Value-based pricing is something that even non-AI (Generative AI is what you are talking about) companies should follow for B2B software. My software company uses Predictive AI to do some heavy lifting in the analytics space and saves at least a man-month of tedious labor and increases revenue by 10+% with no increase in costs. The saved man-month at least establishes a "floor." If I use Value-based pricing, I can charge a $5M company a small fee and a $5B company a large fee for the same offering because the $5B company will get a LOT more value. I want at least 10% of that increased value. (Still unsure what the market will bear in terms of %.) If I licensed fixed-price per seat, I'd end up with the same revenue in both instances.
I’d love to hear musings on AI and the impact on the other common billing model - usage-based. Does AI increase productivity and then more transactions, events, whatever that increases volumes? Or might it decrease volumes due to more efficiencies. I guess it depends on what the volume is based on. I’m thinking of Snowflake, Zuora, Mixpanel, Sendgrid…
My quick take would be AI enhances productivity to a degree that you can narrow usage / volume to exactly what’s needed, which might be a bit of a revenue drop short term…but longer term it gets you to the outcome faster / cheaper which sets up expansion potential…so AI is bad news for point solutions but good news for platforms and suites
Value-based pricing is something that even non-AI (Generative AI is what you are talking about) companies should follow for B2B software. My software company uses Predictive AI to do some heavy lifting in the analytics space and saves at least a man-month of tedious labor and increases revenue by 10+% with no increase in costs. The saved man-month at least establishes a "floor." If I use Value-based pricing, I can charge a $5M company a small fee and a $5B company a large fee for the same offering because the $5B company will get a LOT more value. I want at least 10% of that increased value. (Still unsure what the market will bear in terms of %.) If I licensed fixed-price per seat, I'd end up with the same revenue in both instances.
I’d love to hear musings on AI and the impact on the other common billing model - usage-based. Does AI increase productivity and then more transactions, events, whatever that increases volumes? Or might it decrease volumes due to more efficiencies. I guess it depends on what the volume is based on. I’m thinking of Snowflake, Zuora, Mixpanel, Sendgrid…
My quick take would be AI enhances productivity to a degree that you can narrow usage / volume to exactly what’s needed, which might be a bit of a revenue drop short term…but longer term it gets you to the outcome faster / cheaper which sets up expansion potential…so AI is bad news for point solutions but good news for platforms and suites
Great summary of AI + pricing