ALSP 2023 Predictions

by | Feb 23, 2023 | Insights

The legal industry has undergone a significant transformation over recent years. The demand for greater efficiency and client-orientated approaches in the delivery of legal services has fundamentally altered the industry model.

Major firms are now widely dependent on Alternative Legal Service Providers (“ALSPs”) for a variety of legal and business services, marking a tectonic shift in legal market dynamics.

So, we ask the question, where does LawFlex think that shift is taking the ALSP market in 2023?

1. Hiring trends

As current financial pressures look here to stay, firms are looking to ‘rightsize’ their organisation in increasing numbers. As firms are seeking to avoid costly redundancies, we should expect to see more organisations turning to ALSPs and LPOs to fill talent gaps.

Although hiring remains halted for many industries, the Freelance Revolution continues to rage ahead. Fiverr, the online marketplace that connects businesses with freelancers, found 78% of companies will elect to rely on freelancers rather than hire additional staff. Post-COVID-19 remote working policies only make it easier for traditional law firms and legal departments to integrate freelancers into existing teams.

2. Reputation rehab

In recent years, there has been a significant shift in the legal industry’s perception of ALSPs. What was once viewed as a shot across the bow of the traditional legal model has transformed into an offering that leaves both firms and their clients more satisfied than ever.

There are a number of key factors that are leading organisations to place their trust in the use of ALSPs. Historically, firms were reluctant due to concerns over security of privacy and data when outsourcing work. However, these concerns have diminished significantly as the sophistication of ALSPs increased and firms became more receptive to the advantage they can bring. As a result, more organisations are leveraging ALSPs to differentiate, scale and expand their business, and retain client relationships.

Another significant factor attributed to the improved perception of ALSPs is cost pressures. Amidst a cost-of-living crisis, when firms are seeking to reduce their legal spend wherever possible, ALSPs offer shelter in the storm by performing legal processes efficiently, without the costly price tag of a full-time attorney. This also ensures that talent is best utilised. With a quarter of total hours spent conducting administrative, low-value tasks, ALSPs ensure legal talent is deployed efficiently and strategically.

3. Is it final days for the ‘A’ in ALSPs?

Just as the Great Recession ushered ALSPs into the legal mainstream, COVID-19 has affirmed and reinforced their value. To describe the innovative practices of ALSPs as ‘alternative’ underestimates the significance and contribution that such providers are making to the industry. Experts speculate that as ALSPs become fully immersed in the industry, the ‘A’ will eventually be dropped and many of the biggest players will simply be ‘LSPs’.

Who knows, perhaps 2023 will be the year LawFlex rebrands as an LSP! Only time will tell!

4. Growth, growth and more growth!

The LSP market is seeking unprecedented growth, with COVID-19 acting as a significant catalyst. As the economy contracted, firms and legal departments sought alternative solutions to ensure greater value for their legal spend, investing further resources in LSPs.

According to projections, the LSP industry is projected to reach annual revenues of $19 billion by 2025 with an expected growth of 24% a year. 2023 is expected to be a big year of growth with the number of law firms and legal departments that expect their spending on LSPs to increase, far outnumbering those who expect it to decrease.

5. Mega mergers

The LSP merger market is red hot!

Despite 2022 being a year for economic volatility, with the tech community being hit particularly hard, there was a deluge of Legaltech M&A deals and that is set to continue into 2023.

While Legaltech providers closing multiple M&A deals was once rare, in 2022 at least six companies inked two or more deals, with some even closing on four. Litera’s buying spree was most notable, having made 13 Legaltech acquisitions since its 2019 investment from Hg, the global software and services investor.

E-discovery provider DISCO made waves in 2021, becoming one of the few e-discovery companies to go public and list on the NYSE. In 2022, DISCO closed its first ever M&A deal announcing the acquisition of Congruity 360’s regulatory request solutions and its legal workflow products Hold360 and Request 360.

6. New LSPs enter the market

As the LSP industry is anticipated to reach unprecedented annual revenues in 2023, it comes as no surprise that both existing companies and new entrants to the market are receiving substantial interest from investors.

An interesting yet expected entrant into the market, is that of law firms. Corporate firms are developing sophisticated LSP solutions in an effort to compete for increasingly competitive market share.

As the LSP market is still in relative infancy, 2023 will be a critical year. With new entrants and an increase in the sophistication and diversity of services that existing LSPs offer, LawFlex expects to see the industry go through a process of identifying and refining the right business model and market niche.

As LawFlex enters another year for the LSP market, we will be keeping a close eye on how LSPs continue to break the legal industry’s model, what role technology-based solutions play in service delivery and to what extent clients will continue to be the drivers of change.