REPORT: Law Firms Are Increasingly Turning to Alternative Legal Service Providers

Law firms are increasingly turning to alternative legal service providers (or law companies) for strategic business reasons according to a new report by Thomson Reuters “Alternative Legal Service Providers 2019: Fast Growth, Expanding Use and Increasing Opportunity”. Some of those strategic business reasons are:

  1. Alternative legal service providers help expand and retain client relationships;

  2. Traditional business model is being challenged by alternative legal service providers; and

  3. Increased pressure from clients to partner with alternative legal service providers.

According to a Law.com article “Law Firm Sales Push Growth of Alternative Legal Service Providers, Report Says”:

Still, it is unclear if large law firms are embedding ALSP use in their business model or using their services for particular matters at the request of clients.

“From the data, we can show that most law firms are using ALSPs in some way, but we can’t yet tell that they have invested in ALSPs,” Laughlin said. “Less than 20 percent of firms have a captive [legal process outsourcing business]. So the rest of the usage is potentially experimentation, partnering with ALSPs or using them as a vendor.”

Here are the key findings from the Thomson Reuters Report:

  • The ALSP industry has made dramatic progress in the past two years

    • In just two years, revenues for alternative legal services providers have grown from $8.4 billion in 2015 to about $10.7 billion in 2017. This represents a compound annual growth rate of 12.9% over that period.

  • Growth in corporations’ use of ALSPs is stronger than projected

    • Once a corporation or a law firm begins using ALSPs, it tends to look for new opportunities to leverage the ALSPs’ capabilities. On the corporate side, each of the top five functions for ALSPs is now used by about one-third of corporations. Among law firms, the top five use cases were all cited by more than half of large law firms and between one-half and one-third of midsize firms.

  • Law firms are actively experimenting with ALSP strategies

    • One of the easiest ways for law firms to more aggressively take advantage of the ALSP model is to establish a partnership with an existing ALSP.

    • On the other hand, about one-third of law firms say they plan to establish their own ALSP affiliate within the next five years. Those affiliates are predicted to take a variety of forms, the most common being an interdisciplinary practice offering a mix of services. Law firms are also learning to go to market with an ALSP component. About half of law firms say ALSPs can help them expand and scale their business. Firms also say that ALSPs help them differentiate their services and, in some cases, retain client relationships.

  • ALSPs are offering more sophisticated services to more customers

    • ALSPs are steadily moving up the legal value chain to offer more sophisticated services. They have gained substantial market share in litigation and investigation support, and they are even becoming players in the market for legal research, long considered a quintessential law-firm competency.