Impact of AI on Law Firm Commercial Models

When it comes to the impact of AI on law firm commercial models, it feels as though the disruption is only just getting started

As a general state of the union, we're still in the foothills of applying AI to matters in pursuit of task level efficiencies and seeing some new models emerging outside of the larger incumbent firms (Garfield AI is one of my go-to examples)

And whilst we're realising that an industry that prices based upon cost-plus-margin is in for a rude awakening as tech takes hours out, IMO there's a misplaced optimism in fixed fees and value based pricing as the silver bullet

Absent an exogenous shock (such as the broader AI bubble popping), a likely course of events is that prices come down as clients can take their pick from an increasing number of AI-ified firms, as well as using the same tools for themselves

As such, if unit prices come down, both fee income and fee earner utilisation rates will fall

It will be high leverage, high utilisation firms (looking at you Big Law) that feels this most keenly, but across the board firms are going to need to increase work volumes - potentially significantly:

A 10% drop in prices, requires an 11% increase in volume

A 25% drop, requires 33%

And a 50% drop, requires 100%

So whilst we've not yet cleared the Pricing hurdle, Marketing is next folks

You can form your own view on the size of the challenge here, but my view is that a few over-priced lateral hires isn't going to cut it

Even if firms are fighting over a bigger Jevons' paradoxical pie - they are going to need a step change in organic marketing and business development efforts

And if the pie remains the same size... oof

I daresay we'll see more market consolidation, but it's not going to save anyone - economies of scale in the back office are rounding errors compared to what's required from legal services delivery

Finally, what's that coming over the hill? Is it a monster?

No

But well, yes - it's Operations

Can your case intake team handle an additional 11/33/100% increase in volume?

How about billing?

How confident are IT on the additional cyber risks posed by AI, both now and under the strain of increased work volumes?

You can either step back and take a rounded view on all this now, or you can trip over each hurdle as it arises

The answers will differ from firm to firm (and from practice group to practice group), but the questions are much the same

Impact of AI on Law Firm Commercial Models