A common perception of today’s legal service industry is that buyers of legal services have many more choices today. Legal services are disaggregating and unbundling. No longer are law firms the only option for clients with legal work; they now have a wider menu of providers to choose from.
But what are the contours of that Alternative Legal Service market? How are these new providers being used by corporate clients and by law firms? What’s driving that usage? And what does it mean for traditional law firms?
To answer those questions, Thomson Reuters Legal Executive Institute partnered with Georgetown Law School’s Center for the Study of the Legal Profession and Oxford University’s Saïd Business School to research this growing subset of legal service providers. The research was conducted in two phases, an extensive online survey and a set of 38 in-depth interviews.
What are ALSPs?
This research casts a wide net. We realized early in the process that there are non-law firm providers involved in many aspects of the delivery of legal services. So our definition was purposefully broad – we considered ALSPs to encompass activities performed by nontraditional legal service providers (including independent affiliates of law firms), that are directly related to the provision of legal services. The definition excludes other nonlegal activities that might be outsourced such as accounting, IT support, HR management, etc. And it also excludes companies that provide legal-related software only rather than services.
The list of services provided by these companies is diverse. It includes: electronic discovery services, document review and coding, litigation and investigation support, specialized legal services, intellectual property management, due diligence services, contract management, regulatory risk and compliance services, and legal drafting.
Three important findings
The final research report is full of insights on the use of ALSPs, but there are three big findings that we think show that these companies have firmly taken root in the legal ecosystem:
- The decision to use an ALSP is no longer only about cost; it’s about access to specialized expertise. Because a large segment of this market involves the use of offshore labor that has a lower cost, cost savings has always been assumed to be the primary driver for buyers. If that was once the case, it’s no longer true. Certainly, in more routine services such as document review, cost is still a big driver – 85% of our respondents cited cost as the main driver when hiring document review firms. But corporate buyers, in particular, are looking for expertise rather than strict cost savings; of the top four services that corporations engage ALSPs for, access to expertise is the primary driver, not cost. And over half of the law firms choosing e-discovery service providers do so because of their access to specialized expertise rather than cost.
- There is increasing recognition that ALSPs represent opportunity for law firms, not competition. Law firms are under pressure to cut costs, to be sure. And ALSPs give them a path to do just that in many cases – over 55% of our respondents said that ALSPs can help them mitigate price pressure from clients. In addition, however, 41% said that ALSPs can help them scale and expand businesses. For law firms, the ALSP services most often used are e-discovery services (with 34% using) and document review (31%). We think this is surprisingly low but may reﬂect a reluctance to use ALSPs due to poor service from providers in the past. But 31% of firms using external e-discovery services and 39% of those using them for document review indicate that they plan to increase their spending, a sign that more are seizing ALSPs as an opportunity to build out their businesses. In our interviews, many firm leaders told us that they see partnerships with ALSPs as a way to disaggregate services and build out their own array of services under a “general contractor” model, leveraging ALSPs to help provide various service components.
- Future growth is likely to come from the application of increasingly sophisticated Artificial Intelligence (AI) technology. Many ALSPs work with large data sets and large-scale, repeatable processes. They are already incorporating technology into those workﬂows, particularly in e-discovery, but also in growing areas such as contract management and risk and compliance. In our interviews, when we asked what the future of ALSPs might entail, many mentioned AI as a likely future direction. They see ALSPs providing the resources, process improvements and technological muscle that they might not have in their own organizations. Buyers of ALSP services have high expectations for technology.
Other key findings
- More than one-half of law firms and corporations are using at least one category of ALSPs. Fifty-one percent of law firms and 60% of legal departments in corporations are currently using an ALSP in at least one service category. A further 21% of law firms and 14% of corporations plan to use an ALSP in the next year. Motivations for use vary by service category, with access to specialized expertise, controlling costs and meeting peak demand as top reasons.
- ALSPs are being used for more than e-discovery. While law firms are more inclined to use litigation support services (e.g., e-discovery, document review, litigation and investigative support), corporations are more likely to use services in specialized areas (e.g., regulatory risk and compliance services, specialized legal advice, legal research and IP management). Areas of growth in usage align with services now being used.
- Both law firms and corporations are concerned about quality of service. Law firms and corporations both cited concerns about quality of service as a reason for not using an ALSP and need convincing of the value proposition relative to traditional service models. Law firms are also more concerned about data security and client confidentiality relative to corporations.
Who are the ALSPs?
This is still a developing, fragmented market. We’ve identified five main types of providers and an estimated market size in the table below. In addition to the legal Current use cases Areas of potential growth Law firm Corporation process outsourcing companies and e-discovery service and document review service providers that form the largest segment of the market, we see insourcing and staffing companies and the Big Four accounting and audit firms as large parts of the market. Smaller shares of the total $8.4 billion market are accounted for by law firm-owned affiliates and an emerging set of Managed Legal Service providers.
Types of ALSPs
|Description||Key players||Estimated revenue|
Accounting and Audit Firms
|Accounting and audit firms that have a large amount of revenue in legal services. Tend to focus on high-volume, process-oriented work that’s complementary to accounting/audit work.||
|Wholly owned captive operations. Often located in lower-cost regions, focused on high-volume process work.||
Independent LPOs, e-Discovery, and Document Review Service Providers
|Perform outsourced legal work under the direction of corporate legal departments and law firms. Typically engaged for matter- or project-based work often proactively managed and globally delivered. Includes e-discovery and document review providers.||
Managed Legal Services
|Providers that contract for all or part of the function of an in-house legal team. Typically engaged for ongoing work within scope, proactively managed.||
Contract Lawyers, Insourcing, and Staffing Services
|Providers of lawyers to companies on temporary basis. Can range from entry-level document review to highly skilled and experienced specialists.||
Understand more about the growth and benefits of these new legal providers in our full ALSP report.
Check out Thomson Reuters Legal Managed Services for our suite of cutting edge technology, managed discovery, document review and analysis, regulatory change management, financial trade documentation and contract management solutions.
Join the conversation
How are ALSPs affecting the way your law firm works, for better or for worse? Let us know in the comments below.