The Ibabka AI Monetization in 2025 report is getting a lot of attention.

Download the report here.

On Thursday January 23 at 11:00 AM Eastern (8:00 AM Pacific / 5:00 PM Paris) we will have a webinar with value and pricing experts Mark Stiving (host of the essential Impact Pricing Podcast) and Michael Mansard from Zuora. They will ask their questions about the report and draw out the trends that will shape value, packaging, and pricing in 2025.

Register for the webinar here.

As we worked on the report we realized there is a lot of new terminology being used. To act effectively in AI monetization you need to be familiar with the rapidly changing world of generative AI and with pricing and monetization. To help people with this we are sharing the glossary we developed for the report.

A Glossary for AI Pricing and Monetization

A

Agent - AI Packaging Pattern

An AI agent is a software program designed to autonomously perform specific tasks or solve problems by using artificial intelligence. These agents can interact with users, systems, or environments to achieve predefined objectives. They often rely on techniques such as machine learning and natural language processing to adapt and improve their performance over time

Agentic AI- AI Foundation

Agentic AI refers to artificial intelligence systems capable of autonomous action and decision-making. These systems, often called AI agents, can pursue goals independently, make decisions, handle complex situations, and adapt to changing environments without direct human intervention. They leverage advanced techniques such as reinforcement learning and evolutionary algorithms to optimize their behavior and achieve specific objectives set by their human creators

AI-as-a-Service (AIaaS)

A cloud-based service model that provides artificial intelligence capabilities to businesses without the need for extensive in-house AI development. This allows companies to leverage AI technologies through APIs or pre-built models

Application Credits - Pricing Methodology

Fungible credits that can be used to pay for a variety of different functions and are transferable from one function or product to another.

Agent Family - AI Packaging Pattern

A collection of Agents performing related functions or tasks. Agents in a family can often be sequenced to perform a more elaborate business process or in some cases substituted for each other.

Artificial Intelligence - Discipline

Artificial intelligence (AI) is a branch of computer science that aims to build machines capable of performing tasks that typically require human intelligence. AI enables machines to simulate human abilities, such as learning, problem-solving, decision-making, and comprehension. Deep Learning (DL) is currently the most

C

CausalML- AI Foundation

CausalML is a subfield of machine learning that focuses on understanding and estimating causal relationships between variables.

Chain of Thought - Prompting Strategy

Chain of Thought (CoT) is an AI reasoning technique that enhances the problem-solving capabilities of large language models by breaking down complex tasks into smaller, logical steps.

Compute costs - AI Cost Factor

Compute costs refer to the financial expenses associated with the computational resources required for artificial intelligence systems to perform tasks such as processing data, training machine learning models, and making predictions. These resources can include hardware like GPUs and TPUs, as well as cloud computing services.

Context Based Pricing - Pricing Methodology

Pricing methodology proposed by Mark Stiving where the business context is used to determine the best approach to packaging and pricing.

Co-Pilot - AI Packaging Pattern

An AI Co-Pilot is a smart assistant powered by artificial intelligence that collaborates with users to boost productivity, decision-making, and creativity through real-time suggestions, automation, and insights. 

Computational Intelligence - AI Foundation

An alternative to the transformer based approach used by Wolfram Alpha to compute answers to questions. Especially powerful in math related applications.

Consumption Pricing - Pricing Methodology

An approach to pricing in which the pricing metric is the amount of a service actually

Cost Plus - Pricing Methodology

Cost Plus is a pricing methodology where a fixed percentage or amount of profit is added to the cost of a product or service. This approach ensures that all costs are covered and a profit is made on every sale

D

Deep Learning (DL) - AI Foundation

Deep learning is a subset of machine learning that uses artificial neural networks with multiple layers to learn from large amounts of data. It enables computers to process information in ways similar to the human brain, allowing them to recognize complex patterns and perform tasks such as image recognition, natural language processing, and autonomous decision-making.

Diffusion Model - AI Foundation

Diffusion models are a type of generative AI model that progressively adds random noise to data and then reverses the process to generate high-quality outputs. They are widely used in applications such as image generation, video synthesis, and sound design, and are known for their ability to produce highly accurate and detailed results.

Disruptive Innovation - Innovation Approach

Disruptive Innovation, a term coined by Clayton M. Christensen, refers to a process where a smaller company with fewer resources successfully challenges established incumbent businesses by introducing innovations that disrupt the market. These innovations often start at the bottom of a market and relentlessly move up, eventually displacing established competitors.

Dynamic Pricing - Pricing Methodology

An AI-driven strategy that allows prices to fluctuate based on real-time factors such as market demand, customer behavior, and competitor pricing. This approach optimizes pricing for profitability and competitiveness.

E

Economic Value - Customer Value Management

Economic value is the worth of a good or service determined by people's preferences and the trade-offs they choose given their scarce resources.

Elastic Access Model - Pricing Model

A flexible monetization approach that allows for dynamic adjustment of prices and packaging, enabling businesses to adapt quickly to market changes and customer needs.

Embedding - AI Foundation

Embedding is a means of representing objects like text, images, and audio as points in a continuous vector space where the locations of those points in space are semantically meaningful to machine learning (ML) algorithms. Embedding enables machine learning models to find similar objects and learn complex patterns and relationships in the data.

F

Fungible Token or Credit - Pricing Methodology

A fungible token is a type of digital asset that is designed to be identical in value and interchangeable with other tokens of the same type.

G

Generated Value Model - Customer Value Management

A value model generated using generative AI by a value model generation process (VMG)

Generative Pricing - Pricing Methodology

Generative Pricing uses generative AI to create new pricing models and strategies. It leverages AI's ability to analyze vast amounts of data to develop innovative pricing approaches, including dynamic pricing, personalized pricing, and value-based pricing. This methodology aims to create pricing models that are more responsive to market conditions, customer behavior, and competitive dynamics, ultimately leading to more effective and profitable pricing strategies. It is based on a concept blend of value based pricing and 

Generator - AI Packaging Pattern

A product or function using a model capable of producing new data examples that resemble the training data it was provided.

Good Better Best - Packaging Pattern

See Tiered Pricing (GBB)

Growth Motion - Go-to-Market Approach

A Go-to-Market tactic: Product Led Growth, Sales Led Growth, Service Led Growth, AI Led Growth, Community Led Growth, Partner Led Growth, Relationship Led Growth.

H

Hybrid Pricing Models

Pricing strategies that combine multiple approaches, such as blending subscription-based pricing with usage-based components to offer more flexibility and predictability for both customers and vendors.

I

Input Token - AI Pricing

Input tokens are the pieces of text that you provide to a language model as input. These tokens can be individual characters, words, or sub-words, depending on the model’s tokenization process. They are used by the model to understand the meaning and context of the input and generate a response.

Input:Output Ratio - AI Pricing

The ratio of the price of an input token to the price of an output token. This is not always 1:1. In most foundation model pricing the output token is priced higher than the input token.

J

Job Based Pricing - Pricing Methodology

Pricing methodology proposed by Gary Bailey for pricing agents. Leverages Clayton Christensen’s Jobs-to-be-Done model.

K

K-Means Clustering - AI Approach

K-Means Clustering is an unsupervised learning algorithm used to group unlabeled data into clusters based on similarity. It partitions the data into a predefined number of clusters (K) by minimizing the variance within each cluster. The algorithm iteratively assigns data points to the nearest cluster centroid and recalculates the centroids until convergence. It is widely used in applications such as market segmentation, image compression, and anomaly detection.

L

Large Action Models (LAM) - AI Foundation

Designed to learn and execute complex sequences of actions, often used in robotics and autonomous systems.

Large Audio Models (LAM) - AI Foundation

Focused on processing and generating audio data, including speech recognition and music generation.

Large Knowledge Models (LKM) - AI Foundation

Focused on storing and retrieving vast amounts of factual information.

Large Language Model (LLM) - AI Foundation

A Large Language Model (LLM) is a type of artificial intelligence model designed for natural language processing tasks such as language generation and understanding. These models utilize deep learning techniques and are trained on vast datasets to predict and generate text. They are foundational models in AI, often based on Transformer architectures, and are used in applications like chatbots, content creation, and sentiment analysis.

LLMs can be proprietary like Open AI GPT series and o1 or o3, Anthropic Claude or Google Gemini or open source like

Large Multimodal Models (LMM) - AI Foundation

These models can process and generate content across multiple modalities, such as text, images, and audio.

Large Reasoning Models (LRM) - AI Foundation

These models emphasize logical reasoning and problem-solving capabilities implementing approaches such as Chain of Thought or Self-Discover.

Large Simulation Models (LSM): Used for creating detailed simulations of complex systems, such as climate models or economic forecasts.

Large Video Models (LVVM) - AI Foundation

Designed to understand and generate video content, combining aspects of vision and temporal processing

Large Vision Models (LVM) - AI Foundation

Specialized in processing and understanding visual information, these models are crucial for computer vision tasks.

Leiden Clustering - AI Approach

Leiden Clustering is a community detection algorithm used in network analysis. It identifies groups of nodes that are more densely connected to each other than to the rest of the network. The algorithm optimizes modularity, ensuring that the identified communities are well-defined and meaningful. It improves upon the Louvain algorithm by addressing issues such as poorly connected or disconnected communities.

M

Menu Options - Packaging Pattern

A packaging pattern where the buyer selects from a set of options for each category, much like a restaurant menu.

O

Outcome Based Pricing - Pricing Methodology

Outcome-based pricing (also known as results-based pricing) is a pricing model in which the cost of a product or service is based on the value or outcomes it delivers to the customer, rather than a fixed agreed cost. Instead of pricing being directly linked to the cost of the product or service, it is tied to the performance or outcomes achieved.

Output Token - AI Pricing

In the context of AI, particularly language models like GPT, output tokens are the units of text that the model generates as a response to the input tokens. These tokens are the building blocks that allow the model to interpret and generate language.

P

Packaging - Packaging Pattern

Standard approaches to combining functions, data, and services so that they can be priced and sold.

Platform + Extensions - Packaging Pattern

Platform + Extensions refers to the integration of additional functionalities or capabilities into an existing platform, particularly in the context of AI. These extensions are designed to enhance the platform's performance, expand its range of tasks, or adapt it to specific applications. For example, AI extensions can include new algorithms, APIs, or tools that enable real-time data processing, task automation, or other advanced functionalities.

Pricing Metric - Pricing Model

The unit of consumption for which a buyer pays.

See also Value Metric.

R

Reasoning Model - AI Foundation

Reasoning models in AI are systems designed to perform logical inferences, problem-solving, and decision-making tasks. These models often employ techniques like chain-of-thought reasoning to break down complex problems into smaller, manageable steps, enabling them to synthesize information and provide contextually relevant responses.

Reasoning Token - AI Pricing Metric

A token generated in OpenAI o1 and o3 models and used as a pricing metric.

S

Self-Discover - Prompting Pattern

A prompting pattern where the LLM chooses the best reasoning structure to tackle complex reasoning problems. An alternative to chain of thought.

Service as Software - AI Packaging Pattern

The 'Service as Software' business model involves automating tasks previously performed by humans while maintaining the same user interface. The backend processes are replaced with algorithms or robotics, enabling digital or physical workflow automation.

Sustaining Innovation - Innovation Approach

Sustaining Innovation refers to incremental improvements to existing products, services, or processes to maintain competitive advantage and meet customer needs. It focuses on enhancing existing offerings rather than creating entirely new markets or products. It comes from Clayton Christensen’s work on innovation.

T

Tiered (GBB) - Packaging Pattern

The Good-Better-Best (GBB) pricing strategy involves creating three price bands or tiers for different product or service bundles. Each level includes better features or functionality than the one below, encouraging consumers to upgrade to a better product. This strategy is based on the premise that customers consider aspects like quality and value, not just price when making decisions.

Token - AI Pricing Metric

See Input Token, Output Token, and Reasoning Token.

Token-based Pricing - Pricing Methodology

A monetization model where users purchase tokens or credits that can be exchanged to access various AI functionalities. This approach allows for flexible pricing and usage metering.

Tokenization- AI Foundation

Tokenization is the process of breaking down data, such as text, into smaller units called tokens. These tokens are essential for machine learning models to process and understand the data, enabling tasks like natural language processing, computer vision, and audio analysis.

Transformer - AI Foundation

“All you need is attention.” A Transformer is a type of neural network architecture that processes sequential data, such as natural language, by using mechanisms like self-attention to understand context and relationships within the data. It is widely used in natural language processing and other AI applications.

U

Usage-based Pricing

A pricing model where customers are charged based on their actual usage of the AI service, such as the number of API calls, amount of data processed, or computational resources consumed.

V

Value - Pricing Foundation

There are three types of value: Economic Value, Emotional Value, and Community Value. All are relevant to pricing but Economic Value plays the leading role.

Value Based Pricing - Pricing Methodology

Value-based pricing is a strategy of setting prices primarily based on a consumer’s perceived value of a product or service. Value based pricing is customer-focused, meaning companies base their pricing on how much the customer believes a product is worth.

Value Capture Ratio - Customer Value Management

Price / Value to Customer. Also known as the Value Ratio. Used to target pricing levels in value based pricing. Also referred to as the Value Ratio.

Value Cycle - Customer Value Management

The Value Cycle is a management framework that defines how organizations create, communicate, deliver, document, and capture value. It is an iterative process used to sustain superior performance by exceeding customer needs and aligning value creation with pricing strategies.

Value Driver - Part of Value Model

A factor determining the value of a solution to a customer. There are six main types:

• Increase Revenues

• Reduce Operating Costs

• Reduce Operating Capital

• Reduce or Defer Capital Investment

• Reduce Risk

• Increase Options.

Value Driver Equation - Part of Value Model

An equation used to quantify a value driver.

Value Driver Variable - Part of Value Model

A variable in a value driver equation, usually specific to a customer, configuration combination. There are three types of variable:

• Solution Variable

• Customer Variable

• External Variable

• Improvement Claim

Value Metric - Part of Value Model

The unit of consumption by which a buyer gets value.

Value Model - Customer Value Management

A Value Model is a system of equations that estimates the economic value (dollar value) a solution provides to the buyer. It is foundational to value-based pricing and market segmentation, quantifying the impact of a solution on profit and loss statements and balance sheets. Value models are used to reason, explain, design, communicate, act, predict, and explore the economic impact of solutions.

Value Model Generation (VMG) - Customer Value Management

The use of generative AI and related technologies to generate a value model and keep it updated. Generative AI can also be used to customize a value model for a specific customer.

Value to Customer (V2C) - Customer Value Management

The value that a solution provides to a customer. Can be cumulative over the life of the solution or for a specific time interval.

W

Willingness to Pay (WTP) - Pricing Methodology

Willingness to Pay (WTP) is the maximum price a customer is willing to pay for a product or service. It is typically represented as a dollar figure or price range and reflects the perceived value of the product or service.