Is seat-based pricing dead?

Is seat-based pricing dead?(cloudedjudgement.substack.com)

11 points by madmax108 1 year ago | 6 comments

eskibars 1 year ago |

Seat-based pricing isn't dead, but it's on life support, though it has nothing to do with AI now or realistically in the future.

Consumption based pricing is becoming/already the norm for 2 reasons. As a SaaS operator, my storage/compute/etc costs tend to go up with your usage. If I can bill by the metrics that affect my cost, then:

1. It feels more fair to the buyer (pay for what you use) and

2. Investors and finance folks like it because I can build a pricing model with consistent gross margins

This whole thing is hinged on the multitenant SaaS model generally though, and it being so prominent. For example, if I ship self-managed software, I no longer genefally incur hardware usage costs (except my support costs probably go up roughly linearly to usage).

AI doesn't affect any of this reasoning.

eesmith 1 year ago | |

If you realize you can cut your storage/compute/etc costs by an order of magnitude, will you pass that savings on to your customers?

Or will you increase your margins?

igetspam 1 year ago | | |

In my last job, we did both and used the latter as part of our pitch to migrate customers to newer architecture. In order to justify the R&D, you have to show a benefit to your margins or the time spent has less value. Not everyone will share the savings with their customers, which is why doing it is good for sales. Show the customer you care about their spend and not just your own.

eskibars 1 year ago | | |

As always, "it depends." But for those that are dubious: VCs generally dont like companies that have super high gross margins, because it signals you might have left growth on the table.

In general, if you set your original pricing to yield an acceptable gross margins % and you cut your costs by 10x, you pass roughly that on to your customers if you're being smart

tadfisher 1 year ago |

Sometimes your product's value is derived from how much time each user saves using your tool. In that case, charging per-seat aligns incentives for both parties.

If Zendesk charged per-message or per-issue, then the incentive for the customer is to use the product less, creating less value for both parties. They would be eaten by a product that charges per-seat and optimizes for efficiency.

AI pushes the equation toward a local maximum, but it's a fallacy to assume it will reduce the number of seats for which you can charge.

GiorgioG 1 year ago |

This is just some drivel from yet another VC touting AI will change everything. Fuck off already.