Usage-Based Pricing in B2B SaaS - Trendy Topic or Strategic Value Lever - with Adam Howatson, CEO LogiSense

**Ray Rike** (0:00)
Hello, I'm Ray Reich, Founder and CEO of RevOp Squared, and your host of the Metrics that Measure Up podcast. We talked to a wide variety of B2B, SaaS and Cloud thought leaders, executives, investors, and people just like you to discuss the metrics and benchmarks they use to make metrics-informed decisions. Now on to today's show.
Welcome to today's episode of the Metrics It Measure Up podcast. Today, we are joined by Adam Howatson, CEO of LogiSense and longtime SaaS and cloud executive. We will be covering four main topics with Adam today. How has B2B SaaS and cloud pricing involved? Where is B2B SaaS and cloud pricing heading? The topic of usage-based pricing, the opportunities and challenges to execute and deploy. And lastly, the usage economy. Adam, please take a moment to give a brief background overview of your journey to becoming a guest on the Metrics that Measure Up podcast.

**Adam Howatson** (1:09)
Well, thanks very much for having me, Ray. By means of background, I started my career a couple of decades ago in the enterprise information management space with a company called OpenText. And we would deal with business process management, enterprise content management, customer experience management and communications, and a variety of other technologies and market segments dealing with the management of unstructured information in general. Throughout that experience, I had the chance to work in information technology, to lead engineering, to lead product management, to run the program office for the company, to ultimately ended my time there as chief marketing officer, and then came over to LogiSense a couple of years ago. I had joined the board a few years before that, but came over in the function of CEO to work in the usage based billing space. And at LogiSense, we're working on some pretty innovative things around the way that we monetize and take products to market. So, you know, I think via that background, I hopefully can bring a unique and rather broad spectrum perspective around go to market for the listeners.

**Ray Rike** (2:09)
Great, Adam. You know, it's very interesting to me, and I try not to highlight this too often, but two of the companies I had operating executive responsibility at, one was a division of GE called GE Global Exchange Services, and then another was called Quick Response Services or QRS, both subscription software business. Both of those were acquired by Open Tech, so you actually were responsible for a couple of my old products, right?

**Adam Howatson** (2:33)
Well, you know, all things are connected, and increasingly so, and we may explore some of that discussion in the way that products are networked today and the way that technologies come together, but as a cohesive industry, having a chat and seeing that there are connections in your networks over the past is pretty frequent, and I think even that in itself shapes the way that we monetize and the way that we look at commercialization and monetization of products. So it is a small world, as they say, and it seems to get smaller by the day.

**Ray Rike** (3:01)
Yeah. Well, one of the things we're going to hit here first, it's a little bit about the evolution of pricing models in the SaaS and cloud industry, and you've been in the industry for quite a while. How have you seen pricing evolve over the last few years? And then I'm going to ask you the next question, and how do you see it evolving going forward?

**Adam Howatson** (3:20)
You know, I think back over the last decade even, and there was an initial push as we started to see mass prevalence of cloud and SaaS type solutions hitting the market. There was a pivot point where the vast majority of companies in the tech space considered how they would shift to a recurring revenue model, and that's obviously more desirable from a valuation perspective. It's obviously more desirable from a predictability perspective, and those types of engagements, agreements, contracts are more highly valued just for their continuity, you know, how sure you can be on that revenue coming in. And the entire industry went through this shift from perpetual licensing with an annual customer service element and on-premises products into the cloud. And there was this transition period where every company had to accommodate the shift to recurring revenue. It meant they may experience a dip or shift in margin profiles over the course of a year or two while they navigated that transition. And then we got to the previous incarnation because I believe we're in the midst of a transition right now. That was the concept of, if it's not too crude a term, but this cost plus cloud model, where I'll charge you something for the intellectual property, I'll charge you something for the hosting with a little bit of a markup, I'll provide you with that same customer service type experience, and then we'll treat the professional services sort of as its own container. And we arrived at that state, and now I think we're in the midst of a pivot again towards usage based pricing, becoming the new norm and really sort of percolating through various industries. And I think that the lens is now we've made the shift to the desirable, repeatable, predictable, recurring revenue type of franchise, but now customer pressure, customer expectations, expectations around clarity, transparency, value for money. And this whole notion of monetizing value metrics and people paying for what they use and being able to demonstrate that as a vendor is increasingly setting apart and liberating those who are disrupters and who will differentiate around pricing and around their go-to-market from those who will not. And it impacts a whole number of other things like customer retention rates and customer experience. But on the cuff of it, to summarize, I think we've gone through a transition over the past decade from on-premises and traditional line-by-line items with each component to a cloud plus sort of cost plus model. And now we're seeing the emergence of new truly disruptive models. And we're going to continue to see that for years to come.