Run the Numbers
00:06:00 · Ali Hussain, CJ Gustafson
[00:06:00] S1: I think at the actual inference level, for sure, like, we're gonna see some of that, and I think we're already seeing it. Like, some of my most clod heavy users are now moving back to Codex, or my favorite one, like, we wanna call yesterday where someone just said, look. You know what? Gemini is good enough, and I bundle it with my g Suite, and it's the cheapest. On the other hand, though, when it comes to specific tooling, whether it's around how you do legal or how you do marketing, there's still a huge opportunity for some of the best vendors out there to make their products better through tokens or inference, but then provide service on top that you must still buy. I just think the way you've bought them in the past, like software and seats, must evolve, because they are fueling that with real inference costs. And it's not sustainable for them to shield that cogs, as they've gone 70, 80% gross margins to a... Like we've heard, there are many right now sitting at negative 20 to negative 50% gross margins. I just sustainable. And so I don't think that's a commodity. I think you'll still need it from these providers, but they're gonna have to... It's not that their costs are just gonna go down. They're gonna have to figure out a way to pass that through, and we're certainly seeing a huge surge in that this year. [00:07:17] S0: With that context, I do wanna touch on the pricing and packaging. What are the most common flavors you're seeing companies sell their products in?
00:07:26 · Ali Hussain
[00:07:26] S1: I think the most interesting thing this year has been everyone assumes these are like AI natives that are passing on AI costs. The biggest growth we've seen here is the legacy companies, late stage, growth backed SaaS companies, private equity owned services. And so the reason I bring that context up is the pass on of these costs, if you're listening today, is not a nice to have. If you're not already feeling it, this is an inevitable thing that is coming across your door very soon. It's either because you have new products coming that have these costs in them, you're or get a lot of pressure at the board level. If you don't have a variable model, even if you have an AI product, you will not get credit for it from an investor, and the street will just price it as a seed based product. Now with that context in mind, the most common thing we're seeing right now is some form of hybrid model. What I'll tell you is debt is the old way of doing this, which is simple price times quantity. Those days are gone, and that is a very consumer oriented way of thinking about it. I think what we're seeing is some form of hybrid model, in which the company providing the service or the vendor is getting their customer comfortable to commit to some type of bundle. What's great about that is you're still getting the certainty of a certain amount of economics upfront, and you're also giving your customer certainty on how much they are buying so they can plan and budget for it. The second is that bundle or that commit allows you to not lean in one direction too hard in how the product and service is bought. And so we're seeing multi product within that bundle. And so there's a distribution across, I wanna buy seats. I wanna buy platform, but I also wanna buy agents. I wanna buy token pass throughs. And all of that is starting to show up as a part of that bundle. And so my view is the bundle is most in vogue right now, but is very much hybrid, and it is coming in the form of some type of commitment.
00:09:31 · CJ Gustafson, Ali Hussain
[00:09:31] S0: What are you seeing in terms of tiers? Because tiers sometimes get confused as, oh, it's kind of like a subscription price, but, like, within a range, you're gonna pay the same thing, but it's also a commitment model. Where where is this? There's an overlap between them, or is it just pure commitment based pricing? [00:09:46] S1: I think tiers is probably what I would say is the second most common. I think I saw a lot more tiers in the early days, and a lot of it was people just had a hard time administrating the burn down, and so a tear was just a easier way to bump people up and down. I am now, with the level of tooling we have certainly with products like Tabs, I think people are able to evolve from it. And I think people just want to grab as much of the top tier as possible. The customer doesn't like just getting bumped up and bumped down in tiers. And often, tiers have a huge delay between when you jump, are you there permanently, and they just become a little bit more difficult to administer in terms of the customer relationship. I've just been amazed by how accelerated the commitment model has become in all parts of the economy. [00:10:34] S0: Something I've seen in 2026 is the proliferation of this mystical creature called a credit, but I've also realized that a credit is not a credit is not a credit, depending on what you're talking about. What are you seeing?
00:10:34 · CJ Gustafson, Ali Hussain
[00:10:34] S0: Something I've seen in 2026 is the proliferation of this mystical creature called a credit, but I've also realized that a credit is not a credit is not a credit, depending on what you're talking about. What are you seeing? [00:10:46] S1: I think that's right. I think I get on calls all the time, and I have to clarify three times over, similar to what you just said, on what a credit is. Is it happening? Absolutely. Is it my favorite part of how this is all happening? No. Just mostly because it's creating [00:11:02] S0: And how did we get here with credits? Because my layman's term view of the world with this is we were just struggling for a clean proxy of value because there was so much stuff going on with AI, with all the other services bundled in, used the word bundling earlier, that was happening beneath the surface. [00:11:21] S1: Honestly, I think it's probably one of the early companies started to be most prolific in getting this pricing across the board, and some creative person in finance or rev ops just started to push the credit model. Similar to you, I can't, from like a common sense standpoint, know why this got so commonplace in the market. [00:11:39] S0: I think like there's some person who worked at Snowflake in like 2011 who came up with this and doesn't get credit for it. No pun intended. So much of this architecture...
00:11:39 · CJ Gustafson, Ali Hussain
[00:11:39] S0: I think like there's some person who worked at Snowflake in like 2011 who came up with this and doesn't get credit for it. No pun intended. So much of this architecture... [00:11:50] S1: The good news is it's created a level of familiarity, and I think this is why it's passed on so quickly is, like, the foundation of how flake and AWS and Databricks and all sold five to ten years ago has now laid the foundation for how Inference AI moves. It's just just made this the mass standard, and it's also created this challenge for not companies with the balance sheet of Amazon or Snowflake that could put tens of millions of dollars of building tooling and teams against this, to a mass market problem where a $30,000,000 technology company selling credits to RV parks now has to go through this. [00:12:30] S0: There's some dude at a Kearny Street dive bar right now screaming to his friends, I invented the credit. And they're like, sure you did, John. Get out of here. [00:12:38] S1: You ever find him or her, you and I will let them on this podcast. [00:12:42] S0: Ali, do overages create the wrong customer incentives?
00:12:42 · CJ Gustafson, Ali Hussain
[00:12:42] S0: Ali, do overages create the wrong customer incentives? [00:12:46] S1: You'd be surprised right now, CJ, how few people charge for overages. Everyone puts in a contract, but I've been amazed by how few folks actually act on it. If we're looking at it through that lens, I do think it creates the wrong incentive, because there's no penalty to hitting the overage in a lot of organizations today. And the argument I often hear is it creates an awesome opportunity at the renewal, and we're fine with it. And I think in a bull or in a frothy market, that's fine, but it certainly has a huge impact on the gross margins. Overages are fine, but you have to have very prescriptive rules or guidance or an agreement on how to handle it. And you have to then have tooling that can instantly bill an invoice for it, or at least provide clarity on if it leads to another tier or an early renewal, or some other way to ensure that the commercial incentives are aligned. Aligned. [00:13:43] S0: Maybe talk about just tracking overages because my theory is that most overages don't get charged just because there's not the infrastructure in place to to even meter it and catch it, and it ends up in... Resulting in revenue leakage. Folks