A three-part series exploring what a firm built from the ground up with AI would look like
Part I: Will AI Raise or Lower the Price of an Hour of Legal Service? Hint: There’s a Better Question to Ask
Firms today are debating whether to embrace AI, given the risk that it could reduce billable hours—and with them, revenue. Intuitively, we might assume that if a lawyer leverages technology to deliver value more efficiently, clients would reward that efficiency.
But as a solicitor friend at a global firm explained, it’s not often the case; when clients see that work can be completed in less time, they expect a lower bill. They also assume the firm can backfill capacity with fees from other clients.
So, is the client right?
In a competitive market, they probably are. Yet after speaking with forward-thinking lawyers, firm operators, and legal tech providers, I believe this framing misses the real issue.
Why the AI-First Firm?
Before we get to the question that managing partners should focus on, it’s worth asking why technology-enabled legal services are such a hot-button topic today.
From time to time, market forces in technology collide with the practice and force progress in how legal services are delivered. The rise of AI is one of those moments. Large language models—the ultimate language generators—are reshaping professions, like law, that craft language for a living.
I encountered a technology shift in my own practice as a lawyer in the mid-2000s. A partner once asked me to fly to interior British Columbia with the sole task of getting a signature from our client – the CEO of a company about to go public who was tending his vineyard. The client had internet access and e-signature tools existed, but pen-and-paper was considered essential. Today, that same CEO would simply e-sign without hesitation.
E-signatures didn’t change the law of contract. What changed was the market: clients presumably didn’t want to pay associates to fly across the province for the sake of formality. Having a tried a true form of signature wasn’t “better” in the wholistic sense.
The Market Dictates
A similar dynamic is playing out with AI. What happens next depends on what clients want (market demand) but also what lawyers want (market supply).
Clients want wise counsel on complex matters. And as economists Ajay Agrawal, Avi Goldfarb, and Joshua Gans have convincingly argued in Prediction Machines, human judgment is not displaced by AI—it is complementary in the economic sense, meaning that as demand for legal AI rises, demand for human legal judgement will raise also, potentially driving up the price.
On the supply side, lawyers want fair compensation for long hours and costly education. History shows that when innovation boosts productivity, wages rise across industries. Otherwise, talent drains toward more innovative fields. The Baumol Effect explains why services like healthcare—with less productivity-enhancing innovation—have seen costs spiral upward. Even if law firms resist innovation due to culture or regulation, lawyers who can deliver judgment rooted in deep expertise will continue to command high rates.
There is a catch however. The current industry structure may not survive intact. Revenues overall could shrink, and partners in firms that lack strong brands may struggle to maintain prior levels of compensation or even their practices.
What’s Happening Now
Rather than relying solely on economic theory, we can observe three important shifts playing out today:
- Legal fees are moving upward—as in prior technology cycles—reflecting higher cost bases for firms.
- Alternative fee models are gaining traction. BC’s AltFee has found clients willing to pay an average of 10% more when value-based modifiers are itemized on bills – suggesting technology value can be captured with thoughtful scoping.
- In-house counsel are adopting AI tools directly. They are no longer just organizing contracts, but using generative AI to draft market-standard clauses (e.g. Harvey) and negotiation platforms (e.g. Luminance) to integrate approved terms seamlessly into deals.
Even so, in-house teams continue to prize external counsel for breadth of experience and judgment. AI provides legalese on tap; but law firms often provide the wisdom to best apply it.
The implication for firms is clear. Instead of asking how to adjust pricing to preserve legacy models, the pressing question is: how should firms redesign service delivery so clients continue to rely on their services over the many DIY tools now at hand?
The Right Question: How to Redesign Service Delivery
Attempts to modernize the practice with AI often falter. Hallucinations are one reason, but not the only one. Too many firms treat AI as a bolt-on—another tool in the tech stack—rather than rethinking workflow from the ground up.
The real opportunity lies in creating integrated, AI-native processes and building what technologists would call a moat. The e-signature innovation of the current era is the AI agent, or even the AI “associate,” embedded within carefully architected workflows.
The goal is not patchwork efficiency but a unified system—a castle of productivity surrounded by a technology moat. One that clients will cross to reach the inner court of advisors with uncommon judgement and global outlook.
Coming Next – The Practical Steps of Legal Innovation
In the next installment, I’ll examine the practical steps firms can take to innovate in this environment—steps that hinge on the rise of a new role: the legal engineer. Who are they, and how can firms of all sizes put them to work today?
Finally, in Part 3, I’ll return to the question my solicitor friend raised: if AI saves time, how do firms fill the resulting capacity to maintain revenue? The answer lies not in billing, but in building stronger client pipelines, using an array of AI tools now on the market.
Steve Lowry is a lawyer turned technologist, cofounder of the Artificial Intelligence network of British Columbia (AInBC) and the currently CEO of Broadsight, an AI-based workflow platform for communications professionals.
To continue exploring these topics and take part in the conversation, reach out to Steve on LinkedIn.
