Israeli AI Firm Daru Lays Off a Third of Staff Amid Profitability
Israeli artificial intelligence company Daru, 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. In a statement, Daru noted that the dismissed employees included lawyers who served as legal analysts and helped build the knowledge base for its AI system.
This development aligns with a trend promoted by venture capital firm Sequoia Capital, which advocates for a "service-as-a-software" model. This approach shifts from selling software subscriptions to delivering direct outcomes like opinions, reports, or analyses, competing on the cost of human labor rather than software licenses. Venture capital firms are drawn to this model because organizations spend significantly more on professional services than on software. The global software market is valued at around $650 billion, while the professional services market, the target of this new thesis, is estimated at $10 trillion.
Within the legal services market in the U.S. alone, worth approximately $400 billion, companies are emerging that embody this shift. Harvey, a prominent legal AI company, recently raised $550 million at a $15.5 billion valuation, with annual recurring revenue exceeding $400 million. However, these companies often require substantial human input for development, testing, and maintenance, leading to significant employee growth. Harvey, for instance, grew from about 860 to 1,560 employees in the past year, with revenue per employee around $260,000, lower than average for a software company.
Other sectors are also seeing this transformation. Reiny, a financial advisory firm managing about $700 million, aims to eliminate its consultant base within three years. In May, DeepL, a translation company, cut 250 jobs due to AI-driven structural changes. Similarly, Cyra, a customer service AI company, raised $950 million at a $15.8 billion valuation with a business model focused on charging per resolved inquiry rather than per seat or monthly subscription.
In the United States, AI has been cited as the primary reason for layoffs for five consecutive months, with over 112,713 job cuts attributed to it from January to July. A Stanford University study also indicated a 19% employment gap for younger workers in AI-exposed professions compared to older workers in the same fields. In the U.S. legal industry, entry-level lawyer hiring in the top 200 firms has remained stagnant for four years, despite significant revenue growth, suggesting AI is handling tasks previously done by junior associates. However, regulations requiring licensed professionals to represent clients and sign off on financial reports still necessitate human oversight and accountability.
