Pricing as Product: The Monetization Operating Model in Action

Unpack Pricing - Scott Woody + Chris Kent

[00:00:00] PREVIEW: Power companies are exactly how you don't want to do usage-based pricing. And so what we realized is that in software, there's very few monopolies that exist on earth. And so what that meant was that customers demand a lot more from the billing experience of a consumption-based pricing. And the kind of simple way I put it is they demand visibility, they demand control, they demand predictability. And if you provide those things, people will be happy. So, visibility- what does that mean? It means that if I am an open AI API customer, I should be able to know exactly how much money I've spent, all the time. I have like thousands of potential agents running in the background.

I could be spending a million dollars a month if I don't have like complete real time view into exactly how those agents are consuming API tokens and therefore money, I'm not gonna use your product. I'm just gonna go to Claude, or I'm gonna go to some other service that does provide that visibility.

[00:00:49] INTRO: Welcome to Unpack Pricing, the show that deconstructs the dark arts of SaaS pricing and packaging. I'm your host, Scott Woody, co-founder and CEO of Metronome. In each episode, you'll learn how the best leaders in tech are turning pricing into a key driver for revenue growth. Let's dive in.

[00:01:12] Chris: Hello and welcome to Unpack Pricing. My name is Chris Kent and I'm Head of Marketing here at Metronome. I'm taking over for Scott this week and I'm turning the tables. My interviewee is none other than your usual host, Scott Woody. As our co-founder and CEO Scott has been at the center of the biggest shifts in how companies think about pricing and monetization. We're recording this day before our white paper launch, The Monetization Operating Model. By the time that you're hearing this, it'll be live. So we'll touch on what's inside, why we wrote it alongside conversation about the broader shifts shaping pricing today. So let's get into it. 

[00:01:48] Scott: Awesome. Well, I'm glad to be here. A little fun being on this side of the camera or the mic. I think, you know, the main thing that motivated us for writing the white paper was we had this realization something like a year, year and a half ago, that it felt like there was like a bigger epochal shift happening in software pricing. I think when we started the business six years ago, usage-based pricing was a niche. It was really focused on infra SaaS businesses. But then somewhere in the past two years, we started to see a pretty market uptick in the velocity of interest in usage-based pricing. And we had to, like kind of, go back to our roots to study what was happening as a root cause. And so, what we realized was that actually what was happening in software was a fundamental value transformation with AI. So AI was kind of shifting the fundamental value prop of what software is away from this idea of seats and everyone in my org has access to data to this world where AI was doing work on your behalf. And that fundamental value shift is actually what's driving the change in the commercial or monetization model.

And the interesting thing is this is not the first time that the fundamental value of software has shifted. Actually, I would argue that there have been two prior eras of software pricing that were and we're kind of now entering the third. So, if you think back to the nineties, we had this idea of, you know, software was something that you bought physically at a store, if you remember. There's like New Egg was an actual store and you'd go and you'd buy software, and then you'd install it on a server either at your house or your computer at your house or a server in a rack somewhere. And you literally bought and owned the software. Now, the challenge with that model is that like next year a new version would come out and you'd have to go buy the software and then go install it again, into your computer, into your server. And it was this really, honestly, Klugy, very slow updating process, but it was really built for the software of the era.

The value of it was like, the value is the software is owned by you and it works on and runs on your compute. And then, the rise of the internet in the late nineties and the early two thousands actually introduced the second era of software pricing, which was, you know, now all the software wasn't installed on a rack that you owned. It was actually software that was deployed in the cloud and it, you know, it was continuously updating. And really the value prop of software in that era was actually who in my org has access to the same source of truth at the exact same time? So the value of Salesforce became, you know, who in my sales org has access to the latest customer records as they update in real time?

And the commercial model that accompanied that change in software value, that kind of the commercial model that we're all very aware of is like the SaaS seat subscription model. And so the value of the software scaled with the number of people who had access to it. And so the commercial model scaled with the number of people who had access to it. And that kind of brought the, like, you know, the huge rush of internet SaaS businesses. Think Dropbox, think Salesforce, think Asana. Companies like that. And the interesting thing is that in 2022, 2023, we started to see AI and gen AI, and this type of software start to kind of take hold inside of both startups, like AI native companies think like a Cursor or think, Perplexity or something like that. And then at the same time, we saw bigger companies think HubSpot introducing AI into their product. And what was happening behind the scenes is that these new AI-enabled products, the value was shifting.

In fact, the value used to be who in my org has access to this shared source of truth data? And that made a seat model make sense. But now AI is doing work on your behalf. So now, we expect that Intercom's agent is actively responding to support tickets on my behalf. And now the value is not who in my support org has access to Fin. It's more like how much work is Fin doing on my behalf? And that ushered in this AI agent ushered in a change in the value of software, and that opens up a new type of commercial model that is the dominant commercial model. And so our thesis is broadly that this third era of value in software, which is agentic AI software does work for me kind of is married to a change in the monetization model that fits that software model, and that software model, you know, that monetization model, is something that looks more like consumption-based, usage-based, outcome-based, work-based pricing.

And so the thing that we saw as a startup was that we saw this huge uptick. And what we eventually realized was that actually what was happening was AI is rewriting the value of software under the hood, and then that is causing these companies to need to reach for or adopt consumption-based, usage-based pricing en masse. And so that's where we are, we're kind of at the threshold of this third era. We think of it as the value era and it's also like the AI era. And it's kind of hard to argue that it's not happening because if you tell me any SaaS business on Earth, I can tell you that they're launching AI-enabled products and they're launching a credit-based model alongside it. And so, this white paper is really designed to time to kind of explain this phenomena that we're seeing in the market in real time.

[00:07:13] Chris: Yeah, that shift that you're talking about, do you see it being more led either by customer, customer expectation, or more like commercially or by the companies themselves? 

[00:07:25] Scott: Yeah, so the way I actually think about it is that the value of the product is changing and both the customer and the company are realizing it at the same time. So, it's like they're both pulling for it, you know? I think companies are looking at it and being like, 'Well, okay, my costs are exploding and the number of seats that I'm selling is going down. And so, my existing seat model is nonsense in this new world'. And then on the other side, customers are saying, 'Well, like, you know, if you're gonna charge me a lot of money per seat, what I'm just gonna do is like these AI is doing all the work for me. So I'm just gonna like, have Joe over in sales have one seat, and then I'm just gonna share that across my entire team. And then I'm gonna get all the benefit of having AI agents running amok inside my org, and that's how I'm gonna maximize value. And so customers, in a weird way are like, well, the value I'm getting from you is this AI agent. And the seat model doesn't really fit that. I'm actually like, you know, I don't want to grow my team anymore. I actually think my value is more proportional in how much work this thing is doing for me'.

And so in a weird way, it's like I think it's being pulled by both parties at the exact same time. Or maybe a better way of putting it is it is the kind of common exchange that both parties feel like makes sense. It's like for the company, it helps manage costs and maps to more value. For the customer, it more fits the value. And so in some sense, they're both demanding it from each other at the exact same time. The interesting thing is though, we have seen a change over the past five years is five years ago, customers kind of hated it. They were like, 'Ugh, it's too unpredictable', or ' It's too hard for me to wrap my head around. But you know, we're 15 years into the cloud hyperscaler. Like, every customer on earth now is buying services from the hyperscalers or AWS Google, and because they're all been trained by 15 years of, you know, spending a ton of money on hyperscalers to kind of be like, 'Well, okay, you know, five years ago it was a little bit foreign to pay in a usage-based way'. Now, it's kind of obvious how to do it, and I've kind of wrapped my head around the, kind of, fundamental idea that the more I use a product or service, the more I pay for it.

I do think that that education took a while to sink in, but now what we're seeing is we're seeing industries where the customers are demanding a more consumption-driven model. In fact, actually, I've seen things where governments are demanding more cost, transparency and control over their spend. And they're saying the seat-based model is like, the incentives here are that I hire more people and my goal is to not hire more people.

Like, explain to me how this makes any sense. And so we're starting to see this interesting dynamic, this push-pull between customers and consumers, or sorry, consumers and vendors. 

[00:10:04] Chris: Yeah. When you talk about the companies, like you mentioned earlier, like, you know, there's not a company that we haven't talked to on the software side that's, you know, adding AI into their products. Obviously companies born in the last 18 to 24 months have a completely different kind of landscape and how they're bringing this kind of tech in. But, what do you see is like the challenge for maybe the companies that were around the access era that you talked about, like in implementing this kind of either new monetization model or a new way of thinking through this?

[00:10:33] Scott: Yeah. I think the key thing to understand, and kind of why we call this the value era, is that the value of the software is changing. And what that means is like everything that touches value has to change with it. And you know, if you think about a modern enterprise business, let's take like a sales force, you know, the first team that talks about value and understands it is marketing, right? It's like how you communicate the thing like the value that you're providing. So that's shifting. So marketing is affected, okay? Then, a sales rep has to be in the field and has to talk to someone and say, ‘Here's how to think about the value you're gonna get from this new agentic agent force platform’. So then the sales reps', you know, mental model has to change. Their comp has to change, right? Because in a usage-based or consumption-based way, the sales rep doesn't get paid until the usage gets spent. And so it's like, you know, as much work as you do to kind of get that initial commitment.

If the customer doesn't use the commitment, then that's not a very valuable sale to execute. And so, the sales role has changed. The product changes, right? Because now the value is like, how much work can my software product do on your behalf? How do I communicate that value? Because, in the access era, you know, seats, it's like, if I went and asked you, CK, how much are you spending on HubSpot? You can probably go like, well, I have six people on my team times, blah, blah, blah. Okay, we're gonna do the math. But in a usage-based model, like the value and the spend that you are accruing is actually quite a continuous, complicated variable to know about. And the truth is, the best usage-based products kind of communicate the value back to the end customer in a continuous way. It's almost like you gotta treat your monetization model, like a growth model from the mid two thousands growth sense. You need to build these little viral loops that kind of help the product grow itself over time.

And what you'll see if you study some of the best usage-based companies on Earth, think OpenAI, they actually ship a ton of product features around their commercial model. They ship a budget tool, like a tool for you to set and hold budgets on your API spend. That's like a thing that they do because if they don't do that, then customers aren't gonna be happy and they're not gonna find success in a consumption model. So like, product is affected, end customers are affected, engineering's obviously affected. Finance, you know, literally their entire revenue recognition model and their forecasting models have to be completely changed. So what we realized was this shift to this new era was that actually every department in a business, with the exception of HR, is dramatically affected by this shift.

And because of that, companies had a completely new need from what they used to call the billing platform. And so, the way we think about… it's like a monetization infrastructure. What they really need is… they need a complete suite of tools for helping run a consumption based business from sales, through to product, through to finance, through to the end customer. And that that unique set of needs was completely different than the subscription era, the subscription management platforms. And that's kind of how we think about Metronome. Metronome is that tool set that really is built to kind of meet the moment, the need of these usage based companies in a holistic way so that you can actually run your business and grow at the maximum possible rate.

And so that's really how we think about it. And so to kind of take a long answer to your question. It's actually easier to name people inside of a company that aren't affected by the shift to usage than it is to say which ones are. In short, like everyone is affected if you're doing it right. And that's a good thing because now what you're doing is you're aligning the value you provide to the spend that your customers have. You're kind of removing all the weird misincentives that a seat-based model has. 

[00:14:12] Chris: Yeah, it's interesting you talk about the different functional groups and how that kind of impacts that. And in my previous life, you know, I've owned pricing and packaging and I think one of the hardest things that you and I have talked about is aligning on prioritization and how do you execute when it is across these different functional groups. How do you kind of view the world or how do you see companies that are being successful during this value era, navigating this kind of cross-functional challenge of who owns this, is there an owner, and kind of from that point?

[00:14:44] Scott: Yeah, so I think, the AI-native companies kind of have it easy 'cause they just, they've grown up in it and they kind of centralize usage in their businesses. And so, I'll talk at it from companies that are maybe coming to consumption or usage from more like I would say seats- or subscription-based value model. The things that like the most successful companies do when they make their shift, they do a few things really well. First, within the company, they kind of treat it like a holistic, essentially, a holistic transformation. If I told you that the value of your product or service was changing, you'd be like, 'oh wow, that's like a big thing'. Like that's not something you do lightly. You'd kind of approach it all hands on deck.

And so what we are seeing is the most successful companies in executing this change, they are approaching it all hands on deck. And they're treating it with a lot of urgency. What that comes with is that there's usually one central person, frequently the CEO or a delegate of the CEO, whose job is to execute this change. And so we work with a number of public companies that like, you know, they basically appoint someone who's like a direct report to the CEO and their job is to like, let's go work through all the changes that need to happen. Now, importantly, they're not trying to execute those changes in a short time period. In fact, changing your value model and your commercial model and your monetization model too quickly is the fastest way to kill a company. And there's a lot of companies that used to be public companies that tried to execute this change really fast and now they're PE-owned companies that are getting sold for parts. Like, that is a consequence of moving too fast.

So what they're doing is they're not moving slow. They're moving with deliberate intention, but they're planning over a multi-year timescale. And you know, one tactic that they're using, which I think is really smart, is they're relaunching their product under the same brand, obviously, but it's a new product line and it's their AI native product line. And that AI native product line is usually like a hybrid between consumption and the seed. And so it gives them predictability and it also gives them consumption elements so that if customers find success, it scales with them. But importantly, it's a new product line, which means that they're not cannibalizing any of the revenue on day one.

And what they're doing is behind the scenes, they're planning to shift revenue over the course of what's two, two to three years onto the new product line. They're putting new customers on it to try out the viral loops and kind of build those sticky product, and they are like over time, shifting load from the old model to the new model. And that kind of gradual shift measured over years is a way of kind of titrating the change through the organization at a rate that the organization can accept without cannibalizing future revenue. Because what you really need to do is like in these consumption-based businesses, when they work, They become much more NRR driven. They become much more success driven. In fact, in a lot of these companies, they don't even have a distinction between an AE and an am. They're the same role because it's like the work that you do. Pre-sales is the same, like actually a continuation of the work or the post-sales work as a continuation of the pre-sales work and doing a handoff there doesn't make a ton of sense for the end customer or for a kind of value realization.

And so what we're seeing is it's actually like this, like they're using this new product line to kind of figure out the new motion at their scale without cannibalizing their billions in revenue that they already have. And what we're seeing is that that is the preferred mode for bigger public companies trying to execute too fast. No go trying to execute too slowly, you're just gonna lose to the startups or the competitors who are kind of executing the change. And that's what we find to be the most like, kind of palatable balance between moving fast and uh, and moving deliberately towards some long-term future. So. [00:18:27] Chris: Yeah. And that actually ties into something that I've.... uh, I know you've talked about, and we talked about it here at Metronome quite a bit, but this kind of concept of pricing as a product or pricing as a system. Mm-hmm. And could you talk a little bit, like kind of it ties into what you just talked about, but like how the most successful companies that we're working with are treating pricing as a product?

Yeah, so one of the interesting observations I had, and kind of why I started this business was, you know, I worked at Dropbox for like seven years and I worked on monetization, so pricing and packaging, but on the engineering side. And what I realized was we had like hundreds of engineers and product managers who are obsessed with creating value in the form of software for the product.

[00:19:12] Scott: And there was literally zero people focused on how to monetize that software and um, and what that created was a huge gap in the company that my team was lucky enough to go fill about how do you connect that value that we're creating with the value as expressed through dollars in the bank account. And I had this realization that actually in Silicon Valley. You know, we lionize founders and executives who are focused on creating new products and you know, it's actually relatively unsexy or uncool to focus on monetization and metronome was kind of built to kind of fulfill that need, which is like, how do you.

Better monetize these new products that you're spending all this time building. Because if you build a really great product, but it doesn't monetize, or you don't capture the value in the market, or customers don't understand the value and then therefore don't spend money on it, then ultimately what you're doing is you're kind of running a charity or you're running a debt startup.

And so I wanted to build this kind of… this company that would go actually build the platform infrastructure for making it easy for those companies who are obsessed with the product to easily monetize in the way that they wanted to. That was like kind of our core to our… 

[00:20:23] Scott: It's like honestly our entire vision , for why we're here as a business.

And in building that company, what we realized was that a lot of... a lot of people in Silicon Valley... it wasn't that they had a disdain for monetization. It was just a very complex system. It's like, if you think about it, monetization hits sales, it hits marketing, it hits finance, it hits product. It hits your end customer. It hits all of them. And that actually, if you think about monetization or pricing, actually the better way to think about it is treat it like a product like you would inside of any of your other products, right? How would you measure success? How do you manage those many different stakeholders inside of an organization? And so what we realized was that there were companies that wanted to be good at monetization. They just lacked the infrastructure or the tools for doing it. And what we realized is those companies who want to be great at monetization,

They needed a product. They thought about pricing holistically. They understood that the price that you charge affects how you market. It affects how you sell it affects how it's consumed, affects how customers understand it as how that gets paid. Like all of this stuff. And actually, the better way to think about the problem that was in front of us was. Treat that entire problem as the product space and build tools for delivering that to end customers. And then what we realized when we went to market was that there was a lot of these people inside these companies that wanted to kind of iterate on pricing, wanted to iterate on the commercial model, iterate on all this stuff.

It's just they lacked the infrastructure to go do it. And so when they took this holistic product centric approach to shipping, pricing and packaging, and then they had a tool like Metronome to kind of make it. Real. They got a lot of currency out of that, and that was kind of the impetus for us as saying that pricing is a product.

Scott: It's like all the care you put into the pixels or the growth flows that you do on your core product, you should apply to your pricing. And you should do that across every department, and that's a really hard thing to go do.

But what we realized is that the successful businesses in Silicon Valley, that's how they were approaching it. They're bringing all the craft of the product build experience to how they designed the monetization experience. And those are our ICP. We wanna speak to those users, those users who wanna bring that level of craft, and kind of product thinking to the problem, they're the ones who are gonna get the most out of the product and they're the ones who are gonna ultimately be the most successful businesses in Silicon Valley. 

[00:22:41] Chris: Yeah. And to that, I know that like as a company we've emphasized principles like predictability, control and visibility, and like if we unpack those, especially when we talk about pricing as a product and the customer experience, like what do you see as the impact where either companies don't prioritize this or. Perhaps it isn't at the forefront of how they're looking to like either change or build monetization. How do you kind of view those three? 

[00:23:07] Scott: Let's say, you know, the way I like to think about it is like, if you live in a house or an apartment, you have a power bill. Like, let's say you buy a new stove or something and you're like, wow, my power bill went up by like 2X. Like what happened? Or, you know, your washing machine broke and now your power bill fell down. The thing you have like literally no control over your power. You have no visibility into it, and if you go on vacation, you leave your air conditioner on, you're gonna come back to a multi-thousand dollar bill. Like power companies are exactly how you don't want to do usage-based pricing. And so what we realized is that in software.

[00:23:43] Scott: there's very few monopolies that exist on earth. And so what that meant was that customers demand a lot more from the billing experience of a consumption-based pricing. And the kind of simple way I put it is they demand visibility, they demand control, they demand predictability. And if you provide those things, people will be happy. So, visibility- what does that mean? It means that if I am an OpenAI API customer, I should be able to know exactly how much money I've spent, all the time. I have like thousands of potential agents running in the background. I could be spending a million dollars a month. If I don't have complete real time view into exactly how those agents are consuming API tokens and therefore money, I'm not gonna use your product. I'm just gonna go to Claude, or I'm gonna go to some other service that does provide that visibility.

Second thing is customers need control. They need to be able to say, well, you know, I have these agents running in production, but I don't wanna spend more than a hundred thousand dollars this month. Or, if I do, please send me an email that notifies me that I'm about to go over. Giving that little bit of control, it shifts the cost from this random number generator to something that I, as a finance persona, I can ensure that I'm spending money in a smart way. And then the third thing that we realized was predictability was basically like, you know, the thing I hate about my power bill every month is I have no idea how much it's gonna be next month. If there's a heat wave, it could be twice what it was this month. And my ability to predict and understand that is really, really weak In software.

We don't have the luxury of doing that, and so the best companies, what they do is they give cost control or cost predictability experiences. There's a reason why AWS has dozens of persons design team on the cost explorer. I mean, that tool's kind of crazy, but it fulfills a very specific need that customers have. And what we realized when we were building Metronome and working with all these usage-based companies was that customers demanded those things. And actually those things are becoming table stakes. And what we realized was we would see companies launch on a new usage based model, and they wouldn't ship cost previews, they wouldn't ship control plane, they wouldn't ship essentially, like spend limits, or real-time visibility. And customers would hate it. Like, they would go crazy on Reddit. Mm-hmm. And they were just like tar and feather the people. And the smart companies were like, you know... the dumb companies were like, 'Well, they hate consumption. It doesn't work'. And my read is like, 'No, actually what it is is you just shipped a crappy product. You built a product that, you know, the value prop you gave to your customers is like the more you use this product, you're gonna get surprised with a random bill'. It's like you completely inverted the kind of incentive model. You've said customer, use this product, the more you love it, the more you pay. And oh, by the way, you're gonna get a random bill at the end of the month and you're gonna have no visibility into it. You have no control. Your finance person's gonna scream at you at the end of the month 'cause you accidentally spent too much money.

And that's just a shitty product. And like, what I say or what, the way I think about it, the way we think about at Metronome is like, well, that's a product problem. You need to go approach this, like pricing, this packaging, this spend as a product priority, and you need to build these like pretty common, I would call 'em boilerplate, or not maybe boilerplate, but kind of table-stakesy features into your product. And if you look at like OpenAI's pricing page and their billing portal, it's like a work of art. It's a work of art because they take this seriously. They care about customer experience, and I would just argue that anyone who's toe dipping into usage-based pricing, you should study that page and understand what they've done in order to make that model successful, because every single pixel on that page has been earned through, has been tested ,and put through the ringer, and every one of those features is critical for that business model to work at scale. 

[00:27:27] Chris: Yeah. That's super interesting, especially at that volume and obviously there's been some headlines, or companies that have maybe had some speed bumps or hiccups along the way. What do you see as a potential downside, especially in this very kind of like fast moving AI space, around either the lack of visibility or the lack of maybe controls that we've been kind of seeing occasionally here. How do you see that impacting the actual customer side? 

[00:27:57] Scott: I mean, I won't name names 'cause this is a family-friendly podcast, but you can kind of look at some recent pricing mishaps across the AI ecosystem. And the way that they pay for it is customer sentiment goes through the dumps. Like, go look at Reddit for some of these tools and like Google 'Reddit costs' or 'Reddit cost control'. And the good thing is these companies are great companies. They're kind of reacting in real time to go build these things. But, if you go back three months, six months, and you look at these things, you see this like these spate of things. There's like, what I randomly spent like $10,000 in a day over a weekend on a side project that I thought, you know, like I vibe coded. Okay, that's tough. That's like a tough pill for these customers to swallow. So what ends up happening is these cus these companies end up forgiving that revenue of course, but then the customers are like left with this bad taste in their mouth. We're like, 'What the heck? I can't predict how much I'm gonna spend on this thing. It makes me not want to use it and, and search, search for a tool that gives me that kind of control'.

And so the kind of negative side of moving, like, I mean, moving fast is great. I totally, yes. Moving fast is like, it's not even a question. You have to do it. What I would just say though is like, redefine your minimum viable, essentially like pricing and packaging, to include end-customer facing tools. If you don't have them, that's like you're basically incentivizing your customers to not use your product. And you know, that's not what any of us wants. And what I would say is like there exists tools like Metronome (small plug) that make this out of the box. And it is like, in fact, if you're using a tool that doesn't have this stuff out of the box, doesn't have it be real-time, doesn't have it be continuously in the face like, you know, available to your customers, then what you're gonna find is that over time your customers will leave you for tools and competitors that do. We see it happening all the time.

And I think that's why I call pricing a product. It's like actually just hold the pricing to the same bar you hold your actual core product. If you just do that, you will get to these answers. It's not that hard to go to. Uh, sorry. It is hard to do at scale. That's why Metronome exists. But my point is like, it's a choice to not go do it. And I think it's forgivable choice, right? Because in the seat subscription era, customers demanded nothing from your billing portal. If it was only updated once a month, they didn't care 'cause they logged in once a month to download an invoice or something. In the usage era, it's a continuous thing. In fact, you know, we are under incredible real time load at all minutes of all hours of all days because customers all the time need to know how they're spending on these real time platforms.

We have customers that like, literally just white label Metronome for our usage end points so that customers have a real time feed of exactly how they're spending money on their platform. Why are they doing that? They're doing that because customers need it. Customers are managing costs, like these AI tools are amazing, but they can get expensive and customers do need to control costs. Otherwise, they're not gonna be a long-term customer. 

[00:30:49] Chris: Yeah, that's honestly something I think that I've been seeing a lot in this space around, obviously. AI is incredible and it's changing a lot of the industry, but also the sheer scale on both usage and the underlying infrastructure is massive. What does, like, either we can talk specifically around Metronome, but also just what is the monetization infrastructure look like in order to support something at the volume of an open AI. 

[00:31:16] Scott: I do not have hard confirmation, but I'm pretty sure it's true, which is that AWS's second highest service, uh, highest trafficked service in their entire infrastructure is their billing service. Why is that? Well, it's because every single product inside of AWS is ecosystem, is a usage-based product, and therefore reports usage out. What that means is that the infrastructure that backs your billing system actually has to be. Probably the highest trafficked, if not the second, highest trafficked service inside your entire freaking product.

And that's hard because again, I kind of said it earlier, most engineers don't wanna work on billing. They don't wanna work on monetization. That's not why they joined your company. They joined your company to ship world beating products. They did not build, join your company to like build monetization infra. And yet it is an infra problem and I would actually argue it is the high. It is a very high traffic service. But it is also a service that is not allowed to ever be down, otherwise you don't get paid, and it is not allowed to ever be inaccurate because, uh, if it's inaccurate, then you're literally committing fraud. And so there is this com, like this unique combination of incredibly high scale, incredibly sensitive, incredibly low latency, incredibly um.. Boring from a, like, you know, they'd way rather work on your product. And so what it means is that like the infra is actually just really, it's like a really hard problem, but that is also in a very kind of unsexy place.

And so what we see here, what we think about is with metronome is like how do we be the AWS of monetization? How do we be that service that is always up that is super low latency? That is low cost, that is very high availability. How do we be all those things and how do we do it at world scale?

[00:33:10] Scott: And so what we see or what we think about is with Metronome is like how do we be the AWS of monetization? How do we be that service that is always up that is super low latency? That is low cost. That is very high availability. How do we be all those things and how do we do it at world scale, right?

We work with some of the largest, like OpenAI, Anthropic. We work with some of the largest companies in the history of the world, and definitely some of the fastest growing in the history of the world. And what that means is that we've had to build our infrastructure to be truly horizontally scalable and truly support any number of concurrently active customers in real time. And what I would say is obviously if you're a small startup, you're not gonna start at super high scale. But what we've seen time and again when you take shortcuts on the monetization infrastructure is right at the moment where your company finds that hockey stick growth, if you're billing infra is falling over at that point, you are essentially burning so much trust at the point of maximum growth of your business. Yeah. And so it is this system that is simple to operate at low scale. It's kind of silent and in the background, and it works fine at low scale, but then once you actually find success, you need your system to scale up with you.

Now that scale both in technical complexity and kind of like volume, but also scale in terms of like, you know, you're gonna... you're gonna go from. You know, three people in a garage to 50 million ARR. And then next week you're gonna hire the first 10 AEs and you're gonna add in all this complexity in terms of the types of contracts you're solving. And you're now, you're gonna add a finance team and you're gonna do all this stuff in these like increments that are measured in weeks or months.

And the problem is if every time you're like introducing sales or introducing finance, you're having to rip out your billing system because it's not built for a sales-led motion or a hybrid motion, or it doesn't really support proper revenue recognition or something like that. That rip and replace in that critical moment for your business is gonna like, throw a huge monkey wrench into your growth trajectory and that's gonna feel like incredible pain, and you're gonna end up in a much worse position than if you just like kind of thought about it a little bit and like picked a solution that would actually scale.

And so like when we think about Metronome, I like to say that we are... we're kind of the billing solution that you don't outgrow. Like, part of why we work with some of the largest companies on earth and also some of the smallest, fastest growing companies is to kind of prove that value prop along all points of the curve so that when you do find your breakout moment, you don't need to then go buy a billing vendor that actually works. And so we'd rather be, you know, with you from day zero to IPO day. Like, we have many customers go public on us. We have many public companies, like we support all ranges for that exact reason. Because what it is is these AI companies, they just scale. And when they hit scale, they cannot afford to go then do billing the right way. They actually just need a partner that works. And so that's kind of our pitch to customers is that where we, you know, you may not have found the, like, breakout moment yet. That's cool. You will. And when you're there, like we will scale with you and both on the technical and also the use case. 

[00:36:14] Chris: Yeah. I know that like from the folks I've talked with, especially over the last several years, like there's this temptation to like either hard code, their own kind of homegrown solution out of mirror flexibility of using their own kind of staff at it, or to kind of invest in maybe a more, uh, just like a billing software that's gonna get them to that zero to one stage, but can you talk a little bit more through like making those early investment choices when ultimately there's like downstream impact to that? Kinda like you're talking about with the hockey stick. 

[00:36:46] Scott: Yeah. I think the challenge is that, and we haven't always been the best at this, but now we're much better in communicating it. You know, billing is really simple until it's freaking complex. And that complexity, it's kind of like very binary in the early days. It looks and feels very simple because honestly you have no revenue and it is simple. It's like, how do you monetize $0? You do nothing. It's very, very straightforward and simple. But it gets complex really, really, really fast. And. You know, the way that we think about it is, well, we just worked hard to make our product work at all scales so that you don't actually have to think about it too much. If you're coming to us with $0 or a million dollars in ARR, the platform just works. You can get live in an hour. It's like really not a big deal.

If you're coming to us and you have multiple billions in ARR then look, that's gonna take a while for us to lift and shift that off of your home-built infrastructure. And that's fine. Like, we're optimal for both of those. I think my advice to folks is not to... honestly, it's understand that when you're in hypergrowth, that's the last time you want to have to deal with this. If you're trying to think about this during that, that's gonna be the most awesome time in your company journey. I can tell you that replacing a billing system during that period of time is we'll quickly make that time feel like pure living hell. Like you just don't want to do that.

And so what we've tried to do is really kind of have your cake and eat it too. Make it trivial to get up and running. Tomorrow if you want to. And know that when you're scaling, like we have your back, both in terms of like, we have the expertise, we've been through it dozens and dozens of times at this point, but it's also that you can trust that the infrastructure's gonna work because it's the same infrastructure that's powering open AI and you know, unless you're very lucky, you're probably never gonna get to that scale, and that's fine. Just know that we are essentially in the same way that like AWS is robust for small startups because it services the largest companies on earth.

That's the same principle applied here. And then the other nice thing about it is, and what I advise folks to do is don't buy for the problems that are two to three years down the line, but understand that when you succeed, you're gonna have a rapid series and succession of problems that are gonna hit you like a ton of bricks. You know, are you selecting a partner who's gonna help you make that easy? A partner who's seen it before can help you navigate through it, can find you that random rev rec expert that you need to call at 11:00 PM on a Friday and just like, you know, connect you into the network. That's like how I think about it. And it's like about selecting a partner that will be there for the long term.

Now, you don't wanna like go buy some overbuilt tool. That's not what you want. But what we try to do is we try to approach it like, look, we're the partner here when you need us. So that, you know, when you hit that midnight like hockey stick growth and you're worried about things like, we can at least help you assuage you on the pricing and packaging side of things. 

[00:39:38] Chris: That's great. And you've kind of talked through, like at the beginning, like more of the strategy and how companies are or should be looking at kind of monetization over time, and then also like more of the product and technical side. We've recently introduced the monetization operating model, which kind of tries to bridge that gap between the kind of core operational challenge and the, you know, the commercial challenge. How do you see the operating model really trying to help companies almost through that transition that you're talking about of like understanding what does good look like, what is the crawl, walk, run, and how to go from maybe this kind of previous world of, like you said, access into maybe this more hybrid or a world that has kind of everything they need. How do you see that kind of being bridged there? 

[00:40:28] Scott: Yeah, I think it kind of comes back to treating monetization like the core business process that it is and the kind of monetization operating model. The idea behind it is it's like a set of best practices. We've learned from working with some of the best companies in the world, including companies like Confluent and Databricks and OpenAI and Anthropic, and just observing how they run, like from the, like most. Lowest level detail all the way to the highest strategic level. And it just is attempting to kind of codify it into a set of recommendations and approaches that we've seen work time and again and again and again. And, you know, it buckets down into people and process and tools. I think like all of those acts, all of those kind of attributes or axes are kind of important for actually embracing monetization as like the product art that it is.

And the idea behind the kind of operating model is roughly that if you approach monetization as a holistic, whole company science that you need to be really great at to build a world beating business, it's actually kind of... it is not that it's easy to execute, but it's not a mystery. It is actually kind of like a repeatable process. It is a set of best practices that kind of line up with exactly how we think you can run your business in ways and like both the tools, the types of people you hire, the kind of remit that they have, and then the processes that I follow. And really, it boils down into a few key concepts.

Like, one of them being treat pricing like a holistic product. And understand that it crosscuts every part of your business from sales all through to finance. And if you treat it like a holistic product, you need to like staff a team whose job is to kind of roll things out across that entire landscape in a way that doesn't cause like, you know, huge issues between sales and product and et cetera. Another key concept is really this idea that like, pricing and monetization is an iterative game in a very competitive field, and so it is a thing that happens all the time. And you, in order to do that, you need to build a muscle around constantly thinking about and changing your monetization.

It might be changing your packaging structure, it might be changing your discounting structure. It might be changing your literal price or new products. But the truth is the world is now hyper competitive, and like what we see is the best companies are constantly tweaking and tinkering with their business model and their pricing model to the point where we see some companies changing prices multiple times a month. Which is something that in the seat subscription world was like verboten, that is now going away. And especially in these usage-based models, changing prices is actually a feature, not a bug. And it is a muscle that if you practice, you will get good at, and if you do not, you will not. And so what we see is that there are like, the world can be roughly split into companies that think about pricing as this thing that you almost never change.

And it's like kind of every time you change it, it's like you're rolling the dice. Maybe I'm gonna piss off customers and companies that embrace the idea that pricing is just another aspect of their product. And of course I'm gonna iteratively try to find the right product, market fit and you know, Avon calls it pricing product market fit. Like, that is key. Pricing is actually one of the most important parts and maybe arguably the most important part of making your product successful in a market. And so we look for companies and we kind of realize that the companies that embrace it in that way, that give power to that monetization team, that give them agency over the product and their process, those are the companies that are succeeding.

And in fact, if you point to any successful company at any scale, think of Snowflake, think of Databricks, think in AWS they already think this way. And we are just trying to take those insights and kind of package them up for companies that might not know how to think about running a usage-based business. And we're trying to like, make it simple for them to understand and digest and kind of give them a little bit of a cheat sheet on the way to becoming a really effective consumption or outcome driven company. 

[00:44:28] Chris: Yeah, it's really interesting because I do think, you know, as part of the operating model, one of the things that we talk about a lot in there is this idea of marrying the two worlds of like sales-led growth and product-led growth. And I think fundamentally that's such a different shift in mindset for a lot of organizations. And so I think from the perspective of Metronome and how we kind of approach the world, there's this really interesting aspect that I just don't think a lot of people have even approached this subject before.

And like when I was at HashiCorp, I own pricing and packaging and this was something that was really foreign to us 'cause we had a very successful sales-driven initiative and culture and introducing PLG was pretty foreign because it completely shifted, to your point, how you sell, but also more importantly, how you make sure that people are successful and actually grow on your product.

And so I think to the point of the operating model is partly, you know, trying to help companies work through maybe the things they haven't started to work through, or effectively how do you predict what's unpredictable. And so that's pretty interesting. As we kind of go in through maybe closing question, maybe last one or two here, if you were giving advice to any kind of like founder, C-level, product leader today, what's one thing that you'd want them to either know or think about, whether it's around pricing or monetization or really just the overall strategy? 

[00:45:50] Scott: I mean I think I'd actually take it back to this idea of their product market fit is under specified. It's actually pricing product market fit, and you, when you're designing a product in a market, the price is actually as important as what the product is or does. And that if you actually take that problem seriously, what it means is that as you're tinkering with your product, as you're changing the value, as you're changing the new feature set, you should be constantly engaging in how does this product monetize.

Now, obviously if you're building a consumer product slightly different, but if you're selling in B2B or selling to selling something, it's really important that the product function. Think about pricing as an aspect of the product and design the product around the pricing. And I think, if you do that, that is a recipe for success. If you don't do that, you're not gonna make it. And I think that's just like, history has taught us that.

Now. I think in a weird way, this is becoming like kind of de rigeur inside of product organizations, but I think what it is, if you take it to its logical conclusion, is that product orgs need to really deeply understand the commercial model, the monetization model, the buying motion as they're building products. And if you're not doing that, you're gonna kind of shortchange your product. And what you're gonna find is that your product might not be successful, and you might attribute it to pricing. But, really what you're doing is you're kind of misattributing it 'cause you didn't think about pricing in the right stage. And so what I would say is just take that very seriously. And then secondarily, make sure to build a product that supports the pricing model. Again, go back to the power company analogy. Their product sucks. Their billing product is horrible. It's like a random number, and it scales in ways that you cannot predict and you have no control over. It's horrible. That is a luxury afforded to a monopoly. You do not have that if you work in anywhere in tech.

And so, I would take this very seriously and understand that that experience of how your customer consumes and understands the value that you are providing, and how they're spending money on that value, that is in some sense, extremely critical to making your product successful, especially if you're selling an AI product, because AI products have this tendency of being kind of, they run on their own, in the background, invisibly. And so, the billing portal becomes a primary interaction service for your customer to understand, am I getting value from these agents? Like, they just went and spent a hundred thousand dollars of value. Like how does that connect to the value I got from it? How many customer service tickets did that defer? Was that a good deal or a horrible deal? And if you don't treat that very seriously, your customers are gonna reach their own conclusions. They're probably not gonna be conclusions that you want. 

[00:48:28] Chris: Yeah. Alright, so I think last question for you is you've been at this for over five years. And like what do you think if, you know, will feel obvious in five years from now that companies are maybe missing today?

[00:48:45] Scott: I think with respect to monetization, I think they will correctly, you know, in five years, I think everyone will understand that treating monetization as a core kind of experience for like your business and your product is, it's like, that Dropbox analogy comes to mind. You know, I worked on monetization because 30 other people said they didn't wanna work on monetization. I think in five years, everyone's gonna understand that actually monetization is one of the most important aspects to building a successful, AI-native business and that getting that right is the difference between having hockey-stick growth and no growth or a dead company.

Yeah.

And so I think that's gonna, it's kind of gonna like, the ascendants of monetization experts, which to me, like gonna be completely obvious and we're not gonna have monetization be some kind of distributed function across product and finance and sales, and it's like very unclear who owns it. There's gonna be one clear person who's my job is to make sure that usage of this product turns into money in the bank, and here's exactly how it works. And there's gonna be one person who has like complete authority and control over it.

[00:49:56] Chris: Yeah, I tend to think too, that like there's certain aspects that like AI is accelerating that's, I don't wanna say, a race to the bottom, but at least a race to like commoditization. So, I also think that like pricing monetization is gonna be, if not the biggest, one of the biggest levers that companies can either have a competitive advantage or at least drive to a better outcome than maybe their competitors. And I think that will be an arms race over the next year. 

[00:50:23] Scott: I couldn't agree more. I think if you study pricing, which I have, think about CPG. Think about toothbrushes. Toothbrushes fundamentally have not changed in 20 years, 30 years. I have no idea. Pricing models are constantly changing. You can buy a freaking subscription toothbrush now. Like, that's the kind of thing... pricing and packaging is the evergreen battlefield for any product and surface. And like airline, same thing. It's like barely differentiated product offerings, very different pricing options. And I think that's really important to kinda understand it intuitively. I think as software as a category matures, pricing and packaging is gonna rise to the fore as one of the primary domains of competition. It already is in certain industries, obviously infra, SaaS, like hyperscalers, but it's gonna become even more so as these industries mature. 

[00:51:10] Chris: Yeah, for sure. 

[00:51:12] Scott: Sweet. Cool. All right. 

[00:51:15] Chris: If you've enjoyed this conversation, check out our white paper, the Monetization Operating Model. It goes deeper into any of the themes we've covered today, including a framework for treating pricing as a system and the infrastructure requirements. Modern software companies need to stay competitive. , To check it out, go to metronome.com, forward slash monetization dash operating model. Thanks for listening, and we'll see you next time. 

[00:51:37] OUTRO: Thanks for tuning into this episode of Unpack Pricing. If you enjoyed it, we really appreciate you sharing it with a friend. We'd also love to hear from you. Feel free to email me at scott@metronome.com with feedback and suggestions for who you'd like to see on our future podcasts.