Flamingo’s AI Token Pricing Model Shifts Margin Risk for MSPs – With Rich Freeman

Dave Sobel (0:14)

Software just got priced at a dollar a device. The money moved to the tokens. There's now a vendor selling to MSPs that makes almost none of its margin on the software and almost all of it on AI consumption. And its founder thinks the entire industry ends up there. At the same moment, the largest AI vendor in the world is quietly starting letting its biggest customers off the consumption meter altogether.

Rich Freeman spent the past two months reporting on both ends of that trade. Today, we're going to work out who's holding the middle. Welcome to the Business of Tech Lounge. This is where we break down what's changing in the IT services market, what it means for providers and vendors, and what to actually do about it. If you're running or supporting an MSP, this is about making sense of the environment you're operating in, not just the headlines. Now, to make this conversation possible, a message from our sponsor.

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So my guest today is Rich Freeman. He writes Channelholic, co-hosts the MSP Chat Podcast, and helps lead the consultancy Channel Mastered. Before that, executive editor at Channel Pro. He's been reading this market longer than many of the companies in it have existed. Rich, welcome back.

Rich Freeman (2:16)

Well, thank you very much, Dave. I am delighted to be back.

Dave Sobel (2:20)

Well, I'm excited to have you. Audience, if you've got questions, drop them in the chat as you go. We'll take them in real time. Rich, I'm going to dive in. I want to start with one of your more recent pieces here because I think it's the most concrete thing anybody's published on this. Flamingo, a young startup you first wrote about in January. They build the whole MSP stack from scratch. That's RMM all the way through SIM, and charges a dollar a device.

10 million AI tokens included, and you pay by consumption after that.

And that's how GitHub and the SAP bill as well, and how nobody I think in the channel does. Now, Asarov told you plainly, the software is not where the money is. He says it's in the tokens. Now, most of his 400 partners are burning 10 to 20 times that allotment every month. So the dollar isn't the price. It's the part of the bill you can see, but the real cost is the overage. It's variable and the rate that would let anybody calculate it really isn't published anywhere. And by year end, they're gonna host their own models and partners get twice the tokens for the same money.

I read that as a margin statement. Today, they resell frontier tokens on a thin spread. Once they own the inference, their cost collapses, but the price stays pegged. So I kind of want to ask you to get your take on it. Is Flamingo a software company that happens to build by consumption? Or is it an inference reseller with a free RMM attached to do customer acquisition?

Rich Freeman (3:54)

I'm gonna go with the former of those two options there. And by the way, Dave, let me correct you ever so slightly about the pricing model.

It is a dollar per device per month right now with 10 million tokens included. If you pay annually, it's 80 cents.

Dave Sobel (4:12)

Okay, got it.

Rich Freeman (4:13)

And 25 million tokens instead of 10 And it's also worth knowing that's where they're at right now. So they are on a roadmap that will eventually get them to 20 different modules within the suite. Eight of those are shipping right now. That's what you're paying a dollar or 80 cents for. Down the road, when all 20 are out there, the pricing will go up to $3 and then presumably some discounted amount if you're paying for the year in advance.

That whole model basically tells you where Flamingo thinks the value is in what a software vendor for MSPs does right now. According to Flamingo, they make money at 80 cents per device. Not a whole bunch, but they're not subsidizing you on the software. But the whole idea is, from their perspective, and they're not the only ones in the industry thinking this way, is that in an era when AI coding tools make it possible to duplicate what more or less any application out there is doing, pretty quickly, the value that you're delivering to your customer, whoever that customer is, in this case it's MSPs, isn't coming from the software. In Flamingo's view, the value that they're providing is in the automation. The automation is enabled and delivered by the AI.