By Jim Lundy
The Pricing Dilemma for Charging More for AI Features
The software industry is facing major hurdles when it comes to what to do when it comes to charging customers for new AI capabilities. They had several instances recently, where vendors blew when it comes to charging more for AI.
This blog talks about the challenges of adding new capabilities such as AI, and how to charge for them
Microsoft Adds AI to Teams and Wants More Money
A great, recent example of a vendor that’s added AI to a product is Microsoft. Michaels has been testing new premium features for several months in Microsoft Teams, its team collaboration offering. Now that the beta test is up, it wants to charge users up to nine dollars used your month to take advantage of these premium AI features.
The issue is Microsoft already has several SKUs for Microsoft 365, and normally the high and skew would get the new incremental features. So Microsoft customers that have the E5 addition of Microsoft 365 have to be wondering why they now all of a sudden have to pay nine dollars more per month.
Our take is that people probably aren’t gonna pay the extra money and just let it go. So through its actions of aggressive pricing for an upsell, Microsoft may not get the adoption for its intelligent teams, offering that it hoped to.
How Salesforce Priced Einstein Sales Cloud and Missed the Adoption Curve
Salesforce already has had experience with pricing its AI separately and then not getting the adoption because people felt it wasn’t worth it. Jump back four years ago and Einstein sales cloud was first introduced with great fanfare. However, it took a while for the product to ship and customers ended up with the impression that maybe it wasn’t ready so they ignored it and did not pay the $50 per seat for the upgrade.
Jump ahead two today, and many major enterprises, while they might have the enterprise edition of sales cloud, their account teams from Salesforce stop pitching Einstein sales cloud years ago. So this is a good example of where pricing policy can impact adoption.
Best Practices for AI Features: Bundle
Well, there is a balance between adding features to the SKU versus charging incrementally, it’s easier to just do a price increase on the major SKU versus having a separate ad on the license for AI.
We have two examples in this blog or salesforce, and Microsoft has decided to charge extra. We know that for Salesforce that strategy failed, and so far it’s inconclusive. Whether people will feel it’s worth it to upgrade to Teams premium.
Bottom Line
The bottom line is that bundles matter and customers don’t like to keep getting ups sold for extra line items that they think they may not need. Product managers and product marketing professionals. The lesson here is to make sure there’s value in the current SKU and increase the price of the SKU and give everybody that has that SKU the new AI capabilities, otherwise, you face the risk of lack of adoption and perception that the AI offering may not be that good.
Aragon Research’s Q2 2023 Research Agenda
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Aragon Research’s Q2 2023 Research Agenda
Aragon Research provides the most in-depth and exclusive Visual Research along with trusted advisory to help your business navigate disruption and outperform your goals. Our research is designed to help you understand the technologies that will impact your business–using a number of trusted research methodologies that have been proven to help organizations like yours get to business outcomes faster.
On Wednesday, May 17th, Aragon Research CEO and Lead Analyst, Jim Lundy, is hosting a complimentary webinar to walk you through Aragon’s Q2 2023 research agenda.
This webinar will cover:
- Aragon’s coverage areas, analysts, and services
- Research offered by Aragon, including Visual Research
- The research agenda for Q2 2023
- Sneak peek at what’s coming in Q3 2023
This blog is a part of the Digital Workplace blog series by Aragon Research’s CEO, Jim Lundy.
