Blurred Lines: Addressing Rapid Growth in the ALSP Market
In a previous blog, I highlighted the simple, undeniable fact that the legal industry is broken, particularly in regard to our relationship with data and modern technology (or lack thereof). But today, it seems even more clear that as law firms continue to look the other way or drag their feet in adopting modernized solutions, many of which would positively transform multiple aspects of legal work to the benefit of both our clients and the industry at large, alternative and non-legal entities are quickly stepping in to reap the benefits of our apparent indifference and inability to solve these problems on our own.
Now, I’ve been pretty vocal over the years about the legal industry’s serious need for a reality check, but the truth is that in the information age, access to “reality” is often no further than a few clicks away. And this time, it comes by way of the Thomson Reuters Institute in the form of their biennial report on the Alternative Legal Service Provider (ALSP) market.
According to the report, the ALSP industry, which includes a broad range of entities outside traditional law firms offering legal-related services, expanded considerably at a compounded annual growth rate (CAGR) of 20% from 2019 to 2021. This represents a 5% increase from the gains recorded over the previous two-year period, but even more worthy of attention is the Institution’s assertion that the study “reveals an evolving legal market in which the boundaries between ALSPs, law firms, corporate law departments, and even technology and software firms are rapidly blurring.”
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While this truly shouldn’t be surprising given the ongoing trend of rapid digital transformation across virtually all other industries, it should no doubt come as a wake-up call to a significant portion of traditionalist firms that have remained largely resistant to adopting modernized processes and technology. But if the lines between traditional legal service providers and tech-savvy ALSPs are in fact blurring, what does that actually imply for the future of partner firms, as well as their ability to retain and serve existing clients?
In my view, the answer depends entirely on the individual firm - at least for now. In fact, it’s worth noting that while the report identifies independently operated ALSPs as the primary drivers of overall growth in the sector, it also reveals that so-called “captive ALSPs,” or those owned and operated by traditional firms, represent a smaller yet faster-growing subset of alternative providers. Still, in the absence of any real and coordinated commitment to digitalization within the industry, what we're left with is a burgeoning and wildly fragmented legal-tech space, and one that currently, and somewhat ironically, is tilted disproportionately in the favor of non-legal participants.
The bottom line is that the business of law is evolving whether we like it or not, and the immediate and emergent needs of corporations and individuals honestly couldn’t care less about the ostensibly sacred “legacy” of the traditional legal profession. In other words, clients don’t just want change, they require it, and if your firm isn’t ready to provide that change, they’ll be more than happy to find it elsewhere.
Forbes contributor Mark A. Cohen summed it up beautifully in his recap of both the ALSP study and Thomson Reuters’ broader 2023 report on the state of the legal market, in which he contrasted the slow-moving digital transformation of traditional firms with the rapidly evolving needs of businesses and consumers in light of myriad societal, geopolitical, and macroeconomic obstacles: “The legal function must align and collaborate with other business functions to meet these challenges as well as participate to seize the opportunities they present. This cannot be accomplished by fealty to legacy models and cosmetic change at the margins.”
