How AI will cross the legal chasm
Some perspectives from my experience selling cloud e-discovery and contracts tech
Here’s how I see it playing out: Corporate legal will adopt AI technology more quickly than Biglaw due to pressures from the general business world and the existence of legal operations to help select reliable tech. Biglaw will struggle with adoption due to their reliance on the billable hour, which could be threatened by AI. Among firms, solos and smaller firms will be the earliest adopters as they are less bureaucratic and can rearrange their business model around new technology more easily. More on all this below.
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Here’s how I anticipate AI will impact the legal industry is based on my firsthand experience watching cloud e-discovery and contracts technology “cross the chasm” and become widely accepted by lawyers. A few predictions:
Corporate legal will adopt more quickly than large law firms
One of the biggest lessons of my legal tech sales career is that corp legal departments are far more sensitive to changes in the general business world.It’s because they’re pressured to. Pressure comes in the form of, say, sales demanding legal to approve contracts more quickly. Corporate legal exists to enable the business, so if the business moves more quickly through the use of technology, like AI, that trend will impact in house lawyers.
Two additional drivers will also drive this trend forward. First, there will be budget available to adopt new tools. It may be legal’s own IT budget (see here) or another department’s budget—but regardless of where it comes from, money will be made available to buy new technology. Second, the existence of legal operations means there already exists a function that can help select the most reliable, trustworthy tech.
This is all very different than Biglaw’s position in the legal ecosystem. They feel the effects of the general business world less, and can adopt new technology at their own pace. Ultimately it’ll take longer for Biglaw to embrace AI. Of course, not everyone sees it the same way: Taher Hassonjee and Zach Abramowitzbelieve Biglaw will adopt this tech much more quickly than other technologies in the past.
For them, AI represents such a giant leap forward that all firms, including Biglaw, will embrace it much more quickly, perhaps even more so than in-house. I’m not sure I agree—although I certainly enjoyed Taher & Zach’s shoutouts to Ironclad’s success with corporate legal. I shared my own view on Twitter yesterday:
Large firms will wait to see how things play out
I’ll admit that AI is certainly entering the Biglaw world with fanfare. In addition to a series of high profile pronouncements that they’re using AI (see here and here) there does genuinely seem to be excitement about all of these new technologies. However, this isn’t a consumer product that a buyer can just purchase when they get excited about it. There’s going to be a ton of adoption, implementation, and change management issues—especially since Biglaw firms are archipelagos (decentralized) and can’t make buying decisions quickly.
In my opinion, Biglaw firms are too reliant on the existing model of billing out expensive partners and associates by the hour, and over time, will be hesitant to deploy technology that could threaten those profits. It’s one thing to issue a big PR announcement embracing AI,it’s another to convince all the partners to pony up six or seven figures in annual software fees, and yet another to encourage all lawyers at the firm to use technology that has a chance of reducing profits in the short run.
Will there be isolated groups of early adopters within these firms? Will some firms succeed in overcoming institutional blockers? Certainly. But they’ll be the exceptions that prove the general rule that most large firms will hesitate and wait (at least on an organizational level) to see how things play out.
During this “waiting period” we’ll be seeing more articles about the risks of AI. They’ll show up in the form of concerns about reliability or security. Some may challenge the ROI of adopting this tech.All of that obscures the true reason for the delay—the concern that this new tech will erode profits.
Solos and small firms will embrace the tech
Solos and small firms (“smalls”) aren’t plagued by the bureaucracy of large firms. They can buy software and implement it quickly. As any legal tech startup founder can tell you, it’s infinitely easier to sell to a managing partner of a 10 attorney firm than it is to sell to a similarly sized Biglaw practice group. The latter has too many outside stakeholders that can block the deal.
In fact, an even bigger advantage is that smalls can rearrange their entire business model around new technology. I saw this as an e-discovery salesman. Large firms needed to find ways to make new cloud e-discovery tech align with their litigation support departments. Smalls didn’t struggle with that—they didn’t have lit support so they didn’t need to shoehorn the new solution into existing infrastructure. The lawyers just used the tech directly.
Selling to smalls isn’t without its challenges though. Many of these firms go out of business, and churn is high. It’s also tough to distribute the tech to this fragmented market efficiently—which is critical for startups to service this segment profitably.Which is why most startups gain traction selling to smalls eventually moves “upmarket” to sell to larger customers with bigger deal sizes.
Having said that, the smalls segment is vital because widespread adoption in this niche creates social proof for larger firms to start trying out the tech. In 2016, the biggest objection to cloud e-discovery was “we don’t trust the cloud.”But in the seven years since then, that objection largely disappeared because so many people—including lawyers—use it.
To sum it all up, I believe that widespread AI adoption will hit legal departments first, then small firms, then Biglaw. And it’s all going to take a little bit longer than we might expect. We’re in an AI hype cycle right now, and once that passes, we’ll start to see widespread adoption in less conservative industries and functions (e.g. sales, marketing, or tech companies) Once that happens, I believe it’ll be 5-10 more years before legal AI becomes as widespread.
What do you think about my analysis?
Feel free to share your own perspective in the comments, especially if you disagree! If you enjoyed the article, please forward it on to someone who might find it interesting. If you’re new around here, and don’t know what my newsletter is all about, check out Welcome New Readers.
It’s related to why I left e-discovery for contracts, which I wrote about here.
For those of you who aren’t familiar with legal operations, they essentially help legal departments improve processes and vet new technology. Their flagship trade organization, CLOC, has grown incredibly fast. I attended their annual conference last year and wrote about it here.
Zach will actually be sharing his (different) perspective on his own Substack, which I encourage you to check out.
E.g. this Baker Hostetler announcement from 2016 about AI that sounds like it could’ve been from last week.
I want to be clear that I’m talking about firm-wide adoption here. Not just a few one off cases. I do believe many individual Biglaw lawyers will try out AI and use it in their practices—especially since that’s what happened with cloud e-discovery.
Here’s a recent example of firms publicly wondering what the ROI of legal tech is, which is perplexing given how thoroughly Biglaw firms vet new technology before using it.
Focus on near term profitability is why Biglaw places such heavy focus on hiring rainmakers. If you’re a lateral partner who knows how to sell, and has a portable book of business, large firms will shower you with money. That’s because it’s a direct path to more profits for the firm. On the flip side, you could be the most capable associate—they still won’t promote you to partner unless you show business development promise. Incidentally that’s why I write about sales so much in this newsletter—it’s just such a valuable skill in this world.
Generally speaking, if you sell small sized deals to a fragmented market, you have to acquire and service these customers efficiently or else your startup is doomed. That means some combination of brand recognition, marketing, and product-led growth (e.g. “freemium”). Not easy to pull off. For more on how to sell to lawyers, check out my previous writing here and here.
From Bob Ambrogi in 2016: “Of the lawyers who say they have not used cloud computing, the survey asked them what factors stood in their way. Not surprisingly, the top concern is confidentiality and security.”
I think solos acting as a fractional GC using AI to small businesses on a subscription billing model is the future of legal services.
As a 4 time retiree, this erstwhile public co GC fully agrees with you Alex, however tech history teaches that adoption in-house will be somewhat constrained by same-tribe-ness. Early adopters will, well early adopt — but there are few fast followers even in the in-house neighborhoods of #LawLand, and that customer inelasticity coupled with fear of failure permits the firm to talk but not walk. Change us inevitable but pace is determined by When/if more customers demand #DeliveredValue.