AI: Adjusting the AI Pricing Bundles. RTZ #608
...price discovery continues for AI products and services
We’ve talked about the ongoing price discovery process for what the market will bear for AI products and services. All the big tech companies like Microsoft, Google, OpenAI, Anthropic, Salesforce and others have been trying AI ‘Add-on’ bundling prices, for everything from ChatGPT like chatbot services, to now AI Reasoning and Agent prices.
Microsoft in particular has been focused on adding its AI Copilot to everything from Windows to Office 365 and more. Google Gemini AI is being bundled with a range of AI features, both for ‘free’ (i.e., ad supported), or for premium subscriptions.
And customers both businesses and consumers have been figuring out what these AI services can do for them, and what the right price they should pay for them. While regulators are closely watching the price bundling/unbundling machinations of big tech.
All the time investors of course are watching all this with bated breath, in order to understand when these comnpaneis might see returns on the multi hundred billion AI Capex investment posture for the next several years. All the while Nvidia of course benefits from the AI Infrastructure ‘gold rush’ spend.
Now it looks like the big tech companies may be ‘blinking’ a bit, generally including AI features now in the base products, instead of charging separate a la carte prices, while in some case increasing the price of the base products. A bit of rebundling as it were.
Axios lays it out in “Tech giants' dreams of AI price hikes meet resistance”:
“Recent moves by Microsoft and Google show many business customers are balking at forking over a separate fee each month to give employees access to a work-friendly AI chatbot.”
“Why it matters: Both companies previously expressed high hopes that businesses would be willing to pay an extra $20 or $30 per employee per month for access to AI tools alongside everyday productivity apps.”
Now these new AI features ‘are included’ in the base products:
“Driving the news: Google announced last week that it will include its Gemini Advanced chatbot for subscribers to Workspace, the bundle that includes Gmail and productivity apps like Google Docs and Sheets.”
But with a little change somewhere else of course:
“At the same time, Google is hiking the price of its enterprise and business Workspace subscriptions by $2 per month.”
And where there’s action, there's reaction:
“Microsoft, meanwhile, announced a free AI option for businesses — Copilot Chat — that offers limited access to Copilot and access to AI-powered agents on a pay-as-you-go basis.”
“Microsoft continues to offer its more full-featured and unlimited option — Microsoft 365 Copilot — for $30 per worker per month.”
“Microsoft is also bundling Copilot into the home and family versions of its Office subscription product, while raising the price of that by $3 per month. The company had been testing that approach in Australia, New Zealand and parts of Asia.”
It’s complicated for vendors to figure out the best pricing packages.
And it’s just as complicated for businesses to figure out the price moves, as it is for consumers when prices are similarly bundled and unbundled at the supermarket:
“Between the lines: For business leaders, the cost-benefit analysis for this kind of AI deployment is still tricky.”
“You don't need to get a lot of extra productivity per worker to justify an additional $30 a month, considering how much the average worker is paid.”
“On the other hand, without knowing for certain the benefits, $30 per employee per month is a significant expense — in the millions of dollars a year for companies with tens of thousands of employees.”
"We believe AI isn't just an add-on — it's central to how work gets done," Google said in the blog post announcing its move. "Now, with AI seamlessly integrated into our product and pricing, we're excited to help everyone unlock their next chapter of innovation."
What happens here are these two companies in AI pricing is important for the industry at large:
“The big picture: Microsoft's suite of office tools is a mature product that brings in enormous revenue, and Google's is not far behind. Both companies are looking to AI as a lever to grow their income in this otherwise more static market. Investors have been excited, too.”
“What to watch: The key question is whether these companies have to abandon their hopes of revenue boosts from business chatbots.”
And the jury is out in terms of the customers, and the vendor dreams are eternal:
“Spataro said he is optimistic, suggesting that companies are balking not over the cost but because they want to see tangible impact to the bottom line before committing.
“He pointed to the coming wave of AI agents as a new opportunity for revenue that isn't tied to the size of a company's human workforce.”
"We expect those agents are going to be consumption-based," he said, meaning that companies will pay for the work being done. "They will be doing work that people aren't."
All that remains to be seen.
And it’s even more important with AI products and services due to the variable pricing aspects of these services, that increase costs for the vendors as and when customers use the AI services more. Something I’ve pointed out for OpenAI already.
So the AI price discovery process contiues this AI Tech Wave. And we won’t have full clarity on all this at least until next year. Stay tuned.
(NOTE: The discussions here are for information purposes only, and not meant as investment advice at any time. Thanks for joining us here)