The AI dividend: Who captures the gains in the new legal economy?

Commercial models have not yet caught up, but the prevailing consensus is that pricing will eventually adapt. This raises a couple of important questions: 

Who will capture the value created by AI-driven efficiency? 

Will firms convert freed-up capacity into more billable work and higher margins, or will clients capture the gains through lower fees? 

The benefits AI brings to legal work can be described as the “AI dividend”. This dividend has two main components: cost reductions and quality uplift in the form of faster, more reliable delivery. Cost reductions are the more visible of the two and tend to dominate discussions around the benefits of AI. While cost reductions represent a real opportunity, firms will find their true competitive edge when they understand quality uplift.

Consider why clients have always turned to legal advisers: to manage risk. 

From this perspective, the value of AI-enabled quality improvement becomes clear. Within the same time and budget, lawyers can deliver higher-quality work – closing transactions faster and with greater certainty, identifying risks that might otherwise be missed, and preparing more thoroughly for litigation. Many clients are more than happy to see costs stay flat if it secures better outcomes on what matters most to them. 

The challenge is that much of this dividend remains invisible. Increased quality does not appear on the invoice, and neither do the hours that were never billed. Firms adopting AI must therefore focus both on creating value through more efficient use of time, and demonstrating and communicating that value to clients, who are increasingly determined to see their share of the dividend. 

General counsel are under growing pressure from boards and CEOs to cut budgets, as are leaders across the business. Faced with this, in-house teams have two options: adopt AI internally and insource work previously sent to law firms, or push outside counsel to use AI and pass on the savings. While practice varies by market, this dynamic is already visible: RFPs increasingly ask firms which AI tools they use, and what savings those tools deliver.

Naturally, firms see it differently. They are the ones investing in AI adoption – why should they pass all the gains to the client? Yet a growing number of clients ask the opposite: if AI makes legal work 20% more efficient, why is my bill not 20% lower? 

While many questions about the economics of AI remain unresolved, one thing is certain: clients will demand their share, reward the firms that deliver it, and walk away from those that do not. 

The good news is that the dividend is not a fixed pie to be fought over. AI makes the pie bigger by increasing the output of each lawyer. Clients can receive greater value for money, while firms serve more matters, at higher quality and more profitably. Law firms should aim to capture their share of the dividend while giving clients measurable benefits they can take back to their boards. A win-win is not automatic, but it is achievable for firms that pursue it deliberately. 

Law firms today have two strategic priorities. The first is creating value with AI. The second is structuring the offering so clients can see what they are getting, while firms retain a fair share of the gains. How the dividend is ultimately divided depends on a number of factors, including fee arrangements, bargaining power, and competitive dynamics. Some of these are set by market forces, while others are open to strategic choice. Understanding these factors, and positioning accordingly, will be essential for firms seeking to capture their share of the AI dividend. 

Interested in exploring the economics of AI in legal work and what firms should focus on now? Kyle Poe, VP of Strategy at Legora, will lead a deep-dive session on these topics as part of Legora and GGI’s joint AI programme. 

Request more information here.