The Software Pricing War and AI Power Bottlenecks

Akash Pasricha (0:13)

Welcome, everyone, to The Information's TITV. My name is Akash Pasricha. It is Tuesday, September 22nd. I am here in our San Francisco studio this morning. Today on the show, we're going to discuss how software companies are turning to heavy discounts just to stay competitive with OpenAI and Anthropic. We're then bringing on another agentic AI founder who is coming out of stealth with $52 million new funding from Redpoint and Lightspeed. We're then going to shift gears to a major power and energy spinout coming out of Flex, which is a $40 billion manufacturing giant. I'm going to bring on the CEO.

And to close out the show, we've got a conversation with our partner at Glance to look at how they are building the future of AI driven shopping. It's going to be a great show, so let's get right on into it.

In a world where it is open AI and entropic against the rest, software companies have to try everything they can to stay competitive. My colleagues Laura Bratton, Aaron Holmes and Catherine Perloff published a piece today about how discounting is the latest tactic that has become a necessity for many of these companies. I want to bring on Laura to share more about what they found. Laura, welcome back to the show. Great to have you here.

Laura Bratton (1:26)

Good to be here.

Akash Pasricha (1:28)

So you wrote about the discounting that some of these software companies are having to pursue to stay competitive. Talk about the context here, and then we'll talk about the specific companies that you guys wrote about in the story.

Laura Bratton (1:42)

Of course. So since Anthropic came out with its blockbuster coding tool Claude Code, investors have been concerned that its customers are going to use coding tools to build their own software. Then similarly, that they're going to start using AI agents to access their software tools rather than humans, and that could impact the amount of seats that they need and their seat-based subscription costs. So there's been this broad shift toward usage-based pricing and outcome-based pricing which basically charges based on how much AI you use and how much of the software is actually working for you.

Akash Pasricha (2:21)

I mean, this usage-based pricing conundrum threat, I guess if you will, this has been going on for a long time. So how long ago did you start to hear about these discounts coming into effect?

Laura Bratton (2:35)

I reported a story earlier this year about how the pressure software firms are feeling as their customer shift some of their software budgets to these AI tools. Those software customers are starting to request shorter contracts and that's resulted in just potentially an impact in which the software firms have less predictability in terms of their revenue streams.

Ultimately, it could be a good thing. But as I was having those conversations with CIOs earlier this year, they had also started to mention some were seeing discounts and it wasn't necessarily quite as widespread. Is that what I'm hearing now? But that's when I started first hearing that this was a shift and now it's something that I think a lot of software companies have been bringing up in earnings calls.

Lohit Sarma (3:24)

Right.

Akash Pasricha (3:25)

So who exactly is pursuing these discounts? Then talk about a couple of the examples that you guys wrote about.

Laura Bratton (3:33)

So it comes in many different forms. Some software companies are offering longer free trials, some are offering more AI credits, some are offering straight up discounts. So I'll walk you through a couple examples. HubSpot started offering free trials for AI agents earlier this year. It's a 30-day trial, which doesn't sound like a lot, but its CEO admitted in a recent earnings call that this had weighed on growth in the most recent quarter. Workday offers free access to its Sonna Enterprise AI platform to top customers for one year.

Then another example, Figma is offering more credits to use AI tools for the same cost, essentially.

Akash Pasricha (4:21)

And just to be clear, these are discounts for the AI-related features that they're hoping to compete with the AI labs with, right?

Laura Bratton (4:32)

Effectively, yes.

Another thing I heard from customers was that there are discounts being offered on the entire contract, or more AI products and capabilities are being bundled into existing software contracts. So effectively, this works as a discount on the AI products these software companies are offering and their hope is that their customers aren't going to just use Claude and ChatGPT to access their software accounts. They're going to use the tools natively inside of their software apps.