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A closer look at the legal market

This article examines the legal market and notable trends affecting the legal profession.

Pieter Gunst
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A closer look at the legal market

Introduction

The global market for legal services encompasses all transactions for legal services worldwide. In 2021, some sources estimated this market at around $767.1B globally, with 2020 seeing a slight decline, potentially due to the pandemic.

To put that into perspective:  

  • The global pet food market is estimated at around $75 billion in 2021. 
  • The global market for iPhones, based on 2020 sales, was $138 billion. 
  • The global airline industry was valued at 686 billion U.S. dollars.
  • The global legal industry comes in slightly above that at 767 billion.
  • Which is about half as the global tourism industry, estimated at $1,541 billion.
  • Which is about half as commercial real estate globally, estimated at $3,167 billion.

The United States is by far the largest distributor of legal services globally, with some estimates pegging the US total market size at $437 billion, over half of the total global market size.

These numbers can be broken down into much more detail along a variety of vectors, such as the geography in which services are delivered, the areas of law involved and the type of individual or entity delivering the services. 

Attorneys and Law Firms

Attorneys in private practice and law firms make up a large part of the market, but they are not the only stakeholders, and firms wildly vary in size and target customer segment.

Thomson Reuters data estimates a breakdown between law firms of various sizes for the US market. Off all the money paid to law firms in the US: 

  • 39% or $108B spent on services provided by small law firms (1-29 attorneys)
  • 35% or $95B spent on services provided by large law firms (175+ attorneys)
  • 26% or $73B spent on services provided by mid-size law firms (30-174 attorneys)

Small law firms may be more likely to service clients that are individuals and small businesses, while larger law firms are more likely to be serving the needs of larger corporate clients. 

Large law firms make up a significant portion of the market, but the market is highly fragmented. The largest 100 law firms globally generate over $111B in revenues in 2020 or about 15% of the estimated total market for legal services. The largest 10 law firms globally generated $29.6B in revenues in 2020 - less than 4% of the total market for legal services.

One interesting question is whether the nature of law firms is changing. The Amlaw 200 list, a ranking that tracks the 200 biggest US law firms, saw the entry of FisherBroyles, a law firm with $105 million in revenue in 2020 that is completely virtual, maintaining no offices.

And it’s not just large law firms that are changing. In a world where attorneys are not tied to the law firm library, have more tools than ever at their disposal to generate new business and can find community beyond the firm’s watercooler, it’s also become easier to strike out on your own.

It’s important to touch on one important characteristic of law firms and the legal services market in particular: it is heavily regulated. Quite often, these regulations form a major roadblock for innovation and the creation of new ventures in the legal space.

The UK liberalised their legal services market with the creation of the Alternative Business Structure’ (ABS) – effectively allowing non-lawyer ownership of law firms for the first time. A couple of US jurisdictions are experimenting with “regulatory sandboxes” that relax some of the regulatory requirements to which legal services providers are subjected.

Corporate Legal Departments

Despite any regulatory restrictions, changes in the legal market are driven by demand, and corporations make up a large portion of the demand for legal services. 

In the US, corporations spend over $160B on their in-house legal departments, over ⅓ of the total US market for legal services. In addition to spending a sizable amount of money on hiring attorneys, corporations are also a major client of law firms, and in particular the large firms.

The size of legal departments varies widely by company size and industry. A 2021 survey by CLOC found an average headcount of 104 full time employees across participants, but average headcount also varies significantly by industry. In other words, companies in certain industries have a larger need to hire attorneys on staff. 

The role of legal departments is changing as well. One notable fact is that over 80% of legal departments were hiring for “legal operations” roles in 2020. Legal operations is a field that involves leveraging people, processes, and technology to increase the efficiency of legal services delivery within organizations.

As the size and sophistication of legal departments grows, the legal function is becoming more and more operationalized and thought about as another business unit to be optimized. This creates a wide range of opportunities for professionals that may not have a background as an attorney, but can help support and shape corporate compliance processes in other ways. 

Alternative Legal Services Providers

The legal industry has seen a rapid increase in the provision of legal services by accounting firms, outsourcers, legal staffing companies, and other “alternative legal service providers”. In 2019, $14B was spent on ALSPs, with about 10% of that market controlled by the “Big Four” accounting firms. 

While the segment is rapidly growing compared to law firms in particular, it still pales in comparison with the revenues generated by firms. Expect to see a significant amount of further evolution in this space during the next decade.

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