AI cost scrutiny is a win for LegalTech

As the excitement surrounding agentic AI wanes, LegalTech is grappling with the rising costs of advanced AI models. Vendors and customers are now focusing more on return on investment (ROI) rather than the potential of AI. This shift is welcomed, especially after a period of unchecked spending. In April, Uber reportedly exhausted its AI budget for the year and limited employee spending on tools like Claude Code and Cursor.

Amazon also dropped its internal token-usage leaderboard after employees optimized for usage instead of results. Microsoft recently told engineers to prioritize outcomes over tokenmaxxing, capping AI spending as well.

This focus on costs and ROI is a natural development given the complexity and expense of advanced AI models. As buyers become more rigorous in evaluating legal AI, they bring their own documents and questions to sales meetings to test products against real scenarios. Early adoption of AI tools has made it easier to track metrics like turnaround times and task volumes, making outcomes more quantifiable.

Legal technology is also being used by business units, where gains may be more easily measured due to their connection to revenue, costs, and profit-and-loss.

Vendors face the challenge of scaling sustainably in the face of high AI usage costs. Per-seat pricing models may create a structural tension between rising token-based usage and passed-on costs. Switching to a usage-based pricing model can protect margins but risks further fuelling customers' fears of spiralling costs. To address these issues, AI vendors must make smart technical choices.

They need specific tools for each task rather than relying on the most powerful (and expensive) option for every query. Multiple agents can be built for different workflows, each powered by a different LLM or version. Usage of the LLM needs to be more targeted, using the right-sized model for each task rather than a one-size-fits-all approach.

This focus on AI costs and ROI is positive news for LegalTech, as it emphasizes the need for solid foundations and returns for vendors and investors alike.