LinkedIn Article by Tim Williams
Published October 22, 2019
If you agree that time-based billing is a suboptimal way to capture the value you create, consider the implications of machine learning. Will you be sending your clients an invoice for the five seconds it took for artificial intelligence to review an elaborate contract, prepare a complex tax return, or produce multiple versions of a digital ad campaign?
For businesses that sell knowledge and expertise, billing for time has never made sense, and the brave new world of A.I. will render the hourly rate system even more meaningless.
Arguably there’s no better example of expertise than artificial intelligence. The Economist reports that computers, not humans, drive 60% of all financial trading activity. Computer chips and algorithms are ruthlessly proficient, and the information and results they produce can be immensely valuable. But the speed with which they assemble information and solve problems bears no relationship whatsoever to the value created.
For firms that have based their businesses on the “work a million hours, earn a million dollars” revenue model, the brainpower and effectiveness of the supercomputer presents a monumental challenge.
Cognitive intelligence and professional services
Rapidly developing capabilities in A.I. not only allow professional service firms to provide information and solutions faster but open up vast new horizons of value and effectiveness that are simply not possible using only human resources. In the world of advertising, WPP’s Xaxis uses A.I. to collect contextual data about how people engage with product ads online, then uses that data to assemble completely custom messages to individual audiences — all in the blink of an eye. The company AdTheorent employs machine learning to predict the most effective messaging for each consumer, then dynamically assembles personalized online ads in real-time. Business models like these beg the question, “What should the executives of these 21st-century firms put on their timesheets?”
In Australia, Ailira is an artificial intelligence that automates legal research. Ailira knows federal tax law better than any human practitioner ever could. It can also answer natural language questions. If you’ve been billing by the hour in your tax practice, solutions like this will force a search for better monetization strategies.
Platforms are replacing services
What should be the revenue model of firms that employ technology endowed with creative intelligence? Units of time (hours) are now rendered irrelevant, suggesting solutions like licensing, subscriptions, or even just a fixed price for value delivered. Blackwood Seven, a new type of media agency based in Denmark, uses predictive analytics and artificial intelligence to make media spending decisions for marketers. In fact, Blackwood Seven isn’t a media agency as much as it is a software platform, charging its clients a software fee rather than hourly rates or commissions.
The machine learning revolution may be the catalyst that finally pushes the professional services business to productize. A.I. solutions are best sold as products and programs, not activities and efforts, which is the basis of the hourly rate system.
Campaign magazine writes that “Artificial intelligence algorithms can now replace social media agencies, paint a ‘new Rembrandt,’ compose commercially viable music and even direct films.” An A.I. algorithm known as Albert can test different combinations of creative elements and messages and optimize the effectiveness of a marketing campaign. But even if A.I. can’t yet replace human talent in firms that sell knowledge and creativity, its current capabilities are producing seismic shifts in how firms must price their work.
In the near future, cognitive intelligence will make the concept of billing for time seem as quaint as the first digital calculator.