💰 AI savings for me, not for thee

To corporations, perhaps the biggest appeal of artificial intelligence is its ability to cut down on busy work and the expensive humans who do it. 

Morgan Stanley and Citigroup are reportedly pushing their law firms to pass on cost savings from AI, the Financial Times reports. These Wall Street banks pay law firms an hourly rate for time spent reviewing deals or defending them from lawsuits, which can rack up fast. 

And it’s not just Wall Street. Another FT story details how businesses large and small are demanding lower fees from consulting firms that use AI tools. If they have to pay less people to make a power point explaining how to reduce costs and increase revenue, shouldn’t the services be cheaper?

This resparks debate about the billable hour, an unpopular but stubborn fee system used by BigLaw and the Big Four consulting firms. They charge clients for time spent completing tasks, a system critics say incentivises them to drag their feet on work rather than finish tasks efficiently.

"Now we've got a technology that's going to eliminate the sorts of things that allow people to become wealthy off of tedious work," Jeff Bleich, the former top lawyer at Anthropic, said earlier this year.

To be clear: “clients pushing back on big law billable hours” is effectively an evergreen story. Part of the reason billable hour bloat has been difficult to kill is because it's woven into these firms’ compensation and performance structures. It’s not clear yet if AI will be the straw that breaks the camel’s back — and that’s not really the point. The more interesting question is: When AI makes something cheaper, who gets to pocket the difference? Morgan Stanely and Citigroup are certainly not slashing their M&A advisory fees because making a pitch deck is cheaper. 

The Takeaway

Law firms and consultancies are paying AI companies for the same reason their clients want a discount: to make more money.

Which big bank will be the first to pass on AI-generated cost efficiencies to corporate clients? Will the drugmaker that’s thinking of dumping its Big Four consultancy bring down the price of its next blockbuster medicine? I’m skeptical. 

So far, AI has likely contributed to increasing the prices of goods and services for consumers. That tracks with other times companies have found efficiencies: My grocery store didn’t reduce prices once self-checkout became ubiquitous. 

AI may be capable of cutting costs. Who gets to claim the savings is still a human problem.

— J. Edward Moreno

That’s how much Apple’s market capitalization grew per hour on average during Tim Cook’s nearly 15-year tenure as CEO of the company, according to calculations from Bank of America.  On Tuesday Cook officially passed the baton to the company’s next CEO, John Ternus, the former head of hardware. 

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