Twitter if you’re interested in law, politics, and a healthy dose of college sports news. Joe also serves as a Managing Director at RPN Executive Search.
