Israeli AI Firm Daro Lays Off a Third of Staff Amid Profitability
Israeli artificial intelligence company Daro, which develops AI for the legal sector, laid off approximately 60 employees in July, representing about a third of its workforce. The company had been profitable for three consecutive years prior to the layoffs.
Daro stated that among those dismissed were lawyers who served as legal analysts and were instrumental in building the knowledge base for its AI system. This move aligns with a broader trend and a thesis promoted by venture capital firm Sequoia Capital over the past two years, advocating for a shift from "software-as-a-service" to "service-as-a-software."
Under this new model, companies would sell the final output or result of their AI, such as an opinion, report, or analysis, directly competing with the cost of human labor rather than software licenses. This approach is driven by the significant disparity in spending, with organizations spending approximately six dollars on professional services for every dollar spent on software. The global software market is valued at around $650 billion, while the professional services market, targeted by this thesis, is estimated at $10 trillion.
Several companies are already operating within this service-oriented AI model. For instance, Harvey, a legal AI company, recently raised $550 million at a $15.5 billion valuation, with annual recurring revenue exceeding $400 million. However, the article notes that companies like Harvey are still growing their employee base, with Harvey increasing its staff from around 860 to 1,560 in the past year, resulting in a lower revenue per employee compared to typical software companies. This highlights that AI-driven outputs still require human input for development, testing, and refinement.
Other examples include Cera, a customer service AI company that raised $950 million at a $15.8 billion valuation with a business model based on paying per resolved inquiry. In the US, artificial intelligence has been cited as the primary stated reason for layoffs for five consecutive months, with over 112,713 job cuts attributed to AI by July of the current year. A Stanford University study also indicated a 19% gap in employment for younger workers in AI-exposed professions compared to older workers in the same fields.
Despite the trend, regulatory constraints remain. Legal representation and the signing of financial reports still require a qualified human professional who bears ultimate responsibility. Sequoia Capital itself acknowledges the potential market size for this shift could range from $5 trillion to $50 trillion. The success of this "service-as-a-software" model will be measured by how much revenue is redirected from labor costs and the creation of new job opportunities in these sectors.
