Zuora’s COFO On Going Private and Pricing AI | Todd McElhatton

Todd McElhatton (0:00)

Because you're using the most tokens, doesn't mean you're the smartest engineer around or that you're producing the best value for the company. That's one of the things, especially finance leaders are seeing you're struggling with is, I want people to use this technology, I want them to get the value out of it. I also want to make sure the company gets the value. Probably 90% of the decisions that we make are two-way doors. Run through those two-way doors, go do it, you're gonna end up moving a whole lot faster, we're gonna gain a whole lot more yardage on the play. But on those one-way doors, those are the ones that we really want to think about. Those are the ones we want to bring in, the right leaders and we want to be thoughtful about them and make sure that we understand all the repercussions on them. Smart people learn when they get new pieces of data are willing to make different decisions. And I think it's really important for leaders to be like, oh, I've already made this decision and I'm gonna look like I failed. All right, we've run this through and now where we are, it's time to move on.

CJ Gustafson (0:49)

Is this thing on?

Todd McElhatton (0:53)

Yesterday's price is not today's price.

CJ Gustafson (1:04)

Welcome back to Run the Numbers. My name is CJ and on my podcast, I talk to the world's top CFOs. And today I have a co-foe on Todd McElhatton, the co-foe of Zuora. This is the deep cuts, folks. Pricing, packaging and value, okay? Todd is an expert on how to monetize a product and we go deep on how companies are monetizing AI. We also talk about expertise, how AI is reducing the need for expertise. And he argues the opposite, that it actually increases the value of experts. So what's everybody getting wrong here?

We also talk about his time at VMware, the parallels he sees between the move from on-prem to cloud to today's AI transition there. VMware was a true trailblazer in that. And he also joined VMware expecting to help grow a business, but instead found himself helping to rethink the strategy he was brought in to execute.

Then we link that to the take private of Zuora and how they're operating now as a private company. For all those people out there who are trying to figure out how to price and package their AI software, especially if you came from the subscription and SaaS world, this is going to be a podcast that's pretty illuminating to you.

If you're interested just in the topic of take privates, Todd is pretty open about what the company has been working on and the transition from public to private life. All this and much more coming right up. Todd, thank you so much for joining me on the Run the Numbers podcast.

Todd McElhatton (2:27)

CJ, I'm glad to be here.

CJ Gustafson (2:28)

This is going to be fun because I feel like you were at the nexus of monetization and how pricing and everything is changing at Zuora. I feel like it's going to be two finance guys going back and forth, just talking about the future of how we make money on things.

Todd McElhatton (2:42)

Absolutely, and it's been really interesting here at Zuora. We've had a front row seat on how things are changing with AI at a pace I have never seen in my career before.

CJ Gustafson (2:51)

Everyone's debating whether AI should be priced by tokens or seats or outcomes. I'm a huge dork when it comes to how you price stuff. It feels like we're arguing about the price tag, Todd, before we've agreed on what customers are actually buying. What do you think is going on in this debate?

Todd McElhatton (3:07)

It is a really interesting point. I don't disagree with you from a standpoint of, before we talk about pricing, it really becomes what value are our customers getting? Once we determine the value, then I think we could start having a discussion on what does that look like from a pricing standpoint. Probably some of that is coming from the fact that people are starting to realize that as we are rolling out some of these AI tools, they can be super expensive. As those start impacting the economics, we got to show the value. Once we show the value, then I think the pricing will fall into place.

CJ Gustafson (3:40)

What's an example of where AI should just be included and not charged as an add-on? Because I think every company is now adding some sort of AI module, even if they aren't an AI native company. And they're kind of in this back and forth of, do we charge extra for this? Or is this just like table stakes for us to have a great product?