What do AWS, beer and usage-based pricing have in common?

Notion Capital backs the emerging Pricing Operations Platform category with its investment in m3ter to do for usage-based pricing what AWS did for hosting, and power companies did for German beer.

“Focus on the things that make your beer taste better,” Jeff Bezos. Jeff used the analogy of German brewers outsourcing power generation as an analogy for technology businesses outsourcing hosting to AWS. As with the German brewers who’s beer tasted the same regardless of the source of electricity, a technology business’s product is no more attractive whether they host their products on their own infrastructure or outsource to AWS. Insourcing hosting is not a source of competitive advantage and does not make a technology business’s product any better, but comes at significant cost and complexity.

As with hosting, the infrastructure needed to execute a complex pricing strategy is not something anyone should build for themselves. It is costly and difficult to build the required capabilities, sucking up valuable engineering resources and ultimately does not make your product any better. Until recently, pricing execution has not been something SaaS businesses have had to worry too much about. Price models such as per user pricing are relatively simple, and the tools available such as Salesforce CPQ have been sufficient. This is rapidly changing as cloud businesses adopt usage-based and hybrid price models which are significantly more complex to execute.

The challenges cloud businesses face in executing complex pricing models are numerous and significant:

  • How can Sales configure complex price quotes for customers and provide spend estimates?
  • How can we track customers’ usage so we know what to bill, and how can we provide the necessary transparency to customers to manage their spend?
  • How can we ensure we send accurate bills to customers every time, and make adjustments and issue credits seamlessly?
  • How can we allocate our costs to products, features and customers, so that we can provide the right level of transparency to finance and P&L owners?
  • How can we efficiently provide analytics on usage and spend to optimise our approach, spot issues early and steer the business?

These are just some of the questions I needed to work through at Clarivate when supporting product leaders launch new propositions with complex price models. Developing the right price strategy and getting buy-in from the organisation was tough enough, but thinking through execution drove a tremendous amount of frustration and delays. At the time I thought the main driver of my own and the organisation’s frustration was that our tech stack was a mess, and that we couldn’t get the time and investment needed from key stakeholders to address our execution challenges. It’s only since joining Notion that it occurred to me that a key part of the technology stack was missing, and is missing for technology businesses in general. In short we were asking systems like Salesforce, Zuora etc. to complete tasks they were not designed for. They were designed for the much simpler world of the subscription economy, not for the much more dynamic complex consumption economy.

So how do businesses like AWS and Snowflake execute complex usage-based pricing models today? Well these challenges are solvable, but they consume significant resources to solve for. It would surely be more effective for cloud businesses with complex revenue models to buy in execution capabilities rather than building it themselves.

At Notion we believe a fundamentally new category focused on pricing execution, integrating with and sitting alongside the existing stack, is rapidly emerging. “Pricing Operations Platforms is emerging as a new category, which has already attracted a large number of new entrants, some of which are already well funded” - Jos White, General Partner at Notion Capital. At least thirteen start-ups have been established over the last three years to address the execution challenges of usage-based pricing specifically, plus additional entrants focusing on the streamlining of simpler subscription based models.

We have tremendous conviction in the emergence of this new category, and believe m3ter are leading the pack, hence our investment earlier this year. Griffin Parry, and John Griffin (not to be confused with our investment in Griffin 🤯), the founders of m3ter know the pains of usage-based pricing better than most, having founded a business acquired by Amazon in 2018. It was there that they saw firsthand the challenges of usage-based pricing execution which gave birth to m3ter. It’s fitting then that m3ter is setting out to do for pricing execution what AWS did for hosting, and energy companies did for German brewers before that.

Having access to a Pricing Operations Platform like m3ter would have relieved a significant amount of frustration at Clarivate. It would have allowed myself and the business to focus on the things that made our beer taste better rather than worrying about how to execute. I’m so excited to see how this new category develops, and how m3ter will become the beating heart of many technology businesses pricing capabilities in future.

you also may like to read
Why I invested in m3ter
February 1, 2024
This is some text inside of a div block.
No items found.
you also may like to read

Get the latest from Notion Capital. Sign up to our newsletter.