| I agree with the premise - not all situations benefit from usage-based pricing. However, this discussion misses many dimensions of what makes usage-based pricing valuable. It’s akin to a poorly developed benchmark that doesn’t consider all the real world factors but tries to win on one vector. Here are some other intangibles: (1) Subscription pricing is difficult to scale upwards. The concepts of upsells and new products are difficult to execute and increasingly result in lower and lower adoption. Each new capability needs to be “sold in” with a new sales motion creating endless amounts of feature creep and unused features. (2) If your costs are variable and your revenue is fixed, you better hope your customers don’t like you or your product is really simple. Otherwise, you risk more margin compression as customers use you more and more beyond what you modeled. The difference between your ARR and the cost to serve gets smaller. Like a perverse Innovators Dilemma. (3) Innovation tends to be simpler with usage based pricing, when done right. In a subscription model, product teams tend to be much more conservative. Each new sellable feature needs to be fully supported with training and enablement for sales teams. When the product fails to grow like the first product, then the sales team becomes increasingly more conservative. It’s a viscous cycle. Usage- based pricing makes a lot of the above moot. If any existing or new benefits of the product are offered to all customers, then it actually aligns the incentive of your company and your customer. Use more to drive revenue (you) or use more to get more value. Of course, marginal value isn’t always the same, so that’s when usage tiers develop. Now how you quantify all this I’m not sure. But there are far more simplification benefits to usage based pricing. |