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Generative AI: Disrupting Competition and Pricing Models in the Legal Market

Generative AI is poised to transform the competitive landscape for midsize and large law firms, with potential implications for pricing structures and client services. While smaller firms may not be left at a disadvantage, the adoption and efficient use of generative AI can make firms more competitive overall.

Law firm leaders and consultants recognize that generative AI has the power to level the playing field between midsize and larger firms. Lawrence McMichael, chairman of Dilworth Paxson, believes that the technology will bring greater efficiency to legal processes, reducing costs and the number of people required to deliver services.

Gina Rubel, founder of Furia Rubel, echoes this sentiment, emphasizing that firms that adopt and develop AI policies for efficiency and effectiveness will enhance their competitive edge. However, Rubel also points out that the impacts of generative AI integration will vary across practice groups and industries, urging firms to be mindful of these differences.

When it comes to pricing, McMichael highlights that clients in the litigation field are increasingly rate-sensitive, creating a need for firms to compete effectively on pricing. As machines eliminate certain tasks, firms can deliver the same level of service with a smaller organization, limiting the advantages of scale. Ralph Baxter, former chairman and CEO of Orrick Herrington & Sutcliffe, adds that generative AI will reduce costs for both attorneys and clients, allowing lawyers to serve more people and ultimately decreasing expenses.

However, Baxter advises firms to consider the associated costs of integrating generative AI. While the technology has the potential to cut long-term costs, initial investments in time, effort, and money are necessary. Nevertheless, he predicts that vendors will flood the market with solutions, facilitating the implementation of generative AI into legal workflows.

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As generative AI becomes more prevalent, there may be a shift in how legal fees are calculated. Baxter envisions a departure from the traditional billable hour model, with fees based on alternative methods. This change is driven by the increased efficiency brought about by generative AI, which accelerates tasks and lowers prices. While this benefits clients, it challenges the sustainability of the billable hour model and may require firms to innovate and find new ways to price their services.

Ed Estrada, principal and founder at Estrada Legal Consulting, acknowledges that some areas of legal practice are more resistant to fee changes due to automation. However, he believes that high-volume transactions and litigation cases, which have been subject to automation, will experience significant fee reductions. This trend may extend to other sectors, but its extent and speed of adoption depend on market dynamics and client pushback.

In the end, generative AI holds the potential to reshape competition and pricing models within the legal market. Firms that proactively embrace and effectively utilize this technology will position themselves for success in an evolving landscape. While challenges and uncertainties remain, the benefits of generative AI for both firms and clients make it a transformative force in the legal industry.

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