• In-house legal teams adopt AI at higher rates than large law firms, which stick to billable hour models.

• Over 50% of legal tech company customers are in-house teams, with private law firms remaining cautious.

• AI’s impact on law firm compensation and promotion structures is uncertain and evolving.

Legal tech companies continue to encounter resistance in selling AI products to large law firms, a Law.com report shows. Despite increased client expectations for efficiency, firms operating on billable hours lack incentives to streamline processes through technology, leading to slow adoption of AI-based solutions.

"More often than not, a lot of large law firms that say that they use AI are using it for back-end or operational purposes," said Daniel Lewis, U.S. CEO of the legal AI firm LegalOn. "It's not necessarily touching client work or the billable hours yet."

• 53.33% of the Global 100 are already using GenAI tools in their billable work and another 40% are planning to do so within the next six months, according to a survey by Persuit. 

• However, most firms in the survey reported that the amount of billable work that is actually impacted by Gen AI tools is small (5% or less).

"If you're billing by the hour, you're not really very incentivized to buy some software that makes it take fewer hours to do the same thing," said James Clough, chief technology officer and co-founder of Robin AI.

In-House Teams at the Forefront

In-house legal teams, by contrast, have fewer hurdles. With budgets to manage and cost-effectiveness in mind, these teams are embracing AI tools more openly, aiming to reduce workloads and increase efficiencies across their operations.

• According to the Law.com report, in-house lawyers and Fortune 500 companies make up over 50% of many major legal tech companies’ customer base.

• "We find in-house teams are much more motivated by speeding up work and efficiency gains with AI tools such as contract review," Lewis said.

Hybrid Pricing Model

Many AI experts and lawyers believe the sector is moving towards a hybrid pricing model, with the hourly billing model becoming redundant and other value pricing models emerging. 

"When you have Generative AI technologies that can churn out first-cut legal opinions in minutes, where it would usually take a lawyer about half a day at least, that's a significant disruption in how we produce legal deliverables," said Rajesh Sreenivasan, head of the technology, media and telecommunications law practice at the Singapore "Big Four" law firm Rajah & Tann. "So a new pricing metric is needed." 

Early Stages of AI Adoption

Both law firms and legal tech companies agree that AI is set to accelerate career development and eliminate the early grunt work that was once viewed as essential to climb the corporate ladder. This will allow junior lawyers to advance faster, which will require law firms to rethink their pay and partner structure.

"Law firms have a greater complexity of politics because of their partners," said Harry Borovick, general counsel at U.K.-based legal artificial intelligence firm Luminance. "So if they spend money on technology, it comes out of the partner pool."

Legal tech leaders note, however, that the current AI adoption rate is still at an early stage. It remains to be seen how the technology will impact law firm bonus structures and partner promotions.