The use of alternative legal services providers (ALSPs) has accelerated in the last two years, with the global market for their services topping $20bn (£16bn), new research has revealed.
It also found that UK law firms have faced less competition from the Big Four accountants than their counterparts elsewhere.
The biennial report on the ALSP market is produced by the Thomson Reuters Institute, the Center on Ethics and the Legal Profession at Georgetown Law in the US, and the Saïd Business School at Oxford University.
The sample of 407 law firms and 242 in-house teams was skewed towards a US demographic, but decision-makers in the UK, EU, Canada and Australia also took part.
At $20.6bn, the estimated size of the market is 45% larger than two years previously, when the 2021 report put it at $13.9bn, which itself was a 30% increase on the $10.7bn figure of 2019.
This was “clear evidence of the acceleration in adoption of these services”, particularly in the US, said the latest report, with ALSPs finding new ways to serve both law firms and in-house legal departments and the boundaries between all three “becoming increasingly blurred”.
But it was also partly due to the entrance of new players into the market, as well as the reclassification and inclusion of software companies that now offer a more comprehensive legal service.
Independent ALSPs make up 87% of the ALSP market and, while captive ALSPs owned by law firms were the smallest part of the market ($1bn), they were also the fastest growing. ALSP services from the Big Four accounted for $1.5bn, growing at 5% a year.
A quarter of the largest law firms said they planned to increase their spending on ALSPs, while only 3% saw it going in the opposite direction. UK law firms were most likely to use ALSPs for legal research, consulting on legal technology and e-disclosure.
The picture was more mixed for in-house teams, with 21% of those currently using ALSPs intended to increase their spend, but 22% expected to reduce it or were part of their plans.
The report suggested companies may be reassessing the uses of ALSPs but the flexibility they provided on staffing was highly valued.
The most popular service categories for UK in-house teams were intellectual property management, regulatory risk and compliance services, and legal research.
The report said that, as the Big Four continued to hire more legal staff, US law firms were seeing increased competition from them for legal work.
“UK firms say they are seeing less competition than they did two years ago, but with EY looking to triple its number of lawyers in the UK and Ireland in the next three years, and with PwC looking to double its legal headcount, competition for winning work may soon become more heated there as well.”
Only 13% of UK firms said a client had used a Big Four firm in place of law firms in the past year, more than half of the proportion in 2021, while only 10% said they have competed against a Big Four firm in the past year, down from 14% two years ago.
Mari Sako, professor of management studies at Saïd Business School, added: “Law firms are increasingly comfortable both using ALSPs and creating their own captive ALSPs.
“Corporate usage is a more mature market, and legal departments are now optimizing how they can best strategically deploy ALSPs.
“At the same time, among the alternative providers, the Big Four are in a unique position to compete with law firms for certain types of legal work. All of these bodes well for continued robust growth of the market.”
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