The AI Revolution Is Here. Who Will Be the Winners and Losers in Legal Services?

The explosion of generative AI has triggered endless speculation about the extent to which technology threatens the law firm business model.

Empowered by the ability to automate more routine work, corporate legal departments could do more in-house and depend less on outside counsel. Legal teams would also have more choices, working directly with tech vendors to subscribe directly to AI tools that can help inform their decisions on everything from litigation strategy to changes in employment law.

But legal industry experts say AI isn’t a threat to firms. If anything, it’s giving them more to do, and changing their value proposition for in-house clients.

However, AI is still a disruptive force in the legal services market. Legal tech vendors, alternative service providers and law firms are all vying for in-house counsel’s attention, and the winners in the legal field will be those who figure out how to put it to the best use for those clients.

“This technology is going to be a game changer, and we’re just in at the ground floor,” said Stephanie Corey, co-founder of the legal ops consulting firm UpLevel Ops.

In-Sourcing AI

Most in-house teams are in the early stages of AI adoption, but some legal departments are starting to realize that much of the work they used to farm out to firms can be done internally.

Ed Sohn, head of global insights for legal services provider Factor, said a groundswell has been building for years in legal departments toward “in-sourcing,” mostly through the advent of legal operations and the adoption of legal tech tools.

“When I’ve spoken to people throughout the years in working closely with in-house legal departments, I’ve heard people say, ‘There are definitely times when we’re paying a law firm to use tech on our behalf.’ And that’s crazy. We believe there is both opportunity and ability for in-house legal departments to take advantage of a transformative technological wave,” Sohn said.

While legal teams have generally struggled with using enterprise tools, generative AI is different.

“It’s crashing into everyone’s tech stack,” Sohn said. “In-house lawyers can tap into it and adapt it easily if they can just pull together the necessary commitment and collaboration that’s required.”

Some large companies are already experimenting with AI internally. Earlier this year, Intel, DXC Technology, Microsoft, Adobe, Crowdstrike, Ford and Anglo American got together with Factor to form the Sense Collective, billed as “a collaborative community” for sharing knowledge about how to speed up generative AI adoption in the corporate legal realm.

Sohn said the collective’s members are generally larger organizations with a strong tech culture and high expectations around leading in AI.

“They are also companies that have significant critical mass in terms of legal workloads,” he said. “We do have departments that are a little smaller and where AI isn’t as high as a priority, but they have leaders who are trying to innovate. They’re not equipped or empowered to go on huge shopping sprees, but they have a tool entering their environment that can amplify or expand their scale.”

Foundational AI tools like Gemini, Claude and ChatGPT are popular with those smaller teams, Sohn said. “Legal functions are looking at general-purpose AI tools first because they portend great capability,” he said. “This is something that behaves like a virtual teammate. They know how to ask for work from members of their team in very prescriptive ways.”

While a lot of in-house lawyers are busy with the day-to-day work of answering legal questions and reviewing contracts, Corey said legal teams are facing growing pressure to shift their focus to advising on business strategy, so it’s inevitable that a lot of routine legal work will be automated.

“Teams are expected to be more strategic and add more value and not just churn,” she said. “And general counsel are getting a lot of pressure from CFOs. They can’t just spend willy-nilly. And now with this technology, I think it’s going to be an accelerator.”

With tightening budgets and more big-picture demands on legal, Corey with UpLevel Ops said legal tech partners and alternative legal service providers will shoulder much of the daily legal workload, freeing up clients “to do exactly what they’ve been complaining that they don’t have time to do right now, which is be more client-advisory.”

Corey went on to say that she expects to see a lot of alternative service providers ”winning” in this arena, adding, ”They embrace technology already, they’re willing to experiment, their model is not based on hours so they’re not locked into a certain kind of compensation model that the law firms are very locked into. They have every incentive to be more efficient.”

Bracing for Impact

Am Law 200 firm leaders appear to accept the fact that generative AI may shift some work away from their firms and toward in-house counsel.

“We think we would be foolish not to assume that it will, quite frankly,”  said Chris Balch, management committee chair of Mountain West Am Law 200 firm Holland & Hart.

Balch said he doesn’t expect the shift to happen in the near future, but said he could imagine clients such as private equity firms or acquisitive corporations taking due diligence work in-house with the help of generative AI. Holland & Hart’s role could shift from doing said work to advising legal departments on how to use the technology.

“I definitely think there are areas where in-house counsel is going to deploy it, or we license the tech and let our clients know we are employing this kind of technology as a service we provide. Maybe there’s a third element where we buy, build or let in-house counsel use our own tools that may displace the kinds of services we provide,” he said. “I spend every day trying to keep educated on these tools. I’m talking to our AI committee about the tools that are coming that have the potential, and are very likely to be, disruptive. We would be foolish not to remain educated and be thoughtful about the ways we can help clients using technology.”

In the intellectual property realm, Fish & Richardson President and CEO John Adkisson said clients are taking a cautious approach to generative AI due to the precision required for the legal work.

But even when the technology becomes more precise, Adkisson believes clients will still see the value in hiring skilled attorneys. “I think IP clients hire Fish because of a depth of technical knowledge and specialization, and I think that AI as it exists today isn’t particularly well-equipped to provide the same depth that our people are,” Adkisson said.

Stephen Zubiago, managing partner of Am Law 100 firm Nixon Peabody, echoed similar sentiments, noting, “There’s a range of things we do for clients, and the things we do best and the things clients value most and pay a premium for is our judgment, our experience and our advice. Obviously, things that can be routinized and automated are less high-value, and certainly AI may be able to take over some of those tasks.”

While the traditional law firm won’t disappear entirely, Corey predicts that firms will have to change the way they do things to survive.

“You’ll see firms who are insisting on doing things on flat rates and offering technology and knowledge management programs to their clients,” she said. Some will splinter into offshoots, building entirely new law firms that specialize in tech. “Maybe what you’ll see is the techie firm kind of growing and the old-school traditional firm kind of shrinking. And there will be losers. I think you’re going to see some firms folding into each other and going away.”

Plus, there will always be legal departments that can’t or won’t deploy their own internal AI systems, Corey said.

“The CFO is less likely to question law firms, so it’s easier for the general counsel to spend money with a law firm than it is with a tech vendor. So I think that there is a play to be made there now, though maybe not for the bigger companies. For the bigger companies, it does make sense for them to deploy their own technology, usually,” she said.

Corey suggested law firms may have to move to flat rates or subscription models where they charge one price to do large volumes of work.

“If they figure out how to incorporate this technology into their comp model, then they’ll be the winners,” Corey said. “It is not a threat to firms if they embrace it, and figure out how it can best serve their clients.”

AI-Enabled Judgment 

Some firms, perhaps seeing the writing on the wall, have been at it for years.

At a recent event hosted by LegalTech Hub on AI for in-house lawyers, Danielle Benecke, founder and global head of Baker McKenzie’s machine learning practice, said firms can offer their clients value by using their own expertise combined with AI to solve very singular high-stakes problems, what she calls “AI-enabled judgment as a service.”

“We’re going to see more multidisciplinary teams pop up within the firms that are laser-focused on working on really specific problems,” she said. “What is very useful is when you take that reading comprehension capability [of AI] and pair that with playbooks and really helpful use cases and expertise.”

In a few years, Benecke said, the real value will be in solving client problems that cannot be solved now, perhaps created by the technology itself.

“That’s the true opportunity here. If you think about law as a static profession where the types of problems we’re solving don’t change, that’s not true,” she said. “I think we have a technology that is advancing in tandem with the problem. The problem for our clients is increasing legal complexity driven by increasing social and political complexity.”

Clients are also looking to firms to experiment with AI on their behalf. Ari Kaplan, a principal at Ari Kaplan Advisors, said he recently asked general counsel about the types of tasks for which they are most comfortable using AI as part of an annual white paper released by FTI Consulting and legal tech firm Relativity.

“Areas that require more human judgment, like internal investigations for example, were areas where they were still reluctant. But many of them said, ‘we are going to rely on our law firms to assume certain risks of using technology,’” Kaplan told Law.com.

He sees the interplay between companies, law firms and tech vendors as less like the Wild West, and more of a combined team effort.

“I really see this interesting interdependence of intelligence,” Kaplan said. “We’re definitely not at a point where a piece of a piece of technology, even a very advanced piece of technology, is replacing legal counsel.”