CX Weekly Live: Usage Pricing vs. Seat-Based Pricing
Gabe Larsen dives into the findings of the research on what customer service technology buyers want in a pricing model.
Welcome to our next CX Weekly Live.
I got the one and only here, Gabe Larson,
CMO of customer.com.
Gabe and I go way back.
Gabe, what's up, dude?
- Yeah, appreciate it, man.
This is the real, this is the right talk track, man.
I'm passionate about this.
I'm beginning more passionate about this topic
by the day, actually, but I'm a big fan of the show,
obviously.
- Yeah.
- I'm like, "I'm going to get on."
So this is good.
I'm about, as you get me on here.
- And you've wanted to come on, and I finally got you on.
But that's why the pricing, going into pricing,
I thought this would be one subject that I know you love.
First of all, Gabe, I'll be put out a pricing survey.
We're going to go into it, but what prompted
even just going into pricing and looking at that
a little bit deeper?
- Yeah, look.
I mean, we're gearing up here at Customer,
as you know, for big events, kind of a big relaunch.
You know, if I quote unquote around that,
on October 30th, and, you know,
it's been a really interesting ride.
I've been with Customer for a while now,
and as we came out of a meta late last year,
middle summer of last year, you know,
we just had a good opportunity to start thinking about
what and who and when and how customer wants to be
as we move forward.
One of the things we wanted to test the waters on
was a pricing model, you know,
and what people think about pricing
and how they're feeling about it.
And so, yeah, rather than just make some assumptions,
if pricing should be, a different pricing model
should be part of customer going forward,
we thought we'd go out to the market
and start interviewing buyers of CX technology,
survey them, and some of the culmination of that
is found in this report that we just pushed out last week.
But truthfully, we've been talking about it now
for multiple months.
- Yeah, no, I love it.
So if we go right into the survey here,
let's start with like seat-based pricing.
So it looks like this model,
they prefer seat-based pricing historically
and to this point, is that correct?
And then we can talk to us a little bit about that.
- Yeah, yeah, look, I think there, you know,
there's an interesting line of thinking with the study.
And we didn't know what we'd get, you know,
you throw these out sometimes and you just are like,
what do you think about the state of pricing
and CX, we didn't want to bias it again,
we were trying to understand how
and if it should impact customer.
And so the first big thing was, you know,
almost 100%, about 94, 95% of people are on seat-based pricing.
- Right.
- You know, I kind of in my own mind,
I think it's like 93.5 of the 200 people we interviewed.
But in my mind, it's basically 100%.
You got the margin of error there, something.
So everybody's on seat-based pricing.
And so, you know, the next obvious thought process was,
okay, well, do you like it?
And is that something, you know, we just are used to?
Is that something that you think we should have
in the past?
And there was one quote that I just loved
that it kind of sets up the next piece here.
And that was, you know, I think it was a gentleman
that said, you know, we're currently using seat-based pricing,
but I got to admit, seat-based pricing, you know,
in his mind was invented around the year 2000
by none other than Salesforce.
And then in the comments he put this comment like,
I don't think I can say anything that I'm using
from the year 1999.
Why are we still using this pricing structure, you know,
seat-based model?
I'm totally, I'm messing up the quote.
I probably should have that in front of me.
But the idea was, and I think that resonated
with most people, right?
'Cause most people said yes, we're using seat-based pricing,
but nearly 70% said, you know what?
We're ready for something different, you know,
like we're ready for change.
And maybe it's 'cause like he said,
what do you use it since 1999?
- Yeah, yeah.
So like timing could be one thing,
but why off the top of your head now is the time of like,
okay, I'm ready for something different.
Like why couldn't this conversation
after five years ago or 10 years ago?
- Yeah, you know, I think that's a fair question.
I mean, certainly with the introduction,
maybe we're all thinking about this more
because the AI revolution is, you know,
it's here more than it's ever been.
And so that's leaning towards just usage type stuff
where we're thinking more about that generally.
I think the other big thing though is the economy, right?
And the current state of that, you could debate
if we're good or bad, but I think the general feel
is that a lot of businesses are having a harder time.
And so a lot of businesses are finding themselves
in these weird conversations that maybe they,
they were always lingering there,
but I don't know if they were ever as prevalent,
you know, now and again, I'm probably not quoting
perfectly the research, but some of these comments where
people are like, you wouldn't believe
how many different seat types I debate with CX vendors,
you know, it's, I've got admin seats,
I've got user seats, I've got view seats,
I've got seasonal seats, I've got part time seats,
I've got full time seats, I've got internet.
And, you know, it's just like,
we have all these different types,
and we're charged for all of them,
we don't know how many we have,
but the truth is, business isn't perfect
and so we're coming down.
And we need to come down.
And I think the haggling that these people are doing,
you know, well, we're locked into a 10 year contract
or you're, and trying to find out,
I think that's maybe, if it's not number one,
it's probably number two on why now
are people more like, you know what?
This is kind of silly.
- Yeah, I mean, if you think about it, right,
it started this simple, like it was like,
all right, I'll take five seats.
And like you said, I think it has been changed,
okay, five seats, but then five admin seats,
five seats, then five admin seats,
two reporting seats, and it's gotten to this place
where it's like, it's so complicated,
where I also think that people just wanna go back to like,
give me something simple, give me something simple,
which leads it in.
- Well, I was just gonna go there,
'cause that was kind of like, hey,
if you, you know, if you want the,
if you're not super happy with seats,
and again, this is not, this is all in one survey,
but I'm actually asking it like it was consequential,
or you know, leaving one to the other,
but it was, if you're not happy with seats
and you're, everybody wants something different.
Like, what are you looking for in a pricing model?
And we actually found that I felt like they were,
it was almost a little bit of an oxymoron,
like the two biggest adjectives that came out of the study
of what people are looking for in a pricing model.
And again, this is customer service.
I can't say this is for everybody, you know,
in a seat-based world, but for customer service,
it was predictability and flexibility.
And I was like, I don't want that opposite,
but I was like, wait, they feel like they're not,
you know, they have some challenges
when you put them into the same sentence.
And, and there went, I don't wanna say a rabbit hole,
but some really fun comments and interactions around,
you know, how to, how to do that,
because there's some inherent challenges in those two words.
- And so then walk us through the study.
So if people were saying that, all right,
they want predictability, they want flexibility,
did it just lend itself to, I'll say,
to usage-based pricing, or was it just that, like,
they thought about usage-based pricing,
and they was like, oh, connect the dots, yeah,
that gives me flexibility.
- Yeah, I guess.
- What you found.
- You know, we did kind of, so again, it was,
you can get the study to get exactly what it was.
- At the point, right, we want people to agree this.
- Yeah, 80 plus percent said, you know,
predictability is my number one adjective.
You know, about 80% said flexibility,
so that they were kind of rated the highest.
And then we did, we kind of put different models
in front of them.
- Okay.
- And it wasn't exactly predictability and flexibility,
but we were kind of like,
can you rate how much you like these different models?
And so taking that one step further,
real interesting to dive into that, right?
I mean, seats, for example, very predictable,
you know, mostly from like a CFO standpoint, right?
I've signed up for 25 seats.
I typically know how many I'm gonna be charged for.
They locked me into a contract for three years,
and so you get some predictability there.
Flexibility is what I just said.
It's like, wait a minute, I need an admin seat,
and I just need to go down on seats,
and I only need this view,
or I only need it for a couple months,
and absolutely zero on the flexibility.
And so you start to look at some of these different models,
and yeah, what we found was, generally speaking,
a usage-based model with some tweaks potentially to it,
was the only thing that could potentially get you something
that was more predictable and more flexible,
and what that would require is something that would say,
like, hey, I still need to be able to lock into something
that's, you know, again,
'cause there was some fun comments about, like,
I can't go to my boss on a monthly basis and say,
I now have, you know, $10 million that I owe a vendor,
and then the next month, $1, right?
Like, that doesn't work,
and now when it's crunch time in the economy,
even more so than ever,
we need to be managing the budgets,
and budgets aren't daily budgets are monthly,
typically a little longer than that.
And so, you know, and some fun comments there,
but ultimately as you look at that work-based pricing
or that usage model,
some interesting feedback about,
hey, if there was a usage model
that allowed me to lock into something longer term,
so that I could look at my boss and say,
hey, let's call it a year,
like, I'm gonna basically stay under,
I'm gonna go for this,
but had some flexibility in it,
meaning like, hey, this month I use a little more.
That month I use a little less, you know?
This quarter I use a little more,
like it's got that ebb and flow capability,
and these are all just concepts and ideas, right?
But I definitely, you know,
the comments and the data were lending itself to,
people were more interested in something
that had the predictability and flexibility,
and their vote was definitely more,
we believe work-based or usage,
you know, depending on how you kind of frame it,
could lead to that ideal state
where those two are ultimately harmony.
- So, and I'm sorry to do this too,
because I'm gonna just throw a really curve ball,
'cause I really wanna understand this, 'cause I don't,
'cause I know you've been in this for a while,
is there a difference between like conversations,
and one company you're saying to pay for conversations,
compared to pay for usage?
Is that kind of the same thing
and everyone's using just a different word,
or do you see that as--
- Yeah.
- Yeah, yeah, look, I think that's a fun conversation.
No. (laughs)
- It came before.
- Yeah, like types of usage-based scenarios, right?
And we see those out in the market, right?
You're gonna hear words like conversation, usage,
you're gonna hear resolutions, tickets.
- Yes, that too resolutions.
- You know, I mean, there's just these different things.
- One way, two way.
- Yeah, yeah, you've got down type of things,
and so, look, I think there's,
in the survey, went pretty deep into that,
and I won't try to ruin it all for you,
but ultimately, as you think about these different models,
back to predictability and flexibility,
like which ones give you some of the best balance?
So one that's often now talked about
is this idea of resolutions.
And a lot of different you'll see in the survey,
a lot of people define resolutions different.
The nice thing with like conversations or tickets,
there was a little more of alignment.
When you get to resolutions,
it feels like it's like a Pythagorean theorem.
You know, you got all these workflows
of how people are defined.
Well, what we define as a resolution
is if it has this timing,
and it's a completed case or a completed study,
and the person has to give it a thumbs up,
and, and, and, and, and, you're like, oh my goodness.
So that word resolution can be a little bit confusing,
but that's one that's become more prevalent out there, right?
'Cause a lot of vendors are now saying,
"Hey, we're gonna offer seats,
but now we're gonna offer usage,
and what we're gonna do on usage
is like a resolution-based model."
And then here's our five page,
you know, takes a PhD to get through it.
Oh, what a resolution is,
and then you're gonna be charged a couple bucks,
or Salesforce just came out, you know,
with their, with their new AI agent model,
and they had kind of their own definition
of how they're gonna charge based, based on usage.
But one of the ideas that's prevalent out there
is seats plus, plus usage.
So the question that was really interesting to dive into
is what type of usage do companies want or expect?
And again, I go back to just predictability and flexibility.
Like, the challenge with some of these different models was,
we're gonna start with most of them are flexible.
'Cause if you're talking about resolutions,
I could resolve 10 tickets this month,
I gotta resolve 50.
So most of them have some sort of like,
"Hey, that's gonna have a float."
It was the predictability that was challenging
because people had so many different definitions
of resolutions, for example.
You know, one of the questions.
- You don't know what to predict.
- Yeah, so how well can you forecast
your number of resolutions?
And they're like, "Ew."
- Right. - You know,
really bad ability in the market right now to forecast that.
So if I had a, let's just take that one step further.
If I have a vendor that I'm working with,
and they're like, "Hey, we're gonna charge you
per resolution," and you can't know or say
what likelihood every month you're gonna end up
with X, Y, or Z resolutions,
now you gotta go to your CFO and be like,
"Oh crap." (laughs)
Guess what?
- We know what where we had.
- We were way better, or AI was resolving way better,
and I need 20 grand more, or 15 grand more.
And we just got a real lashing in the survey.
I'm like, "Not okay."
Like, can't use resolutions.
If we can't forecast it, can't predict it,
then we really shouldn't be using that model.
And so really, I mean, the idea that most people
felt best about was this ticket or conversation concept.
You know, it's like, when someone reaches out to me,
and there's that dialogue, we typically staff on that.
And it was something like 85% accurate,
75% of respondents felt like they could be 85% accurate,
or better when it came to conversations,
whereas on resolutions, I think it was like a 32% accuracy.
Right, so, and you could go into some of these other
usage-based ideas, but I've just been hearing a lot
about resolutions, so that's one that's a little more
interesting too, we saw him comparing and contrasting those.
But the usage is interesting,
but the devil's in the details.
What usage metric can people still look at
and be like, checks the box with potential predictability,
as well as flexibility, and a lot of organizations
just looked at some of these metrics and said,
"Hey, we can't realistically forecast that."
So honestly, if someone threw it in a pricing model,
we'd probably spit it out.
- Yeah, I find what could be interesting going down this path
is like having, like especially in customer service here,
there has to be then multiple stakeholders
at the table early on, because it just doesn't take
then the CS manager, actually know the reverse.
You need the CS manager in that conversation
to understand what's the conversations like today,
but then you need an ops person to say,
"Oh yeah, I have the dashboards already,
let's take a look."
And then the finance person has to be in charge as well too.
So I think that could be really interesting
to see how that kind of transforms
the decision-making process.
- Well, you did team now.
- Yeah, you know, we were,
certainly we were interested to understand
who's making a lot of these,
like where does the budget come from?
Let's not go to who's making the decision.
And I thought you'd find more in like
a centralized operational budget,
but yeah, truthfully, the overwhelming majority
was coming out of us like a defined CX or CS,
but not right or wrong.
I mean, I think everybody partners on this,
but was certainly intriguing us
to understand that part as well.
- So then the last thing I wanna bring up Gabe is
what you kind of brought up in the beginning,
which is again, this AI stuff.
And so we talked about like was AI kind of the
ignite, like the spark to like start this conversation,
but what came across in the survey
of how people just are thinking about AI technology
and then integrating that in
with their new pricing strategy.
- Yeah, I almost forgot that.
- I'm reading so lead with these rabbit holes around
usage based metrics that probably nobody cares about,
but me, but my goodness.
Yeah, this was like a slap in the face,
I think to everybody out there and look,
you know, we kind of fall into this.
And so it's a little bit hard to even say this.
Again, we've been in the lab trying to cook up
something different over the past few months
based on a lot of this research actually
and much more, but yeah, long story short,
again, it's, I think in the survey it was 90 plus percent,
but consider it close to 100 where,
I mean, people were just like, it's gotten ridiculous.
And when I say it's gotten ridiculous,
it's like add on central.
And so, you know, I buy from company XYZs seat
and I think I'm getting, I'm walking out of there
and it's, you know, $50 or $100 or whatever it might be.
By the time I see if I look at the contract a year later
or whatever, it's like to get the security and the storage
and the AI and the add-ons and the workflows
and the workforce management and the additional channels.
And I mean, we're up to, you know, just 100,
sometimes hundreds of dollars per se,
for use.
(laughs)
Now, a lot of them don't look at it like that,
but we're hearing more total costs of ownership
for some of these vendors, it's just astronomical.
But oh yeah, the seat price is still, you know, okay,
but I'm paying for like a service package
that's just astronomical, right?
But the add-ons are just endless.
And so, you know, you talk to these
and you see those survey results,
nearly 100% of people just said, stop with the add-on.
Like stop, it's getting crazy, but most interesting
was AI and it's like, look, there was just one comment
that just, it still like resonates to my soul.
You know, it's just like, how can a vendor,
and they name the vendor, but how can a vendor like X, Y,
and Z claim their AI first,
when AI is such an expensive add-on
that I know from firsthand details
that most of their customers don't even use it.
Like how can you, how can you be AI first
when no one uses it?
It's so expensive and an add-on that, again,
we just can't even adopt it because it's just a joke.
And that one, I remember being like, oh my God,
that is so true.
Like we have these vendors out here, you know,
and again, I don't wanna say we're not blameless
in some of these areas, but claiming to have AI,
claiming to be AI first,
but making it so difficult to adopt it
that I wouldn't be surprised.
Yeah, you look at some of these clientele's
and I don't know how much are they really,
are they seeing 100% adoption across their customer base
according to this client, you know, he said it's, you know,
the teens, if not less.
So long story, I get long winded here, man,
but long story short, yeah, when it comes to AI,
like if you're serious about being an AI first vendor,
just don't lie, like make it, make AI not an add-on,
make included in your package in a way that feels like,
you really are AI first, not some afterthought,
by the way, for all this extra money you can use these.
People aren't buying that, they're getting super frustrated.
And so that's the main thing when it comes to add-ons,
there's some other littler things like,
could we include some of the platform type capabilities
and start to diminish these add-ons?
'Cause again, the big message we heard is people
are looking for partners in their AI transformation,
not in their seat transformation,
not even in their CX transformation,
you know, in their AI transformation.
- And to have partners who are nickel and diming them
to then get AI, it just, they're like, no,
we don't wanna put up with that kind of, that jargon.
- Just before we end here, Gabe,
like let's be, like obviously we've been real
this whole time, but like, I feel that there's been
this question of like, ah, AI's just a feature,
yeah, I don't know if it really even works.
And the thing is like, it is working
because if it wasn't working,
then you wouldn't see these shifts of like,
oh, maybe we should restart thinking our pricing models
because if AI does its job well in customer service,
it is resolving tickets without people in seats.
And so now that that's happening,
like you see companies are just like, oh, this is an add-on,
it's working a lot, let's just like,
this add-on's gonna be super expensive,
but then it takes someone to say, okay, hold on,
we may have to look at this from first principles
because this is now starting to change,
it's just software in general.
And I think that's what we're at right now.
- Yeah, yeah, look, I think those are,
and again, combine that with the economy
and some challenges where we're all trying to do more
with less, compare those two together
and it's kind of like this perfect storm of,
we just can't be doing the same things
and expecting different results.
Like it's time for a change, but we still it.
Obviously we did the survey and we decided to publish it.
A lot of this truthfully was more like internal findings,
but we just thought it was so important for our space
and even for the competitive landscape, like, hey,
let's all focus on making this industry better
and really going to a place where we are all AI first.
And I think that'll help brands,
I think that'll ultimately help customers.
Hopefully the information is helpful for everybody.
- Well, we're gonna put the, again,
we're gonna put the link, we did that pricing survey,
we'll put the link in the comments below,
take a look at that.
There's a lot of information there
that we talked about and there's some information
that we didn't talk about like more of the usage stuff,
but, you know, Gabe, thanks, man.
I really appreciate it.
Just talk. - Oh, I appreciate it.
I'm an asset to you.
- Yeah, I'm a big fan of the show,
so I'd love to come back.
- All right, all we have to do is take our one-on-one
and just like, just record.
(laughing)
- Sure, I have it in two-thousand.
- All right, bye.
[silence]