The Significance
Of course, law firms don’t always have to buy legal tech—they can build it themselves. But that’s usually not the cheaper option, especially when it comes to generative AI-powered products.
While legal tech providers will often charge a flat fee for their generative AI-powered offerings, those directly accessing generative AI models—the technology powering these products—are paying a fee tied to usage. If law firms were to build their own generative AI tools, how much it would cost would depend on how much they’re using it.
“We’ve done a bunch of work with it. But the more you use, the more expensive it is, because you’re paying per [usage]—so it can get extremely costly,” said Ed Empamano, Dykema’s Chief Information Officer.
What’s more, the technology itself is only one part of the overall expense. Law firms without a cadre of AI experts and coders, as well as data governance processes in place to support their generative AI development efforts, are facing a much more expensive scenario. David Cunningham, chief innovation officer at Reed Smith explained that “the biggest costs will be the new roles, investments in data quality, and the time and attention from the firm’s lawyers and staff to learn, experiment, and bake AI into their DNA.”
Many law firms are therefore sticking with purchasing products from legal tech vendors. But given the rising costs of these offerings, they’re also scrutinizing them more closely—ensuring they do what the providers claim they can—before making any decisions.
“I’m starting to hear rumblings within the Am Law 200 where they’re like, ‘You know what, we’re not taking a pay increase right now…. We want to wait because you’re telling me what this product can do. You’re not showing me that I can really use it right now,’” Webster said.
Law firms are also taking into consideration what the ROI will be in buying a legal tech product. But with generative AI, the ROI isn’t always easy to measure, and will likely take a few years to materialize.
“The difficult part is, in the short term: ‘Are we going to save money by using AI? Is it going to cost the same?’ We just don’t have the metrics to really be able to do that math. But that doesn’t stop us from trying … we can be a part of the cost exercise so we can gather our own metrics on ‘Is this helping? Is it taking less time? Is it getting us better results?’” said Melissa Dalziel, of counsel at Quinn Emanuel Urquhart & Sullivan.
The Information
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The Forecast
Due to the fact that some locked in prices over several years, not all law firms are facing rising technology expenses. But it’s likely that the impact of these price increases will steadily spread across the market in the coming months and years.
“I took a gamble by locking in many contracts over a five-year period which is usually unorthodox. They will usually do three, if that … And thankfully now I’m feeling a little bit better about it. But in three years I’m certainly going to be in trouble,” Empamano at Dykema said.
Firms looking to leverage generative AI-powered offerings will see the impact sooner than most. While many law firms are piloting generative AI tools, those pilot periods will soon end, forcing them to spend considerable amounts to maintain access to the technology.
“‘Pilotmania’ is going on right now. And so everybody’s doing a ton of pilots… But then if you have 1,000 lawyers at 30 bucks a month, that’s real money,” noted David Wang, Wilson Sonsini’s chief innovation officer.
In this competitive environment, slowing down technology investment isn’t often an option. Law firms will have to figure out ways to increase their technology procurement budgets or stretch them out further than before. It’s also likely that many will also become far more discerning buyers, making sure that they get the value and capabilities they’re looking for from their technology products. Going forward, there will be less room—and money—for error.
