March 5, 2025 - Several years ago, 66% percent of companies said they planned to bring more legal work in-house and grow the general counsels office. But by 2024, that had already mostly played out — there were officially as many lawyers in-house as at all top 500 law firms.

This surge of “insourcing” has not coincided with an increase in legal budgets or work. As a result, one in four legal departments expects to decrease the number of law firms they use.

Many commentators expect 2025 to be a challenging year for law firms. Let’s discuss the ways some are adapting.

Technology and Expenses are Driving Work In-House

The technological advances of the past two decades have made in-house legal work possible. Databases like LexisNexis and case management software like Clio and MyCase have allowed fewer lawyers in more disparate geographies to do more work. It has also given in-house teams something of a technological advantage.

As in-house teams have adopted technology, they have become ever more avid adopters and have outpaced law firms in expertise. Thirty-four percent of in-house legal teams are using AI-specific tools compared to just 19% of midsize firms.

At the same time, law firm revenues have soared over the past decade as bill rates have risen. While 97% of general counsels surveyed said they have contracted with law firms due to their lack of resources, 100% said they were unsatisfied with the cost, quality, or other challenges, according to Axiom Law.

General counsel dissatisfaction paired with in-house tech savviness has led nearly all teams to plan to insource. This trend may only accelerate as companies aim to trim their legal budgets. General counsels are also shifting work from larger to smaller firms and trying to leverage AI more out of fiscal necessity. According to Axiom Law’s survey:

• 96% of general counsels had their budgets cut in 2024
• 54% of general counsels had their budgets cut by more than 10%

The recent Thomson Reuters survey results confirm the new general counsel priorities: Controlling outside counsel costs and adopting technology.

Yet a shift to in-house work cannot happen overnight. As our long experience in the staffing and talent industry suggests, legal teams may struggle to find the right individuals with the right skills, especially if they haven’t hired for those roles before. Ambition is not the same as follow-through, and the in-house movement may still be an opportunity for outside counsel to help.

How Law Firms are Adapting

Law firms frequently top the lists of businesses most “exposed” to AI automation. However, legal work being exposed to automation is not the same as law firms being threatened. Some firms are upskilling their teams and accelerating succession plans to cultivate new skills among leadership. In the next two years, the roles most in demand will be:

• 49% technology and product development
• 48% data privacy and cybersecurity
• 41% new emerging areas such as AI

Law firms can just as soon develop new technological expertise as the general counsel’s office, and though they have historically been slower to, they actually have an advantage in this regard. In the same way, a firm’s repeated exposure to multiple cases makes them experts, they can see more technology implementations than an in-house team.

An in-house team may only initiate one e-discovery migration project over the next five years, whereas a law firm may see 10 or 15. These repetitions and cross-client visibility may allow them to develop intellectual property in these new areas.

Some of the law firms we are talking to are interested in advising their clients on their in-house transition. General counsels know they need to adapt and that they’ll need outside help doing it. Though they may want to hire full-time, they face stiff hiring freezes and budget cuts.

In a freeze, contract labor is often preferable. Eighty-one percent of general counsels feel they lack the in-house talent they need, and 87% say they won’t be able to find a budget for that headcount. This is an opportunity for outside counsel.

Other law firms are preparing to consult their clients on legal technology. Software itself does not impart wisdom, and many in-house teams are sure to discover that while they can automate contract analysis and privilege review, they seriously benefit from expert input.

“The legal tech market is very, very hot at the moment, and there’s a lot of new offerings,” said Andrew Stephens, general counsel at the technology startup MongoDB. “But I would say I’ve been fairly disappointed. I haven’t seen any winners, tools that every department must have. So, I think you need to be very judicious about the money and time you commit.”

This, too, is an opportunity for law firms to advise.

The top opportunities for developing AI expertise:

• Legal research
• Contract review
• Predicting outcomes

The In-House Movement May be an Opportunity

The “in-house” saber-rattling may indicate a desire, but the execution will take time. It is notable that the balance of in-house and outsourced legal budget has remained fairly constant for the past three years — 52% and 48% respectively. As in-house teams have grown, that split has remained constant.

“While the legal market is being disrupted, law firms have the opportunity to find ways to embrace new legal providers and legal technology companies or innovate their own businesses to create more value for their clients,” writes the American Bar Association. “The future law firm will require entrepreneurial leaders, and future lawyers will need an entrepreneurial mindset to continue to adapt in a rapidly changing environment.”

To discuss these topics, please reach out to our Professional Services Practice.