Market Expectations for Outcomes-Based Pricing

Pithy quote of the week: "The stock market is a device that moves money from the impatient to the patient" Cornelius Vanderbilt 1850

Outcomes-based pricing has arrived and expected to proliferate. This is something technology buyers have been asking for the last several years in answer to the magic wand question we ask at the end of our in-depth executive interviews.

The underlying enabler today is AI, of course, but interestingly, the problems technology buyers want to solve are quite different. It is worth noting these since they are still showing up in our research today and will provide sellers with insights into how to best position the value of their new agentic solutions. Here are the top five:

1. Weak ROI and value from technology solutions they have adopted. A constant refrain we hear is that ROI is either weak or difficult to prove to their executive leadership.
2. Underutilization of purchased assets-this is often cited as an underlying cause of weak ROI and are a consequence of non-intuitive user interface design leading to poor discoverability and adoption of features. Surprising to still be hearing this today, given how much emphasis organizations have placed on design in the past few years.
3. Features overlap between solutions
4. Poor or incomplete integration between solutions or integrations that break when products get updated
5. Last, but not least, technology buyers have simply overbought (or more accurately, have been oversold) solutions and are looking to consolidate.

Enter outcomes-based pricing or OaaS (Outcomes-as-a-Service). While it doesn't solve all of the five issues mentioned above, it has the potential to radically shift the burden of accountability from buyer to seller. The seller is now in the position of not just being able to deliver tools that create outcomes, but the outcomes themselves-agentic AI is doing the work.

Commensurate with this paradigm shift is the opportunity for technology purveyors to reconfigure their pricing models to align with value creation more closely for their customers. Early examples already emerging revolve around replacing user-based subscription pricing with some form of cost savings sharing. Expectations from buyers are to see incremental revenue contribution models for customer-facing apps such CRM and marketing automation, the chief current barriers cited being able to attribute contributions to particular activities or tools used. 

Expect to also see buyers demand current consumption-based models in areas such as cloud and storage to evolve to outcomes-based. A major complaint over the last several years has been cost overruns and surprises in the monthly invoices from the likes of AWS. Whole departmental functions and new tools such as Cloud Zero, have sprung up to handle cloud cost optimization, resulting in additional overhead to organizations. While these overhead costs are more than offset by cloud cost savings, technology buyers are highly likely to welcome outcomes-based innovations in cloud pricing, offering opportunities for competitive advantage for those who seek to be disrupters.

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   Alan Nazarelli is Founder & CEO of Silicon Valley Research Group. Based in San Jose, CA with offices in Seattle and New York, the company works with the world’s most innovative brands to provide timely and actionable market intelligence and strategic guidance to enable them to make well-informed decisions to positively impact revenues and profits and to achieve their growth targets. Connect with Al on Linked in