Odds and Ends

This week’s post provides my perspective on an AI pricing article I found fascinating, expands on a couple points from my recent appearance on SCORRcast , and answers a question regarding last week’s quarterly recap .

Consumption Pricing for AI

CIO’s article “Salesforce mulls consumption pricing for AI agents ” describes Salesforce’s plan to charge for an autonomous AI agent on a consumption basis, and is worth your read.

I'd make a small correction, that Salesforce is not simply “mulling” consumption pricing for AI agent- it’s already communicating it to customers. Below I quote Marc Benioff from last week’s quarterly earnings call:

“when we look at pricing, it will be on a consumption basis. And when we think about that, we think about saying to our customers, and we have, it's about $2 per conversation. So that is kind of how we think about it, that we're going to have a lot of agents out there, even though it's only 1 agent. It's a very high margin opportunity…”

Plus, Salesforce already employs consumption pricing for AI, just look at their rate card for Einstein .

Anways, the relevant points to me are:

• While consumer-facing AI products (ChatGPT, Claude Sonnet, Google Gemini, etc.) are largely being priced as a flat monthly fee per user, the B2B side may already be, or is increasingly shifting towards, charging a consumption model for AI.
• Consumption models are more prevalent in situations where usage by B2B customers is more unpredictable, and extremely high usage by certain customers could result in huge unanticipated costs to the provider.
• The consumption pricing reflects a super high margin because the product is still relatively novel, is perceived to be high value/ROI by customers, and may cannibalize a significant amount of other revenue.
• Salesforce could have embedded the pricing for these AI agents into its pricing for related offerings, but (wisely) chose to price and offer the service distinctly on its own.

Pricing the AI offering on its own and making public the intended pricing shows me Salesforce has no problem being the benchmark against which competitors compare their pricing, and has high confidence in its product’s ability to trump what anyone else has to offer.

Price Synergies

I had a wonderful discussion with Alec and Tessa at SCORR Marketing around a number of pricing topics- definitely check it out. I wanted to expand on one point here: price synergies.

“Synergy” is negatively associated with M&A, since the focus tends to be on cost synergies that results from reducing headcount, culling vendors, closing offices, etc. once two companies combine. The other popular but much more positive type of synergy is revenue or sales synergies, where 1 + 1 > 2 when the combined companies attract more new business opportunities than they did as separate companies.

But don't forget about “price synergies”, where the companies review their separate price structures, combine their pricing intelligence, and use this opportunity to refresh their pricing to reflect the stronger brand presence achieved from the M&A.

The timing is ideal, not just because two companies are coming together due to a transaction, but also because M&A is a common instance where companies invest more in marketing and improving their brand. Improving your brand and reputation, and creating a combined company that is stronger than the two companies separate, means customer perceptions of your reputation and quality improve and thus they expect you to charge more premium price points.

So while there are numerous levers to generate ROI from M&A (and marketing investments), make sure you’re looking for and implementing price synergies to truly maximize that ROI.

Quarterly Recap Q&A

My quarterly recap on publicly traded companies I follow went out last week, check it out here if you missed it. Below I answer a follow-up question about Walgreens:

What’s the importance of the Walgreens BARDA award?

In the recap I mentioned two ways I find the award to be very important, and after reflection I’m going to add a couple more.

The two noted in the recap:

• The dollar terms are substantial ($100m over 5 years). If Walgreens were a CRO and this award went into backlog, this award alone would make it a midsize CRO!
• I also noted that the award represents Walgreens making a significant commitment to its clinical research business. BARDA is an arm of the federal government, and these are not projects you can simply walk away from. It’s almost like burning the ships behind you.

A couple more:

• The award is focused on helping BARDA build out DCT infrastructure (two other clinical research companies, Allucent and Care Access, received awards under the same initiative). While DCT is being treated less and less like a distinct (and prominent) offering across the companies I track, I found it significant that BARDA is making a huge DCT investment in its clinical trials infrastructure.
• The award follows a different BARDA award to Walgreens , valued at $25m, to conduct a clinical at ~20 Walgreens pharmacies. The combination of these awards makes Walgreens a new and important player in the government funded clinical research space. I also found the reference to the number of pharmacies involved to be enlightening- any site network with 20 or more sites is a substantial network.

I specialize in pricing and financial strategies for service and technology providers, and provide external benchmarking services for clinical research providers. Contact me to discuss solutions for your organization.