Does usage-based pricing call for a new growth infrastructure stack?

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“It’s not either usage-based or subscription pricing,” VC firm OpenView wrote in its second State of Usage-Based Pricing report. These hybrid approaches call for new tools, but which ones? Let’s explore. — Anna

Complex pricing on the rise

As we learned earlier this week from OpenView’s latest report, usage-based pricing is rising, but not replacing other models

Sure, more SaaS companies are billing their customers based on how they are using the service. But this often comes in combination with other pricing approaches, such as tiered subscriptions.

OpenAI’s ChatGPT is the latest example of this hybrid pricing approach. In addition to its free tier, it introduced ChatGPT Plus, a fairly plain subscription model starting at $20 per month. But the company also said it was “actively exploring options for lower-cost plans, business plans, and data packs.” 

Data packs: That would be a form of usage-based pricing, but one that wouldn’t replace subscriptions. Meaning that ChatGPT would join the growing range of complexly priced products.

According to OpenView, there’s a corollary to hybrid models: “As pricing gets more complex, we’re seeing the rise of the modern pricing tech stack,” the VC firm wrote. But before we look into this framing, let’s take a step back.

Powering usage-based pricing

I recently had a great chat with Justin Dignelli, CEO of Pace, a startup that helps companies find product-qualified leads. Talking about usage-based pricing, he ventured that AWS played a big part in this rising trend. “They really conditioned folks to want that type of experience,” he said.

AWS’s role didn’t stop there, at least indirectly: It also inspired its former employee, Puneet Gupta, to create usage metering startup Amberflo, our own Ron Miller reported when the startup raised a $15 million Series A round.

Gupta, Miller wrote, “saw the metering idea in action when he worked at AWS from 2011–2014, and the idea stuck with him that it was an approach that many companies could benefit from.”

“I had a chance to build these services [when I was at AWS], and I saw this internal shared services thing called metering,” Gupta told Miller. “Whenever we built a service, we had to connect to the metering stack. That’s where I became aware, and for me, it was an eye opener.”

Amberflo is one of the companies listed in OpenView’s market map of the “new pricing tech stack,” under “Metering and billing.” So is YC alum Wingback, under “Automation,” but its CEO, Torben Friehe, thinks there’s more overlap between subcategories than the breakdown may suggest.

Overlapping startups

“If [OpenView’s market map] was meant to represent a pricing stack, that would imply that you need four to six separate solutions of the stack to run your SaaS business. But many of those companies combine different categories mentioned here into one product,” Wingback’s Friehe told TechCrunch.

“We foresee this ecosystem working better for SaaS business by being connected and automated within one another, not siloed,” he argued.

Friehe has a horse in the race, but he isn’t making the case for something that only Wingback is envisioning; competitors are also going after multiple subcategories, or planning to. “I think most of the early-stage companies on this graphic have the same intention; they just choose another path in terms of looking at the overall challenges of SaaS monetization and choose another perspective when they created their initial product and defined their initial [go-to-market strategy].”

Taking a step back, Friehe wouldn’t frame this space as a pricing stack. “We would argue there is a larger umbrella category that handles this entire product, pricing/packaging, billing and payments chain. We colloquially call this ‘SaaS growth infrastructure.'”

It may be too early to tell which framework is more accurate. Talking to TechCrunch, OpenView partner Sanjiv Kalevar referred to the market map as “relatively early-stage.” But what’s more interesting to me here is the stance that usage-based pricing calls for new tools — just like product-led growth does more broadly.

“In a way, it’s very similar to the PLG CRM space,” Kalevar said. “You have this macro change in how companies are buying, and as a result, the technology to support that also needs a refresh. And to us, those are really exciting categories where you have this kind of tectonic shift in the way people and customers behave.”

OpenView hasn’t invested in any companies listed in its pricing market map yet, so it will be interesting to see where it ends up placing its bet(s). And of course, it will be worth watching how much subcategories will overlap: Just like their subscription-focused peers Chargebee and Zuora, it is pretty clear that new entrants don’t intend to stay in one lane.