2 minute read / Jul 11, 2024 /
AI Pricing Strategies for SaaS Companies Offering Copilots
Pricing an AI product will be a defining question in software for the next few years. AI products offer productivity gains. But greater productivity may reduce the demand for seats over time, ultimately decreasing the size of software markets.
We can observe the market trends today across some of the larger SaaS companies who offer AI pricing.
| Company | Product | Base Price | AI Price | Ratio |
|---|---|---|---|---|
| Github | Github Enterprise | 21 | 10 | 0.48 |
| Gitlab | GitLab Duo | 19 | 20 | 1.05 |
| Workspace Business Plus | 18 | 20 | 1.11 | |
| Loom | Business | 12.50 | 4 | 0.32 |
| Microsoft | Office 365 | 45 | 30 | 0.67 |
| Salesforce | Einstein 1 Service & Sales Cloud | 330 | 170 | 0.51 |
| ServiceNow | Pro | 100 | 60 | 0.6 |
| Zapier | Team | 69 | 0 | 0 |
| Zendesk | Suite Professional | 115 | 0 | 0 |
The table above lists the company ; the product ; the base price per-seat for the enterprise plan if available, otherwise the team plan ; then the price for the AI or co-pilot add-on ; and finally the ratio between the AI price and the base price.
Sometimes the price is hard to compare, but I’ve tried to do my best to create a fair comparison.
Plotting the ratio illustrates the variance in the market today. Google charges more for their AI features than the base seat. While Loom charges about a 33% premium.
There’s no relationship between a more expensive seat & a greater ratio of the AI add-on. The R-Square is 0.08 : no correlation at all.
Overall, I’d characterize the ecosystem as iterating. OpenAI and GitHub launched their features at roughly $20-30 per month. This initial pricing has anchored the market at least for now in that range.
Microsoft & ServiceNow have stated AI features increased productivity by approximately 50 percent. If buyers act rationally & reduce headcount by 50%1 which we know is probably not true, then to maintain the same revenue per customer, price would need to double. We can observe that in three of the companies’ pricing strategy above.
If pricing really does provide information (see the work of Mauboussin), then these companies are pricing in a 40% productivity gain.
This is for copilots. Agents, which fully automate work or at least claim to fully automate work, may have more disruptive pricing. Instead of hiring a sales development rep, hire a robot. I’ll write about that in tomorrow’s post.
1 It’s highly debatable whether this will happen. Most companies will likely leverage efficiency gains into more growth, but let’s consider the downside scenario.