As reported late last month, the “ALSP industry is thriving” and “reshaping the legal landscape through both partnership and competition with traditional law firms”, new research shows.

Thomson Reuters’ newly released Alternative Legal Services Providers 2025 Report revealed that ALSPs had an estimated market size of US$28.5 billion in 2023, marking an “impressive” 18 per cent compound annual growth rate between 2021–23.

More than half (57 per cent) of corporate law departments surveyed said they rely on ALSPs for a range of services, including flexible resourcing, e-discovery, and litigation support. Both firms and law departments, the provider wrote, are “increasingly recognising the value of ALSPs for the specialised expertise, cost-efficiency, and ability to manage high-volume tasks”.

Moreover, in-house teams are poised, the report found, to increase spending on ALSPs, “particularly in areas such as legal managed services and software”, as they become more and more comfortable with alternative delivery models.

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“The ALSP market is positioned for continued growth, with new services and innovative delivery models on the horizon,” Thomson Reuters said.

Meeting demand

In conversation with Lawyers Weekly, Lawyers on Demand Australian managing director Paul Cowling said law departments are facing a “perfect (or imperfect perhaps) storm”, comprising rising workloads, tighter budgets and the rapid evolution of AI.

“As we move further into 2025, legal professionals are not just reacting to change; we are observing them strategically reshaping how they work to stay ahead,” he said.

“Companies (and law firms to an extent) are looking for smarter ways to outsource the ever-increasing demand being placed on their teams without breaking the bank. ALSPs and contract lawyers will continue to play a major role in meeting this demand.”

Technology, Cowling continued, is “rewriting the legal playbook”.

“AI and advanced legal platforms are no longer just buzzwords – they are becoming essential tools. Legal teams are automating workflows, enhancing decision-making and managing priorities more effectively than ever before,” he said.

“Flexible talent remains a requirement, and the need for scalable legal solutions continues to grow, with contract lawyers and hybrid roles stepping in for time-sensitive, high-demand projects.”

Axiom Australia managing director Jacob Flax echoed this, noting that when he speaks with GCs and other department leaders, their struggles are consistent: “trying to ‘de-risk’ their organisations while budgets tighten, implementing new technologies with limited resources, and staying ahead of regulatory changes with budgets and legal teams already stretched thin”.

Flax wasn’t surprised by Thomson Reuters’ findings, he said, adding that the challenges will intensify for corporate lawyers as the year progresses.

He pointed to 2024 research from Thomson Reuters, which showed that “traditional law firms continue to drive profit growth primarily through rate increases, with worked rates growing an average of 6.5 per cent to 8.4 per cent, and 99 per cent of legal departments we’ve surveyed report understaffing and a lack of resources”.

Tech changes

AI has reshaped client expectations, Cowling posited, marking one of the biggest market shifts to contend with.

“Whilst we haven’t yet seen direct requests for ‘AI lawyers’, there is a clear expectation that legal professionals will be well versed in AI’s impact on business and legal operations,” he said.

“Industries with comparatively deeper pockets and forward-thinking legal functions – banking, telecommunications, and technology, for example – are leading the way in adopting AI-driven solutions. As AI’s influence grows across all sectors, legal teams will also need stronger expertise in AI regulation, compliance, and ethics.”

Flax said that Axiom anticipated high demand for legal AI talent over a year ago, and thus moved to recruit such professionals.

Clients are utilising such tech-enabled talent, he said, to design and implement AI data governance, privacy, and compliance programs; conduct AI regulatory assessments and AI bias reviews; evaluate AI’s impact on IP protection; and drive AI technology selection decisions, implementation, and usage.

Those clients have also, he added, “expressed a growing demand” for assistance in training and validating the reliability of their legal AI models.

For teams that lack in-house AI expertise, Cowling espoused, flexible legal talent “can bridge the gap”.

“Whether it is bringing in contract lawyers with niche knowledge or leveraging ALSPs for AI-driven legal support, the future of legal services will be more agile, tech-enabled and cost-conscious than ever before,” he said.