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SaaS Pricing: AI and Improved Software Favor Usage-Pricing Over Seat-Based Pricing
There is increasing demand for usage-based or consumption-based SaaS software pricing. Usage-based pricing lets users see their exact usage and typically provides a much affordable path for businesses that how software needs that are limited or infrequently occurring.
Laurie Wurster, research director at Gartner, said that “people don’t want to pay for cloud like they don’t want to pay for shelfware, so users are demanding consumption models. If I’m paying for payroll software I use twice a month, I don’t want to pay the same as someone who uses the software all the time. I want to pay for how much I use, not just having access to the product.”
But vendors have been very reluctant to move to the pay-per-use model. With pay for use, vendors will find it more difficult to control and plan revenues, and many expect that a usage model would shrink overall revenues.
But as software improves, SaaS vendors are finding that pressure on revenues coming from user seat-based pricing. Seat-based pricing has the advantage that it can provide more consistent recurring revenues. But as software improves, becomes more streamlined, and as new AI features are added, some applications, like customer service, are making it so that fewer people are needed to get the same amount of work done. That means that fewer seats need to be purchased and there is less revenue for the vendor.
Fred Hsu, CEO of agent.io, said that “expect to see SaaS companies start charging based on usage. That might mean charging for AI work – because it costs compute cycles. The more efficiency a customer wants, and the more they rely on the AI, the more they will end up paying for service, but the less they will pay for staff. “
