Hi there,
"But will this time be different?"
It’s a question I recently asked Maui Gevero, one of our most experienced legal pricing experts here at PERSUIT (and formerly from Am Law 10), in the context of how AI is changing how legal services are delivered — and firm economics with it.
Because every time there’s a shock to the system, firms, corporates, and everyone else stuck in the middle of this very imperfect model of firm economics wonders:
“Will this time be different?"
"Will the system finally be shown for what it is — unsustainable?"
"Will things actually change?”
Here’s what Maui told me.
Many firms are in for a shock.
Here’s why.
While making change happen in corporate legal departments can be a slow and painful process, other areas of the business are moving much faster.
For that reason, corporate legal departments are feeling tremendous pressure from peers (and their CEOs) to incorporate AI into how work gets done.
As a result, we can expect to see a few things happen.
(1) The pie for firm work will start to shrink, faster than you think.
Internal teams will get more productive — and fast.
Propelled by new efficiencies and pressured to use AI to manage their legal spend, they’ll start to accomplish more in-house.
Why buy 20 hours of work from a firm for contract drafting when you can have an AI tool draft a contract in 5 minutes, then pay a firm for one hour of work to review it?
(2) Firms won’t be able to charge nearly as much for their slice of the pie as they once did.
As in-house teams see the potential for what AI can help them now do in-house, they’ll soon come to expect the same thing from their firms.
Their question to firms will then become: “What were you previously billing for that can now be done by ChatGPT and other generative AI?”
I think it’s generous to say that we’re maybe only one year away from billing guidelines saying that firms can’t charge clients for contract reviews, drafting, document collations, and summaries (at least like they used to).
The end state is inevitable.
No doubt, there will be some hurdles along the way — privacy concerns, regulatory responses, the tug of war between supply and demand-side pressures as both sides struggle to imperfectly negotiate change together.
But those challenges will be overcome eventually.
So we know how this story will end.
For firms and in-house teams alike, it’s time to start accepting the inevitable.
And if I were still wearing my firm shoes, the first question I’d be asking is this:
“What value am I adding to my clients that can’t already (or soon) be done by ChatGPT and other large language model AIs?”
So firms, GCs, and everyone else with a stake in this teetering firm economy; I’d love to hear your thoughts on the subject.
Is this time really different?
And if so, what are the hard questions that you’re asking yourselves and your teams right now?
Cheers,
