Software pricing models expected to get a revamp for the AI era

In a few years, consistent software pricing might join the list of things technology leaders reminisce about as companies deploy new pricing strategies to keep up in the AI era—strategies that might lead those prices to swing wildly depending on a variety of factors.

According to an October Revenera report, more than half (52%) of 501 surveyed product leaders said they plan to roll out new monetization models to combat growing cloud and AI spend.

What are the biggest changes tech leaders can expect to see from pricing models as AI features become the new norm? For starters, a dip in pure subscription-based pricing and a rise in pricing models that blend subscription and usage-based charges. While 42% of surveyed leaders claim to offer pure subscription-based pricing, which was the most popular pricing model for AI offerings, only 37% expect to do so going forward. Revenera found the subscription and usage-based hybrid pricing structure will see a five percentage-point uptick in the future.

AI is shaking things up. Nicole Segerer, SVP and general manager at Revenera, told IT Brew it’s no surprise that pure subscription-based models will take a blow, partly because AI’s increased capabilities may lead to less users, eventually threatening the traditional per-user subscription model.

“The second reason is that, with AI solutions coming in, the traditional flat-fee subscription where someone pays $10 or $100,000 or whatever it is per year, is also coming under threat, just because there will be a bigger correlation between what customers do and how they use the software, and what the cost of that is,” Segerer said. “And pricing will have to adjust.”

Buyer’s choice. Segerer said traditional and blended-pricing models aren’t the only strategies vendors will lean on as they bulk their software up with AI-enabled features.

“In the future, there might be a little bit more flexibility as to providing people with access to what they really need, versus trying to sell them the whole thing when it’s not needed,” Segerer said, describing an à la carte pricing model.

Segerer said the software industry may also rely more on an outcome-based pricing strategy, where costs are tied to a specific result.

“I’ll give you an example: So, when I send an MRI scanner, a usage-based model would be, you pay for every scan. Every time the thing switches on and runs, you pay for the scan,” Segerer said. “An outcome-based model would be, I only pay when the scan is successful, as in, the picture quality is good.”

Andy Sen, a CTO and CIO at subscription commerce platform company AppDirect, told IT Brew he has already seen vendors switch to outcome-based pricing. He hopes to see more companies follow suit, along with a flexible pricing structure down the line.

“What I would like to see is vendors…really being clear on how much of their product their customers are using and price based on that,” Sen said. “I think that will help everyone.”

Subscription is here to stay. While pure subscription pricing may lose some companies in the long run, Segerer said subscription-based pricing isn’t going anywhere because it offers recurring revenue and predictability.

“Predictability is super important for both the vendors of software, but then also, even more importantly, for the buyer, because they want to know what they pay,” Segerer said.