Outcome-based pricing is a win for startups:
Why outcome based pricing can help small dev teams win bigger deals and grow faster:
Traditional software pricing models break when companies are no longer augmenting the productivity of a human, but replacing it.
Subscriptions leave the seller undercharging by orders of magnitude. Usage has caught on, but at the application layer charging on a per token basis is the equivalent to paying engineers a fee for every line of code they write, no matter the quality. It works sometimes, but it still doesn’t really make sense for everyone.
The outcome based pricing model (charging for the successful completion of a task) is the first model that really makes sense for both sides. With it, we have aligned incentives between buyers and sellers. This means a few things.
The risk is fully taken off the buyer. In their eyes, if the product doesn’t work, they don’t have to pay. In turn, this means faster possible growth for sellers. If your product really works, you’ll capture more revenue (a larger portion of the business value you’re creating).
Agent meritocracy will also likely hold true, meaning the best product will always have a foothold in the market. A race to the bottom on pricing, similar to what we’ve seen with cloud computing costs is not as likely. If a company selling customer support agents is taking 10% of the revenue for each upsell their agent is able to create, it doesn’t matter if another company undercuts them at 7% but has a product with half as many upsells at scale.
This is important because it will push the bar for software higher. Less slop is good for the world, especially as we enter an era where software can be built by anyone.
Above all, this model opens the door for startups to win bigger deals and grow at unprecedented rates.
Who knows the timeline it will take to play out. What we do know is that this will be an exciting next few years.