Get the latest tech news

Is seat-based pricing dead?

Every week I’ll provide updates on the latest trends in cloud software companies. Follow along to stay up to date! Is Seat Based Pricing Dead? If AI delivers on its promise, it may spell the end of the SaaS business model as we know it. Historically, cloud software businesses charged a recurring fee based on the number of users of their software - the SaaS model. Then infrastructure / dev tools software companies took a different approach - more of a consumption based pricing model (I’m generalizing, not all infra is consumption based). Look at Twilio - they charge per message sent. Or Snowflake who charges based on compute used or data stored. At the end of the day, software vendors want to align value delivered with price charged. Back to the Twilio example - let’s say I, as a solo developer, built an application on Twilio that sent messages. And that app took off and was used by millions of end users sending messages every day. If Twilio charged per seat, I only would have paid Twilio for one seat, irrespective of how popular my app became. Twilio would have massively undercharged me! On top of this, every message end users received in my app through Twilio would push costs to Twilio (these are the Twilio COGS). So not only would Twilio be undercharging relative to the value I’m receiving, but Twilio would also be incurring incremental marginal costs that they’re not recognizing revenue for.

As a vendor, if you’re customers are now able to do “more” (ie use the product more / get more value) with “less” (ie seats), then the two issues I laid out above will start to apply to application software providers. In summary, they will start pricing based on the number of automated tickets fully resolved by their AI bot without human intervention. It shows the number of months it takes for a SaaS business to payback their fully burdened CAC on a gross profit basis.

Get the Android app