Generative AI - What could happen in the Legal Services Market - Part Two
A few months back we wrote a piece setting out what could happen to the market with Generative AI - The Future of Law Post Generative AI (October 2023) — Hyperscale Group Limited. We did this to benefit the market and thought it might be helpful to set out our latest thoughts based on client discussions. As many of you will be aware Hyperscale work for law firms (some of the largest in the world to niche players and everything in between), as well as corporate legal functions, global corporates and procurement functions Testimonials — Hyperscale Group Limited . What we are setting out in this article draws on many of these discussions and segments of the market (in so far as we are able due to confidentiality).
Originally many people predicted that Gen AI could have a material negative impact on law firms. Whilst this still could happen I think many are beginning to realise that the opposite may come to pass (i.e. this may give rise to huge volumes of legal work and so law firms could be busier than ever albeit methods of delivery will need to alter in some cases). More of that later.
In terms of things that could happen in the market, the following summarises some of the key themes:
1. Emails – Many Copilot users find that it is really improving the speed that they can deal with emails. Whilst on an individual basis this is good, if the whole world does this it could be catastrophic and will have a negative effect on efficiency. Currently, 364 billion emails are sent per day which is rising at 4% per annum. The more this increases the more we run the risk of being busy fools. Many of our switched on clients are working with us on strategies to drive the better use of email (especially internally).
2. Work in-house – There is a general view that more work will be done in-house as in-house lawyers embrace Gen AI tools. There is however a concern that many business users within corporates are going to be leveraging these tools themselves to produce legal documents and in-house lawyers may or may not be happy with this.
3. More verification work – Generative AI primarily generates content. There is a general view that people (in particular law firms) will be required to verify things more so there seems to be an uplift in looking at Playbook and document hygiene tools. Again, this goes to the efficiency point in that there is a massive difference between producing a document from a precedent and reviewing a document of unknown origins. The latter can take much longer, and so people are attempting to address this.
4. Legal issues – There will be a lot more legal issues as Generative AI brings with it a huge number of complexities. More of this later.
5. Claimants – There will be more claimants and people issuing complaints. The complaints will be easier to generate and better quality. Less thought will be required.
6. Sector changes – The dominant sectors for firms today may alter and again we need to be cognisant of this.
7. Supply chain issues –Many technology suppliers seem to want to include AI in their products and to charge clients for it whether or not they want it. Clients don’t always want this as they have their own strategies and Gen AI. Also, for some suppliers this is not their core area and so the way they are using Gen AI perhaps does not have the level of governance you would imagine. Also, under SaaS terms and conditions the quality of the output is obviously not guaranteed and there are normally very low liability limits. Gradually this area is being governed and we have seen the European AI Act, ISO42001 as well as legislation in the US. www.litig.org has also done some work in this area with an AI Due Diligence questionnaire but the more we get into this area the more it is apparent that there are many issues that need to be addressed and it will take time to unfold. It feels like the market is going through a period of recalibration.
8. Disintermediation – Many in-house clients feel that Gen AI will alter the shape and size of work going to law firms and what they do themselves. Also, the way that work is prioritised will vary. The technology will make some areas of work much easier but perhaps other areas will have higher risks. In any event there is still a view that law firms may be disintermediated in some areas and will need to develop new solutions and approaches.
9. Pricing changes – When these technologies are used we need different approaches. If a piece of work that actually takes 30 minutes is billed out at 3 hours, that is technically illegal. Also, where a law firm has invested in technology, clients can’t expect law firms not to recover the cost of the technology and “building the machine” and the cost of supervision that still needs to go into the work.
In fairness we are seeing some growing realism in this space. Clients legitimately seem to want to know what technologies are being used and what exactly is happening with their data. Once they are past that if the approaches are acceptable they seem to just want sensible pricing models and options to be presented to them. We are also seeing some law firms adopt different risk and pricing models for different approaches which reflect the underlying technologies which were used as well as the risk profile. Many clients we are talking to see certain areas of work moving much more to fixed pricing output models.
10. Products – We anticipate an array of new products being launched. Again, the interesting point here is going to be to what extent is certainty of output required and will this be delivered by these products or would that require a proposition with a completely different price point? As one savvy practitioner put it, “people can’t have their cake and eat it”. Gen AI gives you what Gen AI gives you. If you want certainty it takes more effort to build the machine (verification models etc) or human supervision.
11. SaaS vendor price increases – Managing this area is already a material challenge - The Silver Lining of Cloud Software? — Hyperscale Group Limited. With a greater proliferation of products in the marketplace, some SaaS vendors are finding sales hard and accordingly people are seeing material pricing increases on renewals. Many SaaS vendors see Gen AI as a huge opportunity and many want to include this in their products and to charge for it irrespective of whether or not clients want it. Many clients by contrast seem keen to leverage their own Gen AI (often based on Microsoft) and/or the work the legal publishers are doing. For both law firms and in-house this will be a difficult area to navigate.
12. Increased risk –The more content we produce and the less time we have to look at it, the more risks are going to emerge in the marketplace. Also, at the risk of stating the obvious, virtually all of the suppliers in this marketplace (including those developing Gen AI themselves), take very little responsibility for the output produced. The world of professional services and law firms is very different to this. What we can’t have is a situation where law firms are held accountable for the accuracy and quality of output that they have not been allowed time to review with no other players in the market taking any real responsibility. We will write more on this shortly.
13. Increased Risk 2 – We have all heard of the £25 mil Hong Kong deepfake video call scam and the ability for voice avatars to be generated in seconds by Gen AI. For some time frauds and KYC will evolve and financial data and law firms need to be ready for this.
14. Training and Education – In recent years there seems to have been a decline in IT training with many firms not having the same level of investment as they would in the past. Again, this is changing. People are beginning to recognise that we are going through a huge period of change where people need to be educated on the tools (e.g. how to prompt effectively), the risks (what approaches does a firm want to take?), pricing (what approach does the firm want to take?) and legal ops generally. We are seeing a variety of solutions including www.theprofessionalalternative.com . However education is delivered it is vital that we bring on our people and also that in-house lawyers educate their business users as to what they should and shouldn’t be doing, taking into account the wider risk to their businesses.
The above might sound a little daunting, and I don’t mean it to be, but there are also some huge upsides for lawyers. In fact various conversations have surfaced a wide range of positive scenarios.
Many of our clients see a real rise in contentious work potentially with less demand for non-contentious work, although I am not certain I fully agree with this. Legal areas which will grow include those such as IP, AI, fraud investigations (e.g. basic use of AI as well as deep fake video and voice avatars), SaaS advice, data protection, multi-jurisdictional advice, litigation, defending group litigation, data breaches and cyberattacks, deep fake advice, business restructuring, refinancing and M&A. The list is potentially endless.
Everyone is also expecting to see a whole range of new offerings with law firms and tech suppliers delivering in a different way, potential areas include Copilot plug-ins (why is it only the publishers who have announced this?), increasing efficiency via new platforms, new delivery mechanisms, new pricing models, consultancy services, implementation businesses, new KYC services to deal with the growth in deep fakes, new products and tools, new video related products and solutions.
Conclusion
Having spent 30 years in this market I (and many savvy clients we work with) am convinced we are going through a real period of change.
This should not scare us though for three reasons:
1. The legal market has been incredibly resilient for many years. It is one of the few professions that has survived for years without any material scandal. We have a strong track record.
2. For law firms and lawyers to thrive, we don’t need a buoyant economy, what we need is change and we are probably going to go through an unprecedented period of change.
3. I am a firm believer that lawyers (both in-house and private practice) have a duty to be the moral compass of the world and draw a line between what is right and wrong. We are perhaps entering an era where things are less clear and the world is walking through fog. I think lawyers have a key role in helping the world take the right decisions.
Finally, I think this could be a golden era for IT and innovation professionals. For many this is a new area but is perhaps the greatest example we have ever had of how technology is going to change our world and is here to stay. Technologists really did prove their worth in Covid-19 and perhaps this will be the period that reinforces the strategic contribution that they now make to business life.
Yes, we are going to go through enormous change but I for one are not doom and gloom. I see huge opportunity and every day meet great people who I am confident can navigate their way through some of these challenging times.
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