New trend in AI application pricing: pay-per-use!

Many venture capital investors have discovered that artificial intelligence startups are adopting a new business model - usage-based pricing (usage-based pricing) instead of insisting on traditional per-user charging (or seat-based pricing) Model).

According to a summary of US technology media, the startup Cresta initially adopted a user payment model, but has now shifted to charging for every conversation its artificial intelligence tools help contact center employees have

Customer service company Intercom released Fin, an artificial intelligence chatbot, in March, pricing it at 99 cents for each customer request it can resolve, different from the company's core customer service product that charges per user.

Hume AI, a laboratory and artificial intelligence startup that studies expressive communication, aims to use artificial intelligence technology to analyze people's emotional changes based on intonation and facial expressions. It has also begun charging per minute, per comment and word volume. . Rewritten as: Hume AI is a laboratory and artificial intelligence startup company focused on researching expressive communication. They use artificial intelligence technology to understand people's emotional changes by analyzing intonation and facial expressions. Additionally, they started charging per minute, per note, and word count

According to public information, usage-based pricing (UBP), also known as consumption-based pricing, is a model that allows customers to pay based on actual usage. Metrics that measure usage correspond to how customers get value from the product

Currently, UBP pricing is becoming more and more popular in the "Software as a Service" (SaaS) field, and is gradually replacing the more traditional pricing model based on subscriptions and user seats. Because UBP directly links the price paid by customers to the value of the product they receive, this pricing method is evaluated as "will become synonymous with value-based pricing models" (value-based pricing).

Karthik Ramakrishnan, a partner at IVP (Institutional Venture Partners), said that usage-based pricing models can help AI startups more closely link product pricing with the value they actually provide, and the latter is measured by It can be the time and effort they save their clients.

But compared to traditional per-user seat charging, usage-based pricing (also known as per-use charging) may not be able to lock customers into packages that generate more predictable revenue streams. Focus on C3.ai, a publicly traded enterprise AI company and developer of artificial intelligence applications, encountered the dilemma of fluctuating revenue and gross margins when it switched to UBP pricing.

Currently, pricing models based on usage can be roughly divided into three types:

Pay as you go is a payment method where customers only need to pay based on what they actually use or consume. This method is very suitable for companies whose business needs fluctuate greatly

Per-unit pricing (per-unit pricing), customers pay based on resource usage in units. Cloud providers that provide more granular services prefer this model;

With tiered pricing, customers can choose the level that suits their needs. If the usage exceeds the limit, they will be upgraded to the next level and higher pricing. There is usually a free tier to start with.

Rewritten: Usage-based pricing, also known as "metered services", is similar in real life to the metered service model of purchasing electricity or water from a utility company. This pricing model was initially favored by SaaS and "Infrastructure as a Service" (IaaS) cloud providers as a way to retain customers by allowing them to use the service in a natural way and without paying an upfront fee to subscribe.

The advantage of UBP pricing is that through the transparency of the pricing model, it is easier to directly link the customer's usage cost to the supplier's resource consumption. For users, it is possible to start using the product at a relatively low cost, minimizing adoption resistance. For vendors, allowing more users to access a product within the same account can lead to more new use cases and even encourage a group of users to share their experiences with other potential users within the company or external organizations, thereby expanding the total addressable market ( TAM).

In terms of disadvantages, This pricing model relies on the changing needs of customers, which may make it more difficult for suppliers to predict financial data and obtain sustainable recurring revenue, and may even harm the business's long-term growth. But data shows that adoption of UBP pricing in the B2B SaaS space has nearly doubled over the past five years, with three out of five companies using some form of UBP strategy.

Naomi Pilosof Ionita, a partner at Menlo Ventures, another venture capital firm, pointed out that in addition to the need for faster strategies to prove their value to potential customers, artificial intelligence startups may also increase the efficiency of customer employees, which may lead to customers eventually hiring Fewer employees. This means that under the traditional subscription model, fewer users will generate revenue for AI companies

All the above reasons make AI startups more willing to try new pricing models. At the same time, amid the current macroeconomic challenges, where enterprise customers are increasingly laying off workers and cutting back on spending, and taking longer to make software purchasing decisions, usage-based pricing may be easier for enterprises to adopt because it allows customers Flexibility to adjust spending over time.

Some analysts pointed out that the rise and gradual popularity of UBP pricing are closely related to the development characteristics of the technology itself:

Automation: With the continuous development of software, more and more manual processes can be automated. Although the more successful a product is, the fewer user seats a customer will need, pricing based on user seats does not scale with the value that automation brings

Advances in artificial intelligence are taking automation even further, ultimately eliminating the need for entire teams to perform tasks continuously, so that monetization is no longer tied solely to the human users of the product

For many of the fastest-growing software companies, the value of API (Application Programming Interface) far exceeds that of UI (User Interface). APIs enable software to talk directly to other software without relying on a user interface to demonstrate its value

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