Pricing in the Age of SaaSpocalypse | Emanuel Martonca

Productized Podcast: I want to take some time to introduce our next speaker. our next speaker is going to be talking about pricing. So pricing, me, by the way, in product management, it's topic that we just set aside. Pricing is that we don't focus on as much because our focus is typically on we're excited about all these different features and needs, ⁓ then we're excited building those.

⁓ And then finally, at end, we say, aha. I'm going to slap on a subscription model and ta-da! Isn't that how pricing usually goes? And so what I love is, Emmanuel Martonca is going to be talking to us about how do adapt to pricing in the age of AI.

So I met Emmanuel at Prow in Romania last year, actually, and I found his thoughts pricing super insightful. And in fact, You know, what I also liked is that despite whatever hype there might be, he is never afraid to call bullshit on things. so one on his background is he is ⁓ the of SoftFight, and ⁓ he been helping companies, software companies for decades in helping price so that software is priced for the value that they deliver. So with that, let's welcome Emmanuel Thank you, Radhika.

It's an honor to be here today, an honor and a big responsibility, ⁓ because strongly believe product managers need to learn pricing. And I hope ⁓ that the end of my talk, you will all agree with me. And we'll by imagining that are all colleagues in one company. in product management, R &D, engineering, design.

And we work for a typical SaaS company which sells a skills matching platform that is used by very large enterprises to find the right people in their teams to allocate to each project on each initiative. And the reason we're all here today is that leaders, our business executives, keep asking a question that we all thought was settled. The question is, who is our competition? we all believed that we know very well who our competition is.

We have research, have lists, we know their pricing, we know everything they do, we follow them. But these questions keep coming up in the past few months. And is a very specific reason why this is happening. And that's the SaaSpocalypse.

This is a term someone somewhere said once, and then everybody took and used it and ran with it. And a few months ago, it was in the news for a few weeks because the stock prices of all companies that are listed on public stock exchanges plummeted in a matter of days, about two weeks. And while know that not all of you work in publicly listed companies, this is a problem for all of us. Because when stock prices fall with such big percentages in a short period of time, this becomes a public conversation, and it influences decisions made by everyone.

Investors, of course, but also creditors, banks, your buyers, your customers. Everyone now thinks that something wrong is happening with us, and it might be a good excuse or a good moment to reconsider decisions, subscriptions they're paying, roadmaps they're building. And obviously, this affects all of us. One the ⁓ narratives has been the most with investors, at least, is this question OK, if now we have AI, and it's such a powerful technology, what happens when AI agent can do the work of five employees?

What happens to the licenses paid by customers for SAS software? What happens when clients can now build their own internal tools, and they don't need to buy as much software as we're all used to? These are the questions the investors ask. If we go further in the industry, we'll see that executives, are by fear.

And I know you're going to tell me that not everything that is written on LinkedIn is true. agree with you most of the time. But these are conversations I had with many people in this year, private conversations with founders who saw their products. copied in a matter of weeks by competitors.

I take a screenshot of a private conversation, but I can take a screenshot of a LinkedIn post and show it to you. This panic is spreading, and it is affecting all of us, whether you work for a listed company or The basics of this is this. SAS is a very, very simple business model where most companies default it to pricing with three packages, good, better, best. It's simple to understand, simple to sell, simple to build the optimization conversion funnel around it.

Seed-based pricing has been the default for many providers. And The advantage of this model is that as clients grow their teams, they pay more for your software without you having to do anything different. Brilliant. These basic building blocks were supercharged by cheap capital.

And I think this is something we forgetting or we don't want to acknowledge, is yes, we are professionals, and we are experienced, and we do a lot of work, and we spend the nights and the weekends and years working. But much of the growth of this industry has started with zero interest rates that fueled aggressive growth strategies, pushed by investors to get their money back in a matter of years. And just to give you two numbers, the industry grew from 8 billion in 2015 to 500 billion in 2025.

And that was fueled by cheap capital. Now, all of this worked because subscriptions basically meant that you didn't have to justify the invoice. Customers paid the subscription. They might have had a value conversation when they bought with someone to convince them to buy.

But when they renewed, there was no detailed conversation around what are we really getting from this. And customers were used to repay, and we all know examples of companies paying products they never use, ⁓ because somebody put a credit card somewhere a few years ago and nobody checked. When this is the business model. We are now, unfortunately for most of us, in the morning after a party, and the party was interrupted abruptly at about November 2022.

And we all know what was launched in November 2022. We don't even have to name it anymore. And is where we are. Again, this affecting all of us, whether it's a listed company or not.

Valuations collapse like this. It affects what we build, how we build it, what are the priorities. Obviously, our customer acquisition costs, it affects everything. while the SaaSpocalypse is presented as a valuations crisis that publicly listed companies are affected by, actually, this not a valuation crisis.

This is a pricing crisis because The biggest impact of AI on SaaS is not only technological. Obviously, it changes everything in terms of what we can build and how we build it. But it changes even more in terms of the pricing and the business model. And this is the bigger danger and also the bigger opportunity.

SaaS means selling access. we do is we invest upfront. We build products. We build capabilities, platforms.

We take risks, because you have to build for a few years before you are sure that anyone will pay for it, and how much, and what are the competitions going to do about it. So we take risks. And do that knowing that customers will pay, because for them, there's a big benefit. They don't have to make the investment.

They don't have to work to develop their own tools, their own solutions. They can our to solve their problems without having to worry about maintenance and upgrades and their workflows time something changes. We do all the for them. They're happy to pay even more.

They're happy to to pay because it's a monthly subscription, it's an operational cost, it's not capex, they don't have to make big investments. Everybody's happy, everybody benefits, investors, vendors, buyers, clients, employees, everybody benefited from this model. Those questions asked by the investors have an equivalent into the questions we need to be asking. And I'm sure you've already had these conversations one way or another.

And the question is, what happens with our products and our business model when software can be built much cheaper and much faster? It doesn't need to be zero to have an impact. a 50 % reduction in costs is meaningful, and it will change everything. And the question is also what happens when the bottleneck, the building software is not the bottleneck anymore.

And to answer these questions, I will go further with my imagination exercise of we're all colleagues. And we'll take a very concrete example. Our platform, our skills matching platform, is used by lots of different companies in different customer segments. I chose one of them, which is large IT software companies, the type of companies that may be are your vendors and they help you build your products.

In their world, of the big challenges is Can you me? Thank you. Can you hear me now? So in their world, one of the big challenges is that you might have a salesperson in New York talking to a client about a new project.

Very exciting. They need to convince the client to continue the conversation. And they don't know what people are available with what skills, what capabilities. in some delivery office somewhere in the world, whether it's Western Europe, Eastern Europe, doesn't matter.

The salesperson typically doesn't know who is available, which teams are available, what experience they have. And our platform helps them find a quick answer to this question. Without having to go back to delivery managers, without having to go back to anyone else in the they have access to real-time allocations. real-time skills capabilities and they can tell to a customer, yes, we can start this project next month with these many people.

This is the easy version. And we can easily build a project on this and a growth to market story. But because we are diligent product managers, we are not satisfied with the easy answers. And we want to dig deeper.

And luckily for us, we have access to discovery interviews from one big client that is paying about 400,000 euros per year for our platform. And we have five interviews. The first one is with Ian. Ian is the head of IT for this company, meaning that of the operational work is responsibility to make sure that our platform properly integrated into their infrastructure and systems, that it has access, secure access, reliable access to everything they have.

so that we can provide the right answers. And what Ian cares about how much it costs per employee, because this is what they track. They look at each piece of software, each application they install in their infrastructure. They look at how much it costs per employee, because their business model is based on time and materials.

So the more they sell, the more they have to hire. If they don't have projects, they have to decrease headcount. which means that they need to know very well how much it costs per employee for the entire software stack that they use. And when Ian talks to us, he says that the competition he's looking at, the alternative, are other similar SaaS tools.

he's purely comparing on price. For him, it's a commodity. It's not such a complex platform. He doesn't care about anything else.

He just wants to have a live system, and he wants to know how much it costs per user. Dana is the head of delivery. she is the person that needs to make sure that ⁓ there is a new project that needs to start, the right people are allocated, and there are no skills that are left unused, or there are no people who are placed in projects they shouldn't be in. And what she's looking at is people in her team, the delivery managers, who need to have access to the software.

she to searches. She to matches suggested by the platform. That's what she cares about. ⁓ She wants make sure that we have enough ⁓ reliability and her teams can use the platform to do their jobs day to day, every day, without hiccups.

And the alternatives her are now AI agents that they can build internally. They are looking at very specific solutions from other providers, which are not commodities, but which solve this problem very well. And in this case, based on the conversations we see in the discovery interview, we see that a model based on searches or matches suggested would be closer to she's looking at. Oliver works in operations.

His interest is in making sure that are no projects that are started with someone saying, we don't have this skill, we need to hire someone external. Whereas they might have had the right skills in another office in another country. Or other way around, that the salesperson says, we lost this client, we lost this project. because we did not have the right skills, where actually they had someone but the platform did not find the right match.

operations cares about successful matches. They want to make sure that there are no inefficiencies that there are no frictions there. So in this case, a pricing model based per successful match is what they care about. They are to pay for successful matches.

They don't care how many users are in the system. They don't care how many searches the delivery managers do. They don't care about anything else but successful matches. Our interest in this case as a vendor is to provide the best possible platform to give them successful matches when they are possible to increase revenues from this client.

The fourth interview we have is with Rachel, and she's the chief revenue officer. She cares about signing contracts. She also has KPIs that are linked to availability, to utilization. they have teams that are available somewhere in the world in an office, and they are not selling that capacity, this this month, it's lost forever.

Those are revenues that they can never take back. So, she mostly cares about eliminating bench days. So, in their calculations, in their models, the more bench days we eliminate, the better for them, so they are willing to pay for that. The alternative they are looking at as a revenue department to with either specialized consultants that can help them build internal models to manage this, or to build an internal team, with an AI, to build a solution that helps them do that.

And the last one, and the most difficult one, the conversation we had with Helen. She's the head of HR, so she was basically in the middle of all this. But she cares about skills and people and career paths. But more importantly in this case, she has a background in finance.

And ⁓ very She just wants to pay for successful projects. If we help them, uncover some resources and match some resources from the team that are the right people for the right project and the client science, they're happy to pay a percentage of the contract. If not, they don't want to pay. There's no reason to pay if we don't help them achieve the outcomes they're looking for.

But because this is a very sensitive topic, would mean to have access to their ⁓ and their clients. Alternative they're actually looking at is to build this as an internal system and have their own platform do this and Because they are making these calculations where two percent of the revenues can be allocated to this platform It's very easy to justify internally Yeah, if an external vendor would charge two percent of each contract They have a very good internal business case to build this on their own Not so easy anymore, right?

It's not three packages with per-seat pricing and we're done. And this is one client with one use case solving one problem by one platform. And we can still have five different pricing models. And they can still compare with different alternatives and different competitors that we need to be aware of, at least, if not track, if not manage.

question, who is our competition, and answer to this question should be straightforward. This is the client, this is the problem, this is our product, this is the list of competitors. Done. Let's move on.

Maybe it was a few years ago, but it's not anymore. And I know this is not what you want to hear, and this is not what you want to take back to your executives and boards, but this is the reality we live in. It used to be simple to do competitive pricing. make a list of competitors, you track them, you just need to decide whether you want to be cheaper or more expensive on how you position relative to them.

That was easy, it's not so easy anymore. It used to be simple to just have a conversation with managers team members and say, okay, here's what we need to do, this is the landscape, we are positioned here on the map, clear. let's take decisions based on this. It's not so simple anymore.

And when we talk about positioning and competition, The everything is mixed up right now. Because you have a circular motion where, depending on the pricing model you choose, for whatever reason, this might change who your competitor is. Because it will influence what your customers are comparing you with. But the inverse is also correct.

It's also true. on who you decide your competition is, that needs to impact what the pricing model is. And this is not an easy decision. And it's not something that can be solved in two days in a workshop.

It's something you have to learn to work with and to integrate in your day to day. What is also not easy anymore pricing for SaaS. Because you have to also consider value metrics. You have to think about monetization ⁓ infrastructure.

have to think about usage-based capabilities. You have to think about each of your customer segments, how they use your product, whether ⁓ they value continuously or not. A subscription recurring revenue. It's great for investor pitches.

That's great when you want to a business ⁓ cash flow. But if your software is not used daily or weekly and the customers don't get value from it continuously, why would they pay a subscription? need to match your billing cycles and your pricing to how customers get value from your product. Or need to change how you deliver value so that it becomes a impact.

so that the customer is willing to pay a continuous subscription. And all this makes it that product managers need to learn these skills and integrate them, because no one else will do it for SaaS companies. There are two other parties in this game, sales and finance. And I don't think you want to work in a company where pricing is set only by sales or only by finance.

Now, when you back. on Monday or Tuesday or in two weeks if you have a vacation in Portugal in the next few days, as I know some of you have. You can do a simple exercise looking at what you do and then asking yourself, who else is delivering the same outcomes? You very well your clients, their jobs to be done, what you for them.

You know that. Now the question is not who is the competition. You don't go and search online CRM SMB, these are my competitors. That's near You go back and you think, for these problems, for these customers, how else could they solve this?

How else could they achieve the same outcomes? Because there are ⁓ many more options them right now. And ⁓ whether you like or not, whether you acknowledge it or not, they have alternatives. And will use them.

It could be agencies. It could be internal teams building their own software. It could be other types of service providers, AI native startups, AI native agencies. are so many options right now.

And if you don't know who they are, you will have unpleasant surprises. The reality is that you need new skills. You need new capabilities. My experience is that from everything you do, pricing is an easy pick.

It's a quick win for you. You have the skills. You have the tools. You know how to work with data.

You know how to work with customers. This is easiest tool you can grab right now. and improve your chances of success. And that's why I believe product managers need to learn pricing.

Thank you.