The advent of generative AI (GenAI) with its promises of increased productivity and efficiency are a welcome assist with this do more with less pressure that GCs have felt for years. However, they do not necessarily expect that GenAI will be an all-purpose solution.

GenAI tools can only do so much in terms of legal work. Many legal tech pundits have observed that GenAI does not replace roles, rather it completes certain legal tasks. Applied to the workload conundrum that GCs have to address, GenAI can be used to take over certain tasks that are consuming hours of legal department staff time, particularly those tasks that are most repeatable. A key question remains, however: Will the increases in efficiency in automating these repeatable tasks free up enough capacity among law department staff to allow them to pull a greater volume of legal work in-house.

In classic lawyer fashion, it depends.

Anecdotally, many GCs worry that GenAI will bring with it not only greater efficiency but also even greater demands for the legal department鈥檚 services. Applied broadly, GenAI is predicted to catalyze the already accelerating pace of the business cycle while at the same time creating a host of potential legal issues, ranging from intellectual property and privacy concerns to enterprise-wide data compliance challenges. Indeed, one legal department operations executive with whom I recently spoke with said that his team anticipates certain types of matters and tasks will increase not by 50% to 60% but by 500% to 600% of the current volume.

The impact of larger volumes on matter pricing

Watching from the outside, law firms are understandably concerned that the efficiencies GCs are counting on to help in-house legal teams could potentially devastate law firm revenue streams. On a micro level, individual tasks and even whole matters may experience pricing decline as work can be completed dramatically faster. However, this fear may not come to fruition after all.

First, revenue for certain types of legal work might decline, but the profit margin of that work might expand greatly due to the increased efficiency with which it can be completed.

And second, the volume of work available could potentially grow exponentially. The same legal ops professional I spoke with also said that if the costs of some types of legal work doesn鈥檛 decrease, and decrease dramatically, their current projections have them legitimately worried about how they will complete the work using only their in-house team and whether they would be able to afford to use outside counsel. It may simply incur too great a cost at too large a volume to be sustainable.

A few potential lessons

For GCs, it is critical to begin to get an understanding of what matter volume projections might look like as AI becomes more fully integrated into their organizations. However, it鈥檚 important to note that this does not mean as AI becomes integrated into the law department 颅鈥� rather, it means measuring AI鈥檚 integration into the business as a whole, as these two events may happen at very different times.

Thus, GCs should start to map out what these volume projections might look like now. And these projections do not have to be completely accurate, but they should be directional indicators of potential areas of concern. Such an exercise is necessary for long-term resource and budget planning. It is wise to assume that whatever matter- and task-volume growth is projected will be an underestimation, but going through the exercise will allow the in-house legal team to more effectively plan for what the future may hold.

For law firms, now is an excellent time to start having conversations with clients鈥� in-house legal teams to get a better understanding of what anticipated needs they are seeing for the coming years. These needs will vary from client to client, of course, but identifying them now will help give law firms some ideas of where additional staff might be required.

The insights gained from these conversations can also help steer future pricing decisions. For example, if the client anticipates a large increase in they type of work their outside firm already performs, that may be an indication to the law firm that even if the per unit price for that type of work goes down, there may be a lot of money to be made out of increasing volume, provided that the work does not dip into the realm of negative profitability.

This, in turn, can help bolster an argument to create more robust alternative or fixed pricing options for the types of repeatable work that clients anticipate will increase in the coming years. This is because the repeatability of much of this work could make it susceptible to decreases in billable hours worked, if that is the measure. This, in turn, could drive total prices for the tasks into unsustainable territory that both hurts law firms鈥� overall revenue and while not adequately reflecting the value of the service delivered.

To be sure, a task that used to take 10 hours to complete at a cost of $5,000 (at an assumed rate of $500 per hour) does not suddenly become worth $250 because it can now be completed in 30 minutes. However, unless the firm and the client reach an agreement on the actual value of the service delivered, that could be the undesirable outcome.

Both parties need to begin this conversation around actual value 颅鈥� what is the outcome of the legal work worth to the client beyond simply the time it took to produce? 鈥� which then lays the groundwork for the evolution of matter pricing.

In this way, law firms can protect their revenue streams while taking advantage of efficiencies for greater margin and seeking more client matter volumes to fill available working hours. GCs can address their increasing matter volumes through negotiations that give them more favorable pricing terms from their outside firms to better safeguard their budgets without expecting their in-house staff to absorb all of the new work.

It’s critical to understand that the first efforts at identifying this AI-optimized practices areas and establishing new prices for them will not be the end point 鈥� they will, however, serve as a good start. Some early efforts will be more successful than others, which is why honest and open communication between law firms and their clients will be vital.

However, the worst option for all would be to wait too long to see what happens. The end result of that approach could have incredibly negative consequences for GCs and law firms alike.

You can find out more about the challenges of pricing AI-driven legal services in today鈥檚 legal market here

Of that total market, law firm captive or affiliate ALSPs 鈥� those owned and operated internally by a law firm 鈥攔epresented just a small portion of the total, $1.8 billion. However, that total itself at the same time represented a major jump from past iterations of our ALSP research. Just two years before, in 2021, the law firm affiliate market was just $1 billion, and two years before that, in 2019, it was just $500 million.

Obviously, it will be a long time before total law firm affiliate revenue matches that of independent ALSPs, but at the same time, the market opportunity for law firm affiliate ALSPs continues to grow exponentially. Particularly for a large law firm sector already deliberating alternative ways of billing, new technologies such as generative AI (GenAI), and an increasingly business-savvy client base, further building out law firm affiliates鈥� capabilities may seem a tantalizing prospect.

So, then the question becomes: What exactly do clients want from an affiliate ALSP? And where do they fit into the modern law firm鈥檚 client service equation? The answer may be simple to conceptualize, but tougher to execute.

Expertise and more

The reasons for using a traditional law firm have been clear for decades, if not centuries. Attorneys hold specialized knowledge about both the law and particular areas of interest, and that interest remains in high demand. One could presume, then, that the reasons for moving away from traditional law firms would be the opposite: lower cost and speedier service above all else.

However, when corporate law department leaders were asked directly why they would want to choose a particular legal services provider, they often tell a different story. When going to an ALSP, clients still want expertise first and foremost. They simply also want the cost savings, speed, and efficiency that comes with an alternative type of provider.

For law firm affiliates, this means that there are multiple levels of success which they need to achieve. Similar to their traditional law firm counterparts, law firm affiliates are expected to deliver expertise and quality, even at a higher rate than independent ALSPs, simply because of their affiliation status. At the same time, however, they are expected to offer lower costs, greater efficiency, and quicker work than traditional law firms.

To be sure, finding this combination is not easy. Yet, for those that achieve success, the results can be greatly beneficial. Indeed, according to corporate respondents to the survey underlying the ALSP 2025 report, 15% said they anticipate increasing their law firm affiliate spend, while only 5% said they anticipate decreasing their law firm affiliate spend. The difference is even greater among corporate clients that already use ALSPs, with 25% noting they plan to spend more with law firm affiliates specifically.

Standing out through value

It鈥檚 because of this opportunity that many law firm leaders are eyeing the potential of law firm affiliates. However, therein lies the rub: The secret is out, and many law firms already have plans in motion to capture this emerging market.

Some law firms are planning on utilizing their affiliate to provide what clients ultimately want 鈥� expert legal advice 鈥� under an alternative structure or through tech-enabled services. However, the survey also found that law firms are also moving into areas that have typically been the purview of independent companies, such as consulting services, legal managed services, and process & management tools.

With so many law firms actively creating multiple touchpoints, the question becomes less of whether clients desire these sorts of services because the data is in 鈥� clients are buying. Already, 33% of corporate clients said they are purchasing directly from law firm affiliate ALSPs. Use of affiliates is not novel and is increasingly a client expectation to provide cost and time savings beyond a baseline level of expertise.

For law firms, therefore, the question becomes more about market differentiation. If a law firm is one of the more than half-dozen with an affiliate that plans to offer managed services, for instance, how will those services differ not only from other law firm affiliates, but from independent ALSPs that would now be considered competitors as well?

The answer comes in the law firm demonstrating the value of its affiliate 鈥� and not only the value of the service itself, but how the firm鈥檚 expertise and the affiliate鈥檚 speed and cost savings complement one another. One interesting finding in the report is that, just as one-third of corporate clients said they are purchasing from law firm affiliates, nearly as many (27%) believe the law firms they鈥檙e working with use affiliate ALSPs 鈥渂ehind the scenes.鈥�

Why would law firms hide that from clients? For many, it鈥檚 simply to avoid cannibalizing potential billable hours or losing them to a lower-cost option. Others may be concerned about clients viewing a law firm affiliate as a less reliable option.

However, clients also said they wanted to decrease their spend with traditional law firms 鈥� 22% said they are decreasing spending with traditional firms, while only 16% are increasing. (For corporate clients using any type of ALSPs, those numbers are even more stark, with 33% of corporate respondents saying they want to decrease their spend, compared to 12% saying they are increasing.) The choice for law firms then may not be between keeping billable hours in the traditional firm compared to within the firm鈥檚 affiliate 鈥� rather, the choice may be whether clients will use the firm at all.

鈥淯se of such affiliated ALSPs can be highlighted to the client as a means of demonstrating the law firm鈥檚 willingness and ability to innovate and seek greater benefit on the client鈥檚 behalf,鈥� the report states. 鈥淐lients clearly appreciate it 鈥� they express a fairly solid desire to increase spending with those law firms they suspect are employing affiliate ALSPs on their behalf. Imagine how much more likely they would be if the benefits they were receiving were made more obvious.鈥�

Clearly, law firm affiliate ALSPs should no longer be hidden away from clients. The affiliate of the future will need to stand on its own merits as a revenue-generating enterprise 鈥� and in doing so, it will need to provide an alternative path to revenue that could suit firms well in an increasingly technology-enabled future.

For more insights into the ALSP 2025 Report, you can listen to

Are independent ALSPs and law firms competitors?

In the legal services universe, law firms have long been the go-to resource for individuals and companies seeking counsel. Their dominant position has allowed them to increase rates faster than other professional services and has resulted in some of the highest profit margins of any major industry. From 2015 to 2023, for example, demand combined with these rapidly increased rates to result in a roughly 6% revenue CAGR for firms in the Am Law 1-200 alone, easily outpacing broader economic growth in the United States.

This elevated top line growth, however, pales in comparison to the approximate 17% annualized revenue growth realized by independent ALSPs over the same period. As a result, and not surprisingly, law firms have lost legal service market share. By some estimates, law firms handled a little more than 90% of outside legal spend in 2015, but now that number is estimated to be closer to 86%. That four-percentage-point drop may not be much on its face; however, the pace of loss is accelerating and much of it is being absorbed by independent ALSPs. Yet despite this development, many law firm leaders said they do not see these providers as a threat to their business model.

Why law firms don鈥檛 see independent ALSPs as a threat

Of those law firm respondents surveyed in the ALSP 2025 report, only 21% said they believe that their traditional business model is being challenged by ALSPs. The other 79% are either unsure or disagree with the idea that ALSPs challenge their model. This perception rests on several key pillars, that include (not in order):

• • • A perception that law firms鈥� value proposition is fundamentally different than that offered by ALSPs
    • A belief that ALSPs are taking work that would have been handled by in-house teams rather than outside counsel
    • An expectation that current legal barriers will remain in place and continue to exclude independents from the work that law firms perform.

While these perceptions each have compelling arguments supporting them, there is a different perspective that exists as well.

Looking at independent ALSPs differently

The first point mentioned above is connected to the fact that law firms currently have a corner on the most valuable area of legal service 鈥� legal advice. Corporate law departments surveyed in the ALSP 2025 Report did not anticipate allocating a significant, or even increasing, amount of their spend on legal advice toward independent ALSPs. This dominant market position on offering legal advice may suggest to law firms that the value they provide is unique. Indeed, in the chart below law firms lead by a substantial margin in the two areas upon which they focus: expertise and the ability to extend a law department鈥檚 capacity.

What this chart does not show is that over the previous editions of the ALSP report survey, we have observed a trend of independent ALSPs steadily encroaching on both of these value propositions. For instance, in the most recent survey we found that independents are rapidly becoming key players in the consulting services arena, which ranks as the third most utilized service after legal advice and support. This service area, far from being routine, demands a high level of expertise, and much of its growth is linked with advancements in technology, including software acquisitions and training. Independent ALSPs expertise is further evidenced by a noticeable decrease in concerns about the quality of services; as of the 2025 report, only 31% of respondents viewed quality as a barrier to using their services, down from 41% in 2021 (these data points also include affiliate ALSPs, however this broader trend of increased quality is applicable to independents specifically as well).

As for the capacity extension argument, the narrative that independent ALSPs are only absorbing work that law firms aren鈥檛 interested in is evolving. The 2025 report highlights a significant shift in purchasing behavior among corporate legal departments; they plan to reduce their reliance on legal managed services from traditional law firms while ramping up their spend on independent ALSPs. This pattern is also evident in matter-specific legal services. Such changes indicate that ALSPs are not merely complementary but are becoming essential partners for capacity expansion and strategic service delivery.

Only 21% of law firm respondents agree that their traditional business model is being challenged by ALSPs.

As for the third point 鈥� yes, laws in countries like the United States currently provide a regulatory moat for law firm鈥檚 top line. But is this moat sustainable, and more importantly, should it be depended upon? We already see examples of jurisdictions like the United Kingdom, Australia, and states such as Utah, Arizona and the District of Columbia that have either eliminated or lessened the restrictions placed on ALSPs towards the practice/business of law. While regulatory momentum has been slow in the US, from KPMG in Arizona, where the Big Four giant plans on starting a legal service business, highlights the potential for independent ALSPs in the legal advice niche and underscores the danger law firms could face if their moat is defined by regulation.

The threat of potentially shifting market landscape is further illustrated in the data below. Corporate clients are anticipating a greater amount of spend going towards independent ALSPs, while they intend to spend less on traditional law firms. Herein lies a critical insight: ALSPs are not just peripheral players but increasingly formidable competitors in the legal services landscape. Failing to recognize and adapt to this reality could result in further market share erosion for traditional law firms.

However, this competitive environment also presents an opportunity. Those law firms that strategically partner with third-party ALSPs or develop their own affiliate ALSPs can leverage these relationships to enhance their service offerings and remain competitive. Law firms must innovate and evolve beyond traditional practices to meet the changing demands of their clients. Embracing these shifts, rather than resisting them, will be essential for long-term success in an increasingly dynamic legal marketplace.

You can find more on how the legal industry is using ALSPs here

On one side of this split are those law firms and corporate law departments that are successfully using ALSPs for a wide variety of work; and on the other side is a segment of the market that has yet to reach that level of comfort and shows little inclination to do so, with just 5% these firms saying they will use an ALSP in the next year.

Jump to 鈫�

Alternative Legal Services Providers 2025 Report

To study this divergence more deeply, the 成人VR视频 Institute 鈥� in partnership with the Georgetown University Law Center on Ethics and the Legal Profession and The Professional Service Firms Group at Said Business School at the University of Oxford 鈥� have produced the latest edition of their biennial Alternative Legal Services Providers report.

As the 2025 report shows, avoiding ALSP use may be a risky strategy for law firms, as corporate law departments anticipate shrinking spending with these more traditional firms. For ALSPs themselves, it suggests that future growth may be more likely to come an expansion of services offered to existing customers, rather than enrollment of new customers.

The new report also identifies a potential wildcard within this market: generative AI (GenAI). In the short term, ALSP leaders said they believe their use of GenAI could make them more attractive partners to both law firms and corporate law departments 鈥� and for now, their clients tend to agree. But some law firm leaders, traditionally cautious in their technology investments, said they believe that in the longer term, their own use of GenAI will surpass that of ALSPs.

Key findings in the report

Some of the most important revelations in the report include:

Strong growth 鈥� The ALSP market continues to grow quickly. The estimated size of the ALSP market is $28.5 billion as of 2023, with a compound annual growth rate of 18% from 2021 to 2023.

ALSPs prove their value 鈥� The business model and expertise of ALSPs is becoming increasingly clear. Law firms that have set up their own ALSPs are more likely 鈥� not less likely 鈥� to engage independent ALSPs. Among both law firms and corporate law departments, ALSPs get particularly high marks for their specialized expertise, cost-efficiency, and ability to manage high-volume tasks.

Increasing comfort levels 鈥� As corporate law departments become more comfortable with alternative delivery models, they expect to increase spending with ALSPs, particularly in areas such as legal managed services and software. And law firms that use ALSPs are also moving to more fully integrate them into their practices. Among corporate law departments that use ALSPs and have panels, 45% include a law firm-affiliated ALSP on their panel, and 25% include an independent ALSP.

A short-term boost from GenAI 鈥� Some 35% of law firm respondents and 40% of those from corporate law departments said that ALSPs that are leaders in the use of GenAI are more attractive, as they expect these providers to be able to cut costs and streamline processes. The long-term picture is less clear, as both law firms and corporate law departments expect to ramp up their own use of GenAI.

In addition to ALSP market鈥檚 strong and steady growth through 2023, the Alternative Legal Services Providers 2025 report finds that legal services buyers expect to increase their spending with ALSPs. Among law firms, 40% expect to increase their use of independent ALSPs in the next year, while only 1% expect to decrease such use. And 16% of corporate law departments plan to spend more with independent ALSPs, while only 4% say they鈥檒l spend less.

These projections may even underestimate the strength of the market, as ALSPs have historically been successful at introducing new services. Interviews with ALSP leaders indicate that this innovation will continue, potentially spurring more spending on the part of corporate law departments.

You can download

a full copy of the 成人VR视频 Institute “Alternative Legal Services Providers 2025 Report” by filling out the form below:

Indeed, key findings in the recently published 成人VR视频 Financial Insight鈥檚 2023 Staffing Ratio Survey shed light on the growing prevalence of outsourcing in the legal industry. And by examining the reasons behind this shift and the potential implications for outsourcing from emerging technologies such as artificial intelligence (AI), we can gain valuable insights into this evolving phenomenon.

The recent survey included responses from 61 law firms, of which 39% were Am Law 100 firms, 33% were Am Law Second Hundred firms, and 28% were Midsize law firms.

Growth of outsourcing

From this sample of firms, approximately two-thirds said they had outsourced at least one role in 2022, which is a slight increase from the previous year鈥檚 report. Within this group however, about two-thirds said they witnessed an increase in their outsourcing compensation per lawyer or cost per lawyer (CPL), indicating that there is a growing trend of law firms outsourcing more staff and relying increasingly on external service providers to handle certain job functions relative to the lawyer headcount growth within the firm. What we observed from the law firms that outsource was a remarkable 6.3% increase in their outsourcing spend per lawyer in 2022, nearly in line with the historic growth rate of 6.8% (fastest growth in recent memory) witnessed in the previous year.

To place 2022鈥檚 CPL growth in perspective we looked at outsourcing spend since 2018. On the left side of the chart shown above, we can split growth periods into three sections: in 2018 and 2019, outsourcing growth aligned with overall support staff growth, representing a period of relative normalcy; the next phase, 2020, saw firms enter pandemic-era levels of outsourcing spend, where growth sank far below support staff contractions during an increased period of discounts from outside vendors and reduced in-office operations; and in 2021, firms rebounded to more normal levels of operations, and outsourcing growth returned, aided from depressed baselines of the previous year.

In 2022, we saw outsourcing growth remain steady while simultaneously surpassing all total support staff compensation growth 鈥� a turnaround since the pandemic. What this suggests is that the upward trajectory of 2022 is not merely a baseline or rebound effect but rather a sustained trend reflecting the evolving staffing and outsourcing strategies adopted by many law firms.

Leading the way in this shift were Am Law 100 firms, which increased their outsourcing spending 8.2%. Both Am Law Second Hundred and Midsize law firms fell below the all-firm average; however, each segment’s growth was an increase from the previous year鈥檚 results, suggesting that even the firms that have been more cautious towards outsourcing are beginning to see the potential benefits.

Among those benefits, possible cost savings is one of the most apparent. A cost comparison between in-house and outsourced full-time equivalents (FTE) for the same role revealed an average savings of approximately $20,000 per FTE.

Further, these cost savings tend to be greater the more work that firms outsourced, which can be seen by the relatively greater savings realized by Am Law 100 and Second Hundred firms compared to their Midsize counterparts. Now, this may be a chicken-and-egg scenario where firms that outsource more do so because they are able to realize greater savings, or maybe these firms leverage economies of scale and see greater savings because they outsource more. Either way, there is a positive correlation between the extent of outsourcing and cost-effectiveness.

While the elevated growth seen this year in outsourcing does largely come from a financial perspective, the growth is also spurred by an increase in firms turning to vendors for their specialized expertise, their potential for scalability, and their access to technology. It will be interesting to see where this goes once generative AI fully enters the outsourcing picture.

AI implications of outsourcing

A recent survey conducted by the 成人VR视频 Institute examined the awareness, attitudes, and use of ChatGPT and generative AI in law firms. While the majority of respondents were aware of AI technologies and recognized their potential in legal and non-legal work, only 19% reported their firm’s current usage of these technologies. This presents a significant opportunity for growth in AI adoption, particularly in areas most identified as potential uses cases such as knowledge management, back-office functions, and memo drafting.

What this could mean for outsourcing is not fully known, but we may see highly sophisticated outside vendors moving ahead of the curve by positioning themselves to offer their expertise with generative AI at a cost-effective price with which law firms and in-house teams may not be able to compete.

Of the use cases that AI may best support, it may be that law firms (which have historically lagged in terms of technology adoption), increasingly turn to outside experts to execute these job functions. As of this year, we are seeing rapid growth in the Alternative Legal Services Providers sphere with one of the main drivers being that law firms have recognized a bottom-line benefit to turning to these highly specialized and cost-effective ALSPs for some of the more routine and time-consuming work.

Of course, the impact of AI on outsourced roles is not a question of if but rather of when. To get an approximation of this timeframe, we asked our generative AI survey respondents: 鈥淲ithin what time frame is your firm looking to roll out ChatGPT or generative AI usage?鈥�. While a majority said they weren鈥檛 sure, a substantial amount said they are planning to roll out AI functionalities within the next three years. The 39% highlighted within the blue box gives us the greatest indication that the growth of AI-supported outsourced roles is likely to be more gradual, gaining speed as relationships between vendors and firms remain strong and trust in these technologies increase.

The increase in law firms鈥� outsourcing of support staff roles aligns with a strategic shift towards optimizing operations, improving efficiency, and capitalizing on specialized services. With cost savings, increased AI adoption, and the potential for continued growth in the outsourcing landscape, law firms must carefully evaluate their outsourcing strategies to better leverage these transformative opportunities.

By partnering with expert vendors and embracing emerging technologies, law firms can streamline their operations, enhance productivity, and focus on delivering exceptional legal services to their clients.

To learn more about Financial Insight鈥檚 “2023 Staffing Ratio” and to compare your firms鈥� support staff headcount and compensation ratios to the market at large, click here.

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 鈥渙pening up鈥� 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鈥檙e 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. 鈥淎ll of a sudden, people will say, 鈥極kay, it鈥檚 safe now,鈥欌�� the sales director says, 鈥渨hich will lead to even more expansion.鈥�

He also pointed out that the traditional legal market leaves behind a lot of unmet demand. 鈥淐lients simply cannot afford all of the legal and regulatory advice they need to buy,鈥� he says, especially if law firms remain wedded to the billable hour. 鈥淭here鈥檚 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.鈥�

The Big Four have also had a positive effect, says the founder and CEO of a U.S.-based ALSP, admitting that 鈥渢his is going to sound strange.鈥� The Big Four have convinced many general counsel, CFOs, and CEOs that business and law shouldn鈥檛 be so separate, the founder explains. 鈥淲e found that the Big Four moving into the space has actually just opened up the top of the funnel 鈥� it鈥檚 so much larger now.鈥�

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

Not surprisingly, the pandemic had an impact as well. 鈥淭he stigma of offshore support has worn off,鈥� says the vice-president of a U.S.-based ALSP. 鈥淲e all ended up working from home, and we learned it doesn鈥檛 matter where the person is that you鈥檙e talking with.鈥�

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 鈥渁 huge focus鈥� 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鈥檙e also spending 鈥渁 significant amount of time鈥� 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. 鈥淚t鈥檚 increasingly complex to operate businesses in multiple jurisdictions and try to manage all of them,鈥� explains the CEO of a law firm captive ALSP in the U.S. 鈥淔or 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.鈥�

Technology consulting, as mentioned in the ALSP 2023 Report, is also a growth area 鈥� 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: 鈥淚 bought some technology, and it鈥檚 crap, and it doesn鈥檛 work. Help me, because I鈥檝e spent half a million pounds on it, and I can鈥檛 admit it doesn鈥檛 work.鈥�

Growth through acquisition

As ALSPs grow, it鈥檚 not surprising that they become more attractive acquisition targets, fueling consolidation. 鈥淚n the early stage of this industry we were trying to say, 鈥榃ho do we acquire?鈥欌�� says the co-founder of a U.S.-based ALSP. 鈥淭here was nobody of any size to acquire. They were all tiny.鈥� Another ALSP founder expects consolidation to continue, as companies that are strong in one service area 鈥� for example, discovery 鈥� 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. 鈥淔our or five years ago, I think there were 10-plus providers in the market. There might still be, but you certainly don鈥檛 see them. You probably see three or four at the most.鈥� Now, he鈥檚 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: 鈥淚t鈥檚 grown up,鈥� he says. 鈥淚t鈥檚 matured as a service offering.鈥�

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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 成人VR视频 Institute in partnership with The Center on Ethics and the Legal Profession at Georgetown Law and the Sa茂d Business School at the University of Oxford.

And the growth message wasn鈥檛 lost on the report鈥檚 survey respondents. As one U.S.-based CEO and co-founder of an independent ALSP says: 鈥淲e’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?鈥�

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: 鈥淚t has become much less of an emergency service 鈥� it always used to be, 鈥楽omeone鈥檚 left, we鈥檝e got a gap.鈥� Now it has become built into the way that large clients manage talent.鈥�

You can download a copy of the 成人VR视频 Institute鈥檚聽Alternative Legal Services Providers 2023 Report here.

In other service areas, this ALSP leader says client requests 鈥渁re far less ad hoc in their nature, and clients are increasingly looking to explore how they can do things differently.鈥� Once clients use the ALSP鈥檚 services in one area, they鈥檙e quick to see the ALSP鈥檚 applicability to others, and they鈥檙e putting their other partners on notice. 鈥淪ome of them are very clear,鈥� notes one survey respondent. 鈥淭hey are preparing the market and their suppliers. They are saying, 鈥楾his 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.鈥欌��

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

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. 鈥淚t鈥檚 a one-pane-of-glass view for a general counsel of what鈥檚 going on in their organization which, believe it or not, a lot of general counsels don鈥檛 have,鈥� 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鈥� 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 鈥渘ow we鈥檙e able to sit down at the table with them and talk about utilization of contract lawyers as a strategy 鈥� not to replace your outside counsel.鈥�

鈥淲e鈥檙e probably at literally 10 times the number of conversations from a year ago about…”

More tech-forward ALSPs use similar meetings 鈥渢o 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,鈥� says the founder, chairman, and CEO of a U.S.-based independent ALSP.

In these cases, ALSPs benefit from offering a more integrated solution. 鈥淲e鈥檙e 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,鈥� 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 鈥� and in an increasing number of cases that means an ALSP.

In fact, law firms that use ALSPs are doing so for more than 40% of their intellectual property management work and more than 20% of their legal drafting and legal research, according to the 成人VR视频 Institute鈥檚 recently published ALSP 2023 Report. Corporate law departments that use ALSPs, meanwhile, are tapping them for more than one-third of their regulatory risk & compliance matters and contract management tasks.

Yet, despite ALSPs鈥� rising prominence, the report also reveals that law firms and corporate law departments alike don鈥檛 yet fully trust ALSPs. Almost two-thirds (62%) of law firms indicated that concerns about quality affects their willingness to use ALSPs; and 46% of corporate clients said the same. Meanwhile, more than half of law firms had concerns about turning over confidential client information to ALSPs, and firms also felt their traditional business model was challenged by ALSPs鈥� use of technology. Further, 38% of corporate law departments indicated they would rather have their outside law firms deal with ALSPs rather than deal with ALSPs directly themselves.

So where is the disconnect? At a recent聽听蝉别蝉蝉颈辞苍, Changing Nature of Legal Practice: Impact of ALSPs, Tech Companies, and the Big 4, panelists explored not only how ALSPs are increasingly entering legal matters, but what they will need to do to keep their place at the table. No surprisingly, it all starts with the relationship, said panelist Vedika Mehera, Director of Orrick Labs at Orrick, Herrington & Sutcliffe. 鈥淲e can鈥檛 overemphasize how important trust is, and it begins with constant communication,鈥� Mehera said, adding that many view this as constant communication of problems.

鈥淲e don鈥檛 get to fail more than once [in the legal industry],鈥� she explained, noting that there is a flip side to that 鈥� proactively explaining how ALSPs can help. 鈥淲hen you have a success, share it. When you have a challenge that you鈥檙e running up against, communicate it. 鈥 think that really helps build trust.鈥�

Showing clients the value

Of course, this can mean communicating positive return-on-investment for a matter as well. However, as panelist David O’Hara, Director of Legal Business Solutions at Big 4 firm PwC, added: 鈥淚t鈥檚 not just about the dollars and cents.鈥�

O’Hara noted that PwC has worked to bring in diverse teams to matters, in some cases pairing legal experts with IT, bringing in regulatory experts into a cross-border matter, or even identifying internal skills 鈥渢hat helps us build trust with clients, to say we have a world of resources鈥� to tackle different jobs.

鈥淭he more [we] can ease that [concern] and create different ways of working for them, that鈥檚 the intangible value we always need to remember,鈥� he noted.

Of course, this can be easier said than done. Often, clients may not even know the different jobs that an ALSP can do. Indeed, 33% of global corporations within the ALSP Report said that not being aware of services or where to find them was a factor in not using ALSPs.

To help solve for this, O鈥橦ara recommended approaching the problem with more than just a technology solution. 鈥淎ttorneys are going to forever be skeptical of technology, and that鈥檚 good,鈥� he explained, adding that by centering the human and casting the ALSP鈥檚 offerings as part of a wider team鈥檚 efforts, ALSPs can help ease client fears of trying something new.

鈥淲e can鈥檛 overemphasize how important trust is, and it begins with constant communication.鈥�

鈥淎s we integrate all of these different elements, that鈥檚 where I鈥檝e seen the most success,鈥� O鈥橦ara said. 鈥淚鈥檝e seen that be the best delivery of the best combination and use case for how to leverage these teams.鈥�

Mehera added that identifying the client鈥檚 culture is important when approaching those conversations 鈥� as is reflecting how a team with diverse skills can supplement that culture. For example, some corporate law departments may be more tech-savvy than others. 鈥淎ll of these clients are using AI in their business. Can we be reflective of that as well?鈥� Mehera asked.

Finally, O鈥橦ara noted that it鈥檚 important to be realistic when talking about what an ALSP can do. 鈥淲e realize that driving a lot of these changes takes an investment. We鈥檙e pragmatic鈥� and not guaranteeing immediate return-on-investment if it鈥檚 a long-term project, he explained.

O鈥橦ara also said that rather than looking for new tools, lawyers often take the mentality that 鈥渨e need more hammers to break more rocks.鈥� However, for those that take the plunge to try a new path, ALSPs can supercharge a matter 鈥� a value that law firms and corporate law departments alike are beginning to see. More than two-thirds of law firms (69%), in fact, believed that using ALSPs can help them scale and expand their own business.

鈥淚 think there鈥檚 all sorts of different ways that you can partner with vendors and providers in the industry to accomplish what you need to,鈥� Mehera added. 鈥淚 think it鈥檚 in our best interest that everyone succeeds. If you succeed, we succeed.鈥�

Since 2019, compliance has seen a noticeable upward shift among corporate law departments鈥� strategic focus. While roughly 15% of respondents listed compliance as an area of strategic focus in 2019, that number increased to 22% by the end 2022.

Law departments realize that this shift in mindset does not come without cost. More than one-third (36%) of corporate law departments surveyed for the report say they anticipate increasing their legal spend on regulatory matters in the coming year, compared to just 8% that expect their spend to decrease in that area. The report also details a metric called net spend anticipation (NSA), which reflects the number of respondents expecting a decrease subtracted from those expecting an increase. Regulatory matters saw the highest NSA of any practice reported this year, 10 points higher than the NSA for labor & employment, the next closest practice.

All this suggests that there is a potential boom in regulatory work upon which law firms could capitalize. However, it is very much an open question as to whether law firms are positioned effectively to take advantage of this potential opportunity 鈥� or whether corporate clients are even really considering law firms for the work at all.

According to the Alternative Legal Services Providers 2023 report, regulatory risk and compliance services are the top use case that have corporate law departments turning to alternative legal services providers (ALSPs), funneling that work to ALSPs rather than traditional law firms. One-half of corporations surveyed for the ALSP report indicated that they used an ALSP for regulatory risk and compliance services. Indeed, across the globe, use of ALSPs for risk and compliance services was high and seen as likely to grow over the next five years.

Corporate clients are quite clear on why they are choosing ALSPs for regulatory risk and compliance services. A majority of respondents (57%) cited access to specialized expertise as one of the key reasons they use an ALSP for risk and compliance. Clients also look to ALSPs to help drive greater efficiencies and to help free up internal legal teams to work on higher value, more strategic work.

This is not a new finding either, corporate law departments have been citing risk and compliance as a key use case for ALSPs for as long as the report has been produced. Going back to the original ALSP report in 2017, risk and compliance was the top use case for corporate law departments using ALSPs. It has been clear for some time that when it comes to regulatory risk and compliance needs, corporate law departments have a preference for ALSPs.

This creates a potential problem for law firms that are looking to capitalize on any impending surge in regulatory work within corporate law departments. Beyond those corporate clients that already use an ALSP for regulatory work, another 24% expect to be using one within the next five years.

Some law firms are looking to bridge this gap through partnerships with risk and compliance ALSPs, with 52% of law firms reporting that they have created such partnerships. This can certainly help to round out the service offerings a law firm can make to clients, but it necessarily creates a revenue-sharing arrangement that can negatively impact law firm profitability. On the other hand, for law firms that have carefully considered the question, such arrangements may well be the outcome of a calculation that trying to spin up a separate, wholly owned ALSP offering from within the firm would be more difficult and less profitable, so the partnership creates the best potential outcome going forward.

The evidence from the research demonstrates a persistent gap between clients鈥� desires to use ALSP services for regulatory risk and compliance needs, and law firms鈥� willingness to create captive ALSP affiliate offerings to address this need.

Even with this being the case, however, relatively few law firms appear poised to take the step to create their own risk and compliance ALSPs as a captive unit. While 21% of law firms responding to the 2023 survey said it was 鈥渟omewhat likely鈥� that they would create an affiliate risk and compliance offering, only 4% said they 鈥渄efinitely will.鈥� Looking back historically, this number is basically unchanged from the 4% of law firms that said they would likely set up a regulatory risk and compliance ALSP affiliate within the next five years in 2017.

The evidence from the research demonstrates a persistent gap between clients鈥� desires to use ALSP services for regulatory risk and compliance needs, and law firms鈥� willingness to create captive ALSP affiliate offerings to address this need 鈥� a problem present for half a decade now. Law firm captive ALSPs have been among the fastest growing segments of the ALSPs market for several years; according to the 2023 report, it was the fastest growing segment. The issue is not that law firms do not know how to create profitable captive ALSP offerings with high-growth potential; nor is the issue a lack of demand for ALSP services around risk and compliance. Rather, it appears that law firms are instead choosing to focus their captive ALSP efforts elsewhere, such as in eDiscovery, litigation support, and legal research services.

In a legal marketplace where demand appears to be tightening once again, and where law firms will need to be increasingly competitive in order to capture shifting market share, regulatory risk and compliance is one area where law firms may want to reconsider their go-to-market approach. Despite a high degree of demand, regulatory risk and compliance remains a playing field upon which relatively few law firm competitors aggressively have entered.

The data-driven report on the ALSP market 鈥� published every two years by the 成人VR视频 Institute in partnership with The Center on Ethics and the Legal Profession at Georgetown Law and the Sa茂d Business School at the University of Oxford 鈥� tries to bring quantitative precision to the growth, potential, and challenges of this innovative market. As part of that research, 成人VR视频 conducts interviews with dozens of leaders at different ALSPs, getting a first-hand view into how these organizations are adapting to and driving changes in the legal landscape.

Leaders of ALSPs say their companies are growing strongly 鈥� the report found that in the past two years, the field has grown 45%. And that leaves many ALSPs looking to hire. 鈥淭oday, the talent that is coming to us is extraordinary,鈥� says the founder of one U.S.-based independent ALSP. Some of these legal professionals might otherwise be facing layoffs, but in the wake of the pandemic, others are looking for a different career and style of working than law firms have traditionally offered. Law firm leaders are suddenly finding that they need to sell the partner track to associates, rather than simply assuming that every young lawyer prioritizes a partner slot above all else.

This attitudinal shift in the talent mindset could have impacts across the legal industry, and the full implications of such a transition may not be known for years. But ALSP leaders say the experience and credentials of people looking for a substantial career change is impressive, and it is changing the perception of ALSPs.

Changing legal work landscape

The exact nature of law firm layoffs may work to the advantage of some ALSPs. 鈥淟aw firms started letting go, not their rain makers, but their service partners, who were their subject matter experts,鈥� says that same ALSP founder about the last rounds of law firm layoffs.

For many of those people, says a U.K. partner who runs their law firm鈥檚 internal ALSP, an ALSP may be a better fit for an individual鈥檚 strengths and career aspirations. For some of those considering leaving the traditional law firm career path, working at an ALSP may mean 鈥渄oing what they enjoy, which is doing law,鈥� the U.K. partner notes, adding that not every lawyer relishes business development or is a good manager, and for those, an ALSP might be a better fit.

These subject matter experts could also enable ALSPs to move into new service areas, such as into advisory work. 鈥淲ith more and more AmLaw staff on our bench, we鈥檝e been angling to go more upstream and provide services that law firms provide in terms of expertise and counsel,鈥� says the chief product officer of a U.S.-based independent ALSP. This leader also says they see potential in service categories related to labor & employment, regulatory matters, and privacy. 鈥淲e鈥檙e gaining traction.鈥�

Depending on who, exactly, chooses a career outside of traditional law firms, a movement to ALSPs could also have an impact on firms鈥� efforts to meet their goals in diversity, equity, and inclusion. It鈥檚 not a stretch to think that those who are most interested in an alternative way of working would include an over-representation of those who have traditionally had the hardest time navigating the more stringent law firm career path.

ALSPs say they are already seeing a change in the mindset of their clients, who now have a better understanding of the potential and allure of remote work. They鈥檙e also understanding that it doesn鈥檛 make sense for a lawyer, necessarily, to be acting as a project manager on a large matter. Further, ALSPs have identified the value of putting non-lawyers into leadership positions 鈥� a strategy which is often untenable for law firms 鈥� empowering ALSPs to leverage business and operational expertise in both the day-to-day running and strategic direction of the business.

Says one partner at a U.K.-based law firm ALSP:

It always used to be, 鈥業 need a lawyer who’s an expert in data privacy five days a week to sit next to me in Doncaster鈥� or some other remote place. Now it’s very much more. 鈥業 need these skills, for this amount of hours. I don’t know or care where they are, if they can work remotely, as long as I meet them.鈥� And I think that has opened up the market significantly.

Over the past few years, those clients have gained a better understanding of why lawyers might choose to work differently, and in fact, have gained more experience with remote work themselves. Clients also have seen colleagues make career choices that would have seemed surprising just a few years ago.

鈥淲e would hear from our clients all the time, 鈥業f they鈥檙e really that good, why aren鈥檛 they at a big law firm or why aren鈥檛 they in-house?鈥欌�� says the general manager of one U.S.-based independent ALSP. Now, he says, clients see that ALSPs can allow them to work with the same attorneys they would have hired from an AmLaw 50 firm. 鈥淭hey were at an AmLaw 50 firm 10 years ago, and they didn鈥檛 leave because they weren鈥檛 as good,鈥� says the general manager. 鈥淭hey left because they wanted something different.鈥�

More and more, that 鈥渟omething different鈥� is often a way of working that ALSPs are only too happy to provide.

You can download a copy of the 成人VR视频 Institute鈥檚 Alternative Legal Services Providers 2023 Report here.