One of the things I’d like to do every week from now is to talk about problems that I know about. I am hoping I can get entrepreneurs interested in working on these problems. Of course, most of these will not be fully vetted or even viable. That’s where customer development comes in. Honing in on the specific problem set will be something that needs work.
The problem I want to talk about today, is pricing. As more software companies offer their products on the cloud, and more companies are becoming “full stack“, there is a big need to help them optimize pricing to capture value instead of usage alone. Pay for performance instead of pay for usage is not a new concept.
Pricing by usage means that as people use more, you will charge them or they will pay more. That’s typical of mobile phone plans for example, the more data you consume, the more you will pay. That’s consumption pricing.
Pricing by value or pricing by outcome are two other means. As companies get more “full stack”, it is becoming more clear that they intend to not price on standard known means. For example Uber’s surge pricing is “value” pricing based on demand. GE has started to price its jet engines on availability and uptime instead of a maintenance fee, which increases its ability to execute differential pricing. If the engine is available more, GE benefits as does the airline, which leads to lesser downtime and hence more profits for the airline. This extra profit is what GE wants a part of.
More specifically, in terms of software defined pricing, it is becoming clear to me that granular pricing, the associated billing is equally important.
The solution is “Pricing as a Service” or PraaS.
I can envision an API driven offering, which is used by the developers of any SaaS company. The offering will manage the pricing pages and the billing for the company (different from recurring billing and transaction that’s done by Recurly, Chargebee, etc.)
The API’s will also be available to customers who want to bill granular components of their product. It should provide the ability to manage pricing tiers or create “packages” and also allow for multiple SKU’s to be created from base offerings by segment of customer.
I think this is a sketch of the idea, and there needs to be a lot of work done to talk to SaaS companies to understand their problems with pricing their products.
The other part of the pricing problem is metering and billing. I know of many SaaS companies who are looking to expand their customer footprint by offering their products via public clouds (AWS, Microsoft Azure) to large customers. For these companies, new metering and billing by components, or value based is a lot more profitable than plain usage or user based pricing.
I think Pricing as a Service is an important solution, so if you have a background (been an entrepreneur – failed or succeeded before) in a SaaS company, and a team of 1 or 2 cofounder who can build large scale API based systems and have the desire to build a company, you should reach out to me. I’d love to learn more and if your team fits the bill, I’d be willing to fund this idea. If you are a solo entrepreneur, I’d not be interested. If you have not been an entrepreneur before, again, it would not fit my criteria.