Will generative AI require new approaches to pricing?

Steven Forth is a Managing Partner at Ibbaka. See his Skill Profile on Ibbaka Talio.

Given the massive attention and investment flowing into generative AI it is worth exploring how it will impact pricing. Here the focus is on pricing best practices, and not just the pricing of AI driven innovation.

There is a perception that pricing is falling behind the curve.

“Lack of pricing innovation presents an opportunity for the second wave of AI apps.”

Kyle Poyar in How AI Apps make money

“Most SaaS companies are missing the opportunity to monetize GenAI”

“Adoption is outpacing successful monetization”

“Over-reliance on traditional SaaS pricing models”

Michael Mansard in Monetizing GenAI: Why most SaaS companies are missing out, and how to fix it

Does generative AI require a new approach to pricing? We polled people in the Design Thinking, Pricing, SaaS and Product Management communities to find out. We asked

“Will generative AI lead to new approaches to pricing?

  • No, current approaches work

  • Yes, transformation is needed

  • Selectively, in a few cases

  • Too early to say

Poll opened June 1; data from June 4.

Almost 40% of respondents answered ‘Yes.” When people who thought there are some cases where a new approach will be needed that number increased to 73%. Just over 4% believed that the current approaches to pricing are sustainable.

Why might generative AI require new approaches to pricing?

Generative AI has the potential to transform the B2B software space.

  • There will be new ways to provide value

  • Applications will move from static configuration to dynamic configuration

  • User interfaces will transform to be more conversational

At the same time, the cost equation will change.

  • Development costs may go down

  • Customer support costs may go down

  • Operating costs will be much higher given the cost of compute and the cost of accessing the underlying models

Given this, how might pricing change? To differentiate pricing for generative AI from other approaches, like dynamic pricing or value based pricing, let’s give these new approaches a name, say ‘generative pricing. What might generative pricing look like? One could ask a generative AI application.

Concept Blending and Generative Pricing

A common approach to innovation is concept blending. In concept blending one takes two different domains and combines them to create something new. A classic example is ‘house’ and ‘boat’ to create a new thing, a house boat.

From Eppe, Manfred & Maclean, Ewen & Confalonieri, Roberto & Kutz, Oliver & Schorlemmer, Marco & Plaza, Enric & Kühnberger, Kai-Uwe. (2017). A Computational Framework for Conceptual Blending. Artificial Intelligence. 256. 10.1016/j.artint.2017.11.005.

For some ideas on how to apply concept blending to innovation see my article Some innovation patterns from concept blending.

Here is an exploration of concept blending applied to SaaS, GenerativeAI and pricing using Perplexity.ai.

The concept blend ‘SaaS’ + ‘Generative Ai’

Prompt

Create a concept blend for SaaS (Software as a Service) and generative AI (applications like Perplexity, Chat GPT and Microsoft Copilot). Focus on how this may impact B2B software. What new ways to create value are opened by this concept blend? For context on concept blending reference Steven Forth's article on LinkedIn https://www.linkedin.com/pulse/some-innovation-patterns-from-concept-blending-steven-forth/

Conclusion

The concept blend of SaaS and generative AI opens up a world of possibilities for B2B software providers to create value. By harnessing the power of GSaaS, companies can streamline content creation, enhance user experiences, offer personalized solutions, and drive data-driven innovation, ultimately providing their customers with a competitive edge in an ever-evolving business landscape.

Themes

  • Generative SaaS (GSaaS)

  • Automated Content Generation

  • Intelligent Virtual Assistants

  • Adaptive and Personalize Experiences

  • Data Drive Innovation

If you have a Perplexity account you can see the results here. The full text and the follow up questions give a lot of additional ideas.

The Concept Blend ‘Pricing’ + ‘Generative AI’

Prompt

Create a concept blend for Pricing and generative AI (applications like Perplexity, Chat GPT and Microsoft Copilot). Focus on new pricing metrics, new pricing models, new ways to asses pricing, new ways to optimize pricing. For context on concept blending reference Steven Forth's article on LinkedIn https://www.linkedin.com/pulse/some-innovation-patterns-from-concept-blending-steven-forth/

Conclusion

By blending the domain of pricing with generative AI, we can create innovative and adaptive pricing strategies that enhance both business outcomes and user experiences. This approach leverages the strengths of AI in data analysis, prediction, and personalization to revolutionize traditional pricing models.

Themes

New Pricing Metrics

  • Engagement-Based Pricing

  • Outcome-Based Pricing

  • Usage Intensity Pricing

New Pricing Models

  • Subscription Plus Performance

  • Freemium with Premium Features

  • Dynamic Pricing

New Ways to Assess Pricing

  • AI-Driven Market Analysis

  • Customer Sentiment Analysis

  • Predictive Pricing Models

New Ways to Optimize Pricing

  • Personalized Pricing

  • A/B Testing with AI

  • AI-Enhanced Negotiation

These are not transformative, but a lot more detail was provided that if you have an Perplexity account you should be able to access here.

At this point I think we can say that generative AI will lead to a new phase of innovation, that this will require new approaches to pricing and that generative AI will be used to generate this new approach to pricing. There is a lot of work to be done as this takes form, it is still at the stage of seeing ‘through a glass, darkly,’

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