The Neon Show
00:46:50 · Bhaskar Ghosh
[00:46:50] S1: I think the way I would phrase it, that's a great question is how do you sell these new services? So I think and you are hinting at that, so I'll take the bit. I think today a lot of the economic model is time and materials. It is going to go towards outcome based pricing. We are already seeing that. In one of our companies, a very well known company, a young company named Bespoke Labs, a founder of Google DeepMind, Mahesh. Co founder is a professor of CS from Berkeley, Alex DeMarcus. Which are doing something very deep in the post training phase of models, both in the data curation side and in RL environments. You sent me a bunch of questions. They are doing some very deep work in these areas. They are already working with one data science consulting company, very well known mid market company. Which are... Which are... Then the partnership is... Bespoke Labs is helping them deliver software for say analytics use cases, data science use cases, which is deeply AI enabled, building new models, where that consulting company is changing its business model. So, inevitably, you mentioned banks, the acquiring the person buying the service provider service will be is beginning to ask questions around outcomes versus time and material. I feel feel it is going to go through phases. I think this outcome based pricing is just beginning to hit the market. It is being proven out and a lot of this will be dependent on the customer's taste, and how do they manage their own hierarchy and incentives inside. Because it depends on the complexity of the... It depends on a lot of multidimensional problems, where Siddhartha is now a big exec on the BFSI side, comes to BG, and BG is this new AI enabled entrepreneur, and he knows that the old money that Siddhartha spent was in the context of time and material, and says no no no, you have to get this outcome done. It has to do with the nature of the project. It has to do with is that outcome measurable? Is there a customer support and success phase? You begin to ask SAS like questions also there. Not going to oversimplify it. I think you were anticipating that. That is very interesting. Outcome based pricing in services has traditionally not happened. So when you change business models, I think some of it is going to stick.
00:49:28 · Bhaskar Ghosh, Siddhartha Ahluwalia
Given what we see with AI, with the new AI coming in, and how well it is performing, assuming this other stuff that we'll talk about around around observability, around monitoring, around security, compliance. Assuming those things work, it is highly likely that some significant parts of time and material will be migrating to outcome based pricing. But we're going to see that over the next X number of years. [00:49:57] S0: So what I learned from you from this some, you know, and I have to summarize for our listeners, that, once a great team comes out of India and they build their moat in outcome based pricing, they'll be able to replace the old businesses. [00:50:14] S1: Or even a mix, that for certain things they're still offering time and materials, because it isn't their advantage because they can charge for bodies, but they have the confidence to give out going based pricing, it's going to be profoundly impactful. That there will be large degrees of amounts of success coming out of those sub ecosystems.
00:50:14 · Bhaskar Ghosh, Siddhartha Ahluwalia
[00:50:14] S1: Or even a mix, that for certain things they're still offering time and materials, because it isn't their advantage because they can charge for bodies, but they have the confidence to give out going based pricing, it's going to be profoundly impactful. That there will be large degrees of amounts of success coming out of those sub ecosystems. [00:50:31] S0: But do you think US has been sensitive for cost ever? Because what I hear from at least the Indian founders that have made big, right, and they have quoted on the podcast, so I can quote, the founder of what fixed Khajan. So when he sold the first version of what fixed to a Indian enterprise, said the Indian enterprise was asking for equity in return for the sale and when he sold when he went with a price like $75,000 annually, the US enterprise rejected him because saying that, hey, if you are only charging 75 ks, I don't know whether you will be survive or not. That was a great insight from the founder to price more. So the question here is, are US enterprises sensitive to costing for to migrate to an outcome based?
00:51:15 · Bhaskar Ghosh
[00:51:15] S1: It has to do with a lot of other extraneous factors, it has to do with macro economic forces, It has to do with that industry growing or not. I'll give you an example. There are two pieces of software that people always complain about. From the IT side and the IT ops side and the data ops side. Site ops side, SRE side. But they still pay. But they will absolutely switch if something cheaper comes. One is called Splunk, one is called Datadog. On the site observability side. People actually don't want to pay much. They they have been able to pay for it because their companies have been doing well. So I think how much capital you put into of budget, you put into IT ops is is the question. Yeah. Is your top line growing or not? So I think it it has to do with that. If you are in BFSI, you're in health care services, and your top line is growing, yes, you'll be willing to pay more. If your growth stabilizes, does not grow, these questions will come. That's one. The other part is the other part is quality. There is a quality aspect to AI. If AI, in line AI, shows much higher quality for the same or slightly more... So that's why I said numerator and denominator. Making people more accurate, more productive. There is a chance that it is not just about volume or budget, it's also about the quality of the outcome. People are willing to switch and maybe pay a little bit less, but that will be much more sticky. Coming back to it, I think your question relates much more to macroeconomic changes about the industry buying. Yeah. And if you are going into defense, you're going into government controlled areas or regulated industry like insurance, health care, banking. Government, you know, government policies have a lot to do with what sort of growth is happening there. Those are going to be effects that are going to... Those are going to be levers that are going to profoundly impact how you sell, what you sell, whether you're selling SaaS or you're selling outcome based services.
00:53:29 · Siddhartha Ahluwalia, Bhaskar Ghosh
[00:53:29] S0: And, you know, outcome based pricing... [00:53:33] S1: I say one thing about your Whatfix example? So if I remember correctly, what was plagued in the CRM space, which has traditionally been a very important space because it's a top line play. Sales is an investment in the top line of that company. And sales ops leaders are willing to spend an arm and a leg to hit their numbers and go top line. The moment you go into HR, the moment you go into marketing, which are probably cost centers more, the answer is not true. [00:54:06] S0: It leads to a very interesting point, if the industry has to change for pricing, outcome based pricing, what kind of tailwinds are already there and need to be there in the future to support a complete change?
00:54:19 · Bhaskar Ghosh
[00:54:19] S1: Migration? You should be able to migrate your software or your service very easily. Number one. That is not true yet. So when an outcome based AI services provider comes in, they can't just say I'm the best. You have to show how you're to migrate that. Number one. So that is a requirement. Second is, you have to have very measurable proof points around quality. It has to perform things at least at that quality that has to happen. Third is, and this is something that we have not thought about very deeply is, the buyers have to have the right tools to judge things. Which today, on the software side they do have. As I pointed out, remember you were asking me the network question about services? On the services side, there are no automated tools where you can decide a certain BPO or software services outcome is as good. So I think those are some of the those are the requirements. I wouldn't call them headwinds. Tailwind is proof point is happening much faster today. I mean, the innovation happening with Gen AI from the services side of how... We were just talking to a young company which is doing insurance workflow automation for business insurance of certain subset. And we saw the workflow that the workflows are automating. This is not in the guide where... This is not in the source of truth area. These are these are not in the these are in the workflows for say parsing documents and giving answers and stuff. Let's assume that. And we have seen that in our company, Azure also. I mean the speed at which they... This company has done correct workflows so quickly is insane. So I'm saying, when they are going and selling to fairly slow moving insurance industries, and the insurance industries are suddenly waking up and saying, Woah, I can do it this faster. The adoption curve is changing. So that's something for you to consider. That the buyer side is beginning to ask questions because there is secular pressure coming from their board, their investors, their CEO. They are also becoming more aware. So I think we are in a slight bit of a honeymoon phase, but from what little I saw from some of these seed level companies, the quality of the outcomes is insane. It is quite insane, right? That's one.