Episode Transcript
[00:00:00] Speaker A: Human AI collaboration is not important. It's mandatory.
[00:00:03] Speaker B: The funny thing about AI right now as we're recording this podcast is the worst it will ever be.
[00:00:09] Speaker C: Unless you are constantly innovating and keeping up, you're getting left behind.
[00:00:14] Speaker D: At some point we will have AI talking to AI and we will just be in the middle as spectators.
[00:00:19] Speaker E: I talked to someone about this the other day and she said, so what? I'm not worth a human on the phone. Is AI making things more or less expensive?
Mars, I'm Marcos Rivera and this is Street Pricing, where I talk to leaders who are making decisions that shape their growth margins and how they make money. Today, we're tackling one question. Is your pricing model built for what AI is about to do to it? We'll get into how it's already showing up in real pricing decisions, what happens when you replace people with it, and where this is all headed. Let's get into it. I'm really interested in knowing a pricing story where you're seeing a company struggle and maybe even struggle with their AI strategy or where they want to go with AI.
[00:01:07] Speaker A: Well, I can think of many, many different stories, but I will pick up one that I did with one of my startups before some years, because it was a very, very interesting case. It was a company that was selling mobile applications and multiple different mobile applications, and they had the same flat pricing for all countries. They were selling to some richer and poorer countries and obviously with different spending capacity. They understood that they were leaving money on the table, or perhaps they were losing some customers to different price elasticity in different countries, but they didn't know how to handle that. They didn't have any experience with AI, so they asked me to do something about it and this is what I did.
The company that was my first startup company and I was using the same AI model, not the same software, but the same AI model that I'm using with my third startup company, Futera.
And so we analyzed everything and eventually we came up with some prices which were highly differentiated as opposed to the initial flat pricing. In some cases the system proposed to double the price, in other cases to get give an 8% discount. So it was a risky proposal and they eventually did a price experiment. So for three months they sold with their initial pricing. So one price for all countries versus another group where they sold with our diversified prices. Eventually they almost doubled their revenue for these products and tripled their conversion rates, which was a huge success.
And this opened up the window of opportunity for more AI applications into this company and for me, it was a great lesson because the price experiment really helped to understand the business value, not just the accuracy of the models, but also the business value by using AI and pricing.
[00:03:06] Speaker E: Everybody wants more customers and they want their customers to pay more money. There's nothing wrong with that. But what you'll find is as you went through your different pricing model journeys, right, you went through like four or five different iterations of pricing. One thing I like about that, number one, is you realize that as your business dynamics change, you should re look at your pricing model. A lot of SaaS operators out there change their business and some of them right now as we're talking are changing their business to, you know, adopt AI or pivot to serve AI in this day and age. And they're not revisiting their pricing model. They're sticking with the old. Maybe they were charging by the seat or by the channel or by the whatever and they just leaving it alone. I think that's a very dangerous thing in this world.
You even saw yourself as your cost structure was changing. You needed to make a move. And a pivot software traditionally never had to worry too much about cost. Because as you were shifting to the B2B SaaS, I'm sure your economics got better too, right? I mean the software, you build it once, sell it multiple times, right? In this world with AI. And I know I'm folding this in because it's just so top of mind as if your cost structure is changing and you're now shifting your business model. You were a SaaS provider, you're now building agents instead, whatever that is, you should revisit that pricing and packaging model. So specifically back to you, there was a, if you think about the economics of your customer, right? So why do they buy and then they have a certain profit and loss with their customer base too. So what does that look like? When does your payback sort of come back to them based on their customers? If they're doing lots of volume, low ticket, typically speaking, they're a little bit more risk averse and nervous because it's going to take a lot of volume to make up for your fees. If they're bigger ticket, then typically they can make up for your fees a little faster, but the stakes are higher, right? So there's a different risk problem with those as well. If you're able to address those risk problems, you generally have a higher willingness to pay. Because something an old sales leader taught me is that customers are buying confidence, they're not necessarily buying your product. And I always that kind of confused me. When I was younger, I was like, what do you mean, buying confidence? They need to buy this thing to do the thing right. And he's laughing at me now. I get it. Years later, as I'm, you know, in my, in the role that I'm in, it's like when it comes to solutions around software and the services you provide, it's. There's risk. How long is it going to take? Am I going to get the results I want? Am I going to, you know, scale like all those things?
And the more you can address those, which are wrappers around the product, the more you can get a higher price and get people to commit and convert. But make no mistake, there are going to be those that just have some number in their mind. Maybe it's informed by a friend, informed by what they used to spend on the old thing or whatever it is, they won't convert. So you will drop a little bit on the conversion end. But again, LTV goes up, people, you tend to cross sell and upsell that base a little bit more. And that's what leads to the overall better value, better economics for the business.
[00:06:09] Speaker F: We really need to figure out how to price AI.
This is, yeah, this is, this is a big deal. And, you know, some of our counterparts are talking about this a lot.
You know, and the, just the idea of like, how do you do it? How do you do it? Well, I think there's a lot of pricing out there on AI right now that is completely disassociated from its value. I, I don't really understand how a token has any value to me at all.
[00:06:34] Speaker D: Right.
[00:06:34] Speaker F: I don't even know what a token is. It's not even a word. It's something else. Like what? Like, I'm sorry, I get it. It's early days. We got to figure out something because it's very, very expensive to run.
And it's, it's the. Probably one of the first times outside of storage that we have a real cost of goods sold in software.
You know, like a real tangible. The more you use, the more we. More it costs us as SaaS companies. And I think figuring that out is, is what's next. I also think there's an element around that on the AI front is like just making sure, you know, in pricing and packaging is how do you leverage it either against your competition, with your competition, you know, with your customer, against your customer. Because, you know, I was listening to something today and they were talking about like, you know, your customers are actively looking to Replace you with AI. If you're a software solution today in business, your customers are actively looking to replace you.
So we got to get on that.
[00:07:32] Speaker E: But let's fast forward here in a second and talk about things that are not human. Right? And you mentioned it a little bit earlier, right? AI is coming in. You're seeing a lot of hype around these AI sales reps or SDRs that can come in and qualify and all that. Now I don't know if you remember like the robocalls from back in the day and some of all these other in the chatbot and the chatbot revolution that never happened and all these things, right?
So AI is here and now folks are starting to pick them up and say, hey, why do you need to hire this, you know, $75,000 a year SDR, this 22 year old, when you can just hire my AI bot for a fraction of the cost? Isn't that the right way to go when you hear that, especially in your line of business, working with folks working in sales, give me your reaction. How do you feel about AI and these, these SDRs or sales reps happening?
[00:08:17] Speaker B: So I can only give you my initial gut reaction, right? So I say that with the big asterisks on everything, this is only the status quo as it is today. And the funny thing about AI that makes it super exciting and very scary to be flat is today, right now, as we're recording this podcast is the worst it will ever be. So it's only going to get better, it's only going to improve, it's only going to get smarter and understand more things.
That said right now, in my gut, I still believe, firmly, firmly believe we're still humans solving human problems in a business context and in a sale.
If I got on a meeting with you and I found out that you had a robo SDR call me, I would be pretty offended.
Personally, I would just something about that doesn't feel like it's in integrity. Now again, I get like we have these things that are sending DMs and stuff like this that's already got its own little weird stuff. But like, I think we're more accustomed to text and stuff coming out of it. But, but you got me on the phone, you qualified me, you asked me questions, you spent some of my actual time. Something about that doesn't sit right with me. And I'm willing to bet for people who are selling things mid five figures, six figures, seven figure contracts, they're also not going to want to deal with that as well, so I get the value of it because it certainly is a friction point for a lot of business sales in general, especially on the phone. But I don't think it sets the right message for your company because you're not willing to make the effort to go after the prospect that you want to get all this money from. So I don't like that. That said, it could really drastically improve stuff. It could be a great training opportunity for, to train actual SDRs. But I think going back to a point we kind of made earlier, Right. We're talking about dirty revenue where we get this money into the company and we feel gross about it. That $75,000 you might have to pay to a person that's probably potentially cheaper for your reputation in the long run because people know that you actually build an organization and a culture that stands behind your product instead of just having a machine run it. Yeah, that's my $0.02, but that's how I'm approaching it for now.
[00:10:27] Speaker E: So I completely understand that point of view and I aligned with it. I talked to someone about this the other day and she said, so what? I'm not worth a human on the phone.
That's how she took it. She took it like, I'm not even worth talking to a person about this. You can give me a machine. And going back to also what we were talking about, building trust right from the get go and, and getting folks. So you can't really build trust with the machine. Machine is going to follow its commands and do protocol. Yeah. What the protocol is supposed to do. All the movies we've seen and go down a crazy path and goes rogue.
[00:11:01] Speaker G: Yeah.
[00:11:01] Speaker E: Takes. Takes over the world. Right.
[00:11:03] Speaker B: Starts discounting your offer. Yeah.
[00:11:06] Speaker E: You, you laugh. Right? But I hear people worry about that stuff. The, the thing is people, they, they view that as a cost cutting measure. They don't view that as increasing the quality of the call. And to me, it's lazy quality. It's lazy. That's. Thank you. And that's what she said. And, and she, she almost felt like, well, if I'm not worth talking to another person, then I'm not, I'm not going to do business with you. And so she didn't, she hung up on it. She didn't even continue on the sales process. And, and not only did she hang up, she also had like a, a little sour taste in her mouth and she's like, oh, you know what? I don't think I want to do business with these guys. But what it did, the third piece was it also increased her likelihood of talking to the competitor who did have a human come in.
[00:11:47] Speaker D: Right.
[00:11:48] Speaker E: So it not only, you know, you don't get the sale, you lose rep and you nudge them to the competition who's not doing it. And I think that's something you gotta be really thoughtful about.
[00:11:59] Speaker B: Yeah, I think AI is a tool.
Right. But a tool in the wrong hands becomes a weapon.
And I think we're still very early days in a lot of this stuff. And again, my opinion, I've reserved the right for my opinion to change on this as I see more, better, better evidence or use cases. But at least for what we're talking about here, where we're in the trust game, I already can't trust you from the first interaction.
I don't know what you can do to get that back for me.
And I think that's a, that's a, a misguided thing for a person to try to build a reputation for their business as it goes forward.
So that's, that's my two cents. Strong opinion, but loosely held.
[00:12:41] Speaker E: Real quick, I want to tell you about something my team's been building. It's called Curve. So many of the companies we work with run into the same problem. Their pricing loosens spreadsheets, old decks, email threads. Nobody actually owns it. So it doesn't change when it should and when it finally does, it's a guess. Curve fixes that. It connects straight to your live sales data and shows you the actual impact of a pricing change before you make it. Every decision log and easy to explain beta is open right now. If you want in, go to pricingio.com curve that's pricingio.com curv all right, let's get back to it. What do you think is next in all this pricing, packaging, growth, monetization?
What do you think's the next big wave?
[00:13:28] Speaker H: You know, I think it's interesting.
SaaS in general is just reaching a stage of maturity, especially with all this gen AI stuff coming in. There are things we don't know, we don't know right now. And I think it's a, it's an exciting time to be, to be working in B2B SaaS, but it's also a time where things are going to be changing pretty dramatically on the, both the revenue and the expense side of the business as it relates to that. And so I think as we look at opportunities for more efficiency within these businesses and you know, also enhanced growth levers with higher degree of efficiency, it changes the cap equation for us. It Changes. It also just changes the underlying cost and unit economics for product delivery and things like that. This is one of those areas where it's. I'd say it's not something that I have clarity on yet, and I think, I don't think any of us do. But I think what's going to be really exciting is to start to read the tea leaves and see how new opportunities emerge and what that means for, for pricing, because it inevitably will have an impact on that, and I'm looking forward to seeing that.
[00:14:29] Speaker E: So, listen, I actually think that you're right on a lot of those key things. Right. I also look for a number of. As the gen AI, like you mentioned, starts coming into play, there's going to be. There's a little bit of a struggle. I was talking with some other folks about this too. About. Well, is AI making things more or less expensive now? In one way, yes. Summarizing a meeting in two seconds is great. And doing some of the other cool things and suggesting things that we do that used to take longer. Fine, Makes sense. Economic hours saved, all that good stuff.
The processing power for AI is at this stage of its life cycle still pretty darn high. Now, I expect that to go down over time, just like Moore's Law and everything else, right? Things will start getting cheaper later. Let's look into the future for a minute, right? And I'm going to poke you a little bit because AI is coming, everybody's talking about it, right? Everything's automated. You got all these great tools out there that could do all these amazing things. You made your reputation on automating, on taking things that were manual emails, moving them into automated texts, really increasing the touch, increasing the frequency. You've done a great job because you wouldn't be growing if you weren't. But now AI is here and are you, are you riding that horse? Are you worried about it? Are you loving it? What's your point of view on AI? And then I want to ask you, how do you plan on changing the business model and pricing as a result? So let's start with your point of view.
[00:15:50] Speaker C: Yeah, I mean, first of all, it is changing every single day, right? And I think for business owners and entrepreneurs, it's like, whoa, oh my gosh. I mean, it's, it is somewhat frightening, but also there is this opportunity. The thing is, unless you are constantly innovating and keeping up, you're getting left behind, right? And so every day that the innovation is not happening, someone else is some new startups happening, you know, being created to disrupt all the incumbents. There's a really phenomenal article, right. Brian Balford at Reforge, and it's called the Product Market Fit Collapse. If you haven't read it, phenomenal article. But it's this idea of, you know, you have businesses that have built products and software to solve problems, an app to solve a problem. Right. And the way in which they're solving that problem is all these things that you have to do to get it set up, configured, complete, you know, all the things in between. Then AI comes in and says, that's really cute.
You can get that done in one click.
And so, you know, you have these companies that are just freaking out. So we have been very innovative in our future around AI. And so I believe a world of conversations is AI driven. And so today, you know, the conversations you're having with your dealership, right, Your furniture store, all of those conversations, because it's faster, it's cheaper, it's 247 and it can speak in the way that they want to be spoken to and can solve those problems.
Every business is going to move towards that. Right? And so you're already seeing it. I'm seeing it all the time. So conversations are going to be purely AI driven. You can have a human on the back end, but it's always going to be AI first. So that's calls and that's text. And so. Okay, well what does that do to a seat model?
Well, if you have a lot of revenue tied into a seat model, guess what? As your business becomes more efficient, your seat model starts to diminish. And so if you built a business on seats in this world of AI, that's going to be a disruptor from a revenue perspective. So these incumbents that built on seats are going to be disrupted unless they have this new innovation on how they're going to move towards, you know, performance base. So for us, we're thinking a lot around, you know, we have a substantial amount of revenue on seats. Okay, well, as businesses move towards efficiency and seats go down, we need to displace and replace revenue with this AI sort of performance based. That could be on a per call. I mean, we're thinking per lead, right? It could be on per engagement, per conversation. You know, there's a lot of ways that we're thinking about that.
But Intercom for us has really been a model for what it looks like to provide value. And in exchange for that value, give us 99 cents.
And so, you know, we believe that's a world where ultimately it's going to head towards and it is a tidal wave that is going to hit the world from communication.
[00:18:59] Speaker E: The fast forward piece. I want to keep this one pretty straightforward here. Listen, pricing has been evolving over time. It kind of tends to take shape to our human behavior, technology that's out there, all those key things. What's the biggest change coming next for pricing? Like what's going to happen here? I mean clearly we've been talking a lot about in the industry with usage, consumption base and all this other stuff, but what do you think is going to happen next? Man?
[00:19:23] Speaker D: Yes, I am very biased on that one. Right.
A lot of people right now talk about that. Hey, this whole notion of usage based pricing and yes, usage based pricing is happening. And then people talk about hybrid models as well. You got to see it and you got your usage and you're trying to mix the both, right? But I think the future, the future really is outcome based pricing, right? And it's an extension of where value based pricing is. So as we say, value based pricing is this here you create value and you try and capture some of it, right? And this outcome based pricing is an extension where you basically say, hey, you get paid as a service when the outcome is delivered. Which is how we sort of, we do everything in life and we do every product and service is sort of based on that premise that hey, it's solving a problem for you and you pay for that. But now I think we have this opportunity to take it a step further and go from this value based notion, user based notion to more of this outcome based pricing where you get paid when the outcome is delivered and it's only going to happen at this point of time. It was, we didn't have the technology, the infrastructure or the people do it back, back 10, 15 years ago or five, even five years ago. I think now with AI coming in the mix and AI basically being this now almost also in a lot of places replacing people as the. No, like in any process, the key stakeholder is people or even execution of any anything. The key thing that sort of drive success is people, right? But now when you take people out and you make it AI driven, right, you're going to take a lot of nuance of execution out of it. It's going to make measurement of these, measurement of value and measurement of what the product is doing much easier because it's very AI based.
So we are at this point where AI tools and technology will make it easier for us to basically say, hey, the outcome that you are arriving at was possible because of this and this, this product. And we will then go from capturing whatever percentage of value we are capturing right now from value based pricing to a higher value with an outcome based pricing where you can say, hey, because we can stand behind the value this outcome is generating, the, the what I, what I will ask as a value capture will be higher. But this also comes with risk because if you didn't deliver the outcome, you have this potential of this revenue going down to almost nothing because you didn't deliver the outcome. And this is where the infrastructure and the legal requirements and everything will come in.
But I feel at some point we will have AI talking to AI and we will just be in the middle as spectators and they'll deliver whatever they want to deliver as an outcome. They'll figure out what the value capture is and they will say, hey, here's a check for $100,000 for what you did at the value capture.
[00:22:14] Speaker E: And there you go, you got this, this huge revolution in AI happening. The way people code to, the way people buy to these, you know, agents marching in and taking over use cases. A lot of things are changing now. I'm not going to pretend to know what the world's going to look like in two or three years from now. It's probably different is my guess. You know, when I think about the landscape changing, how are entrepreneurs, how are they positioned to really grow their SaaS companies in this new landscape, in this changing, you know, ecosystem, are they better off, worse off? Like, tell me what's your point of view as, as the world shifts?
[00:22:50] Speaker G: Yeah, I think anytime there is a seismic shift like this, like when businesses move from exclusively brick and mortar to being online, when the Internet, you know, really World Wide web started in the 90s, whether it was a lot of folks moving to mobile when the iPhone came out in 07 or 8, whenever, 6, 7, whenever that came out to. Now, AI, these seismic shifts are really uncertain in the near term. Right. And they're pretty scary. And so they are. They do threaten existing business models a hundred percent. You know, think of all the stores, the clothing stores that like in the 90s don't exist today. And really it's because I buy a lot of my clothes online. Right. I think a lot of us do. And similar with mobile, if, you know, everyone doesn't need a mobile app, obviously, but there were some web sites that, if they didn't, if they were a social news site and you didn't have a iOS, you know, or a mobile app, like their history, right. So yeah, it is uncertain. And I think SaaS founders are worse off because of AI in the near term. But I think in the long term those who survive will do better because that's usually what happens. Those who survive and are able to latch on and use AI not only in the operations of their business, but, you know, as they add features and, you know, AI enhanced stuff. I think that is long term, I'm bullish, short term, a little bit concerned or bearish on a lot of fronts. It's like if you do a lot of content and SEO right now, well, we know there's a bunch of kind of AI slot being produced and so can you in the near term, will you be overwhelmed by it? Will you lose your SEO rankings? Can you survive long enough for all for Google to get ahead of that and then swipe those out of the results? Because that's what's ultimately going to happen. You're not going to outrun Google's. I don't think you're gonna outrun Google with AI. And then even Google's search volume is inevitably going down because of all the AI. You know, how many times you go to ChatGPT or to Claude or whoever these days, Gemini to do a search. And so that threatens SaaS business models, you know, that rely on SEO. So I do think there's a shift to happen. But I don't believe people are saying like developers are going away. There's going to be no developers because cursor and these things are going to get so good. I don't believe that at all. I think the best developers I know today are way faster and way more capable and the mediocre developers are way more mediocre. They turn out a lot more shitty code than they used to, you know.
And similarly with business models, I've seen people claiming that age AI agents are going to just SaaS is going away and there's just no, there's no chance of that. I do not believe that for a second. Will it look exactly like it does today with a little form field that does this? And it's all. It's a crud app doing xyz. Probably not. But you know, the sass that I use today is a lot different from the sass I used in 06.
You evolve or you die.
[00:25:38] Speaker E: So George, are these guys going to just take over and as robots and run the whole, run the whole planet Earth? What do you think in there?
[00:25:47] Speaker A: No way this is happening. No way this is happening. I get this question a thousand times per day and my Answer is always no way this is happening. And there is an example. ERP systems dominated the market before 20, 25 years doing accounting stuff. Do you still have accountants or not? Do you still have CFOs or not?
[00:26:10] Speaker D: Yes.
[00:26:10] Speaker A: Do you trust the ERP system or your CFO? Guess what, your CFO. You don't care about the ERP system. It's just a tool. It's like saying that I have a great formula car and I gave it to George. Me, the worst driver in the world, and I don't understand why I'm losing, although I have the best formula card in the world. Because the driver is not there. You need the driver and the driver is definitely not the AI. It's people. And one thing that people forget, business people, I mean forget, is accountability.
I mean, people are accountable. AI is not accountable. So who are you to blame or to give credit to if something goes wrong or not?
Obviously people. So people should be there. You said something somewhere before 10 minutes or so about guesswork that you don't like guesswork. I will surprise you all. Although I'm an AI guy, I love guesswork. And this is the starting point for all my AI discussions. First of all, I get the guesswork. And this is the first initial starting point for AI modeling. Exactly that. I guess the human element. I take all the guesswork and what are the instinctive directions that they feel prices or anything else should go. And it can be structured scientifically, by the way. But even without that, you have some directions for your AI modeling. You don't have to test a thousand different useless directions. That's important. So human AI collaboration is not important, mandatory. Without that, you'd get nowhere. So definitely it's not going to replace us, but it's definitely going to change the way that we work. And if we don't adapt and ignore AI, that's a problem. Then yes, there is a possibility that we are going to be replaced. But it's our blame, not AIs. They understand that things are changing and we didn't do anything about it.
[00:28:03] Speaker E: All right, team, that's it for this one. AI isn't taking the wheel. It's just changing what's in front of you. The founders figuring out their pricing right now are the ones who'll be fine either way.
So as always, it's time to stop guessing and start growing. See you next time.
