It’s that time of year. Gyms are packed as everyone fervently executes on their New Year’s resolutions. However, as spring rolls around, attendance at these same gyms plummets. About 63 percent of gym memberships go completely unused.
The same phenomenon applies to enterprise software. Back in the day, we used to call it “shelfware,” or software that gets purchased but never gets used. Even though we’ve moved on from binders full of DVDs, the dirty little secret in SaaS is that many customers buy more seat licenses than they actually use. This has given rise to the sea change now underway in SaaS pricing models, shifting away from seat-based models and toward consumption-based business models, which are far more appealing to end customers.
The dirty little secret in SaaS is that many customers buy more seat licenses than they actually use. This has given rise to the sea change now underway in SaaS pricing models, shifting away from seat-based to consumption-based business models.
Today, we’re excited to announce our Series A investment in Amberflo, a company that’s working toward a future where companies price in a more transparent, usage-based way. Amberflo handles metering and billing for you, enabling anyone shipping a software product to charge their customers based on usage.
So, What Exactly is Usage-Based Pricing (UBP)?
It’s a SaaS pricing model that allows customers to pay for what they consume. Unlike traditional seat-based subscription billing, usage-based pricing models require measuring activity with extremely high levels of accuracy. Gathering the right data and determining the right metrics are crucial to successfully implementing usage-based pricing.
In the current age of rising product-led growth (PLG), software is often discovered and championed from users within an organization (bottoms-up). In the PLG paradigm, as customers derive more value from the software, their usage goes up and they are willing to pay the provider for increased access. This usage-based pricing model ties cost to value for the customer. Over the past few years, we’ve seen prominent companies transition their pricing to be based on value, and even more startups launch their products in this model.
The usage-based pricing trend is already underway. Snowflake, Confluent, and MongoDB are all examples of successful companies that—out of necessity—built their own UBP infrastructure. Now, Amberflo offers an out-of-the-box solution so companies can avoid building this in-house and instead focus on their core competencies. After speaking with many product leaders over the past year, Amberflo’s manageability, flexibility, and reliability made it an easy decision to buy versus build.
Amberflo offers an out-of-the-box solution so companies can avoid building this in-house and instead focus on their core competencies.
An Impressive Founding Team With a Strong Vision
As we dug into this market, we were impressed by Amberflo’s product and vision and we credit this to the founders and their relevant backgrounds. CEO Puneet Gupta was previously a general manager at AWS, where he oversaw the growth of usage-based services like CloudSearch and ElasticSearch. Likewise, CTO Lior Mechlovich hails from an AWS engineering background. In 2020, the duo joined forces to found Amberflo.
Beyond the strong team and exciting market opportunity, the cherry on top for us was getting to hear directly from a few of Amberflo’s early customers. Amberflo powers the metering and billing foundation at companies like LaunchDarkly, Firebolt, SupportLogic, and over a dozen others who are delighted by Amberflo’s well-thought-out product and reliable customer service.
We’re excited about what’s yet to come for the future of consumption-based billing. And who knows, it might not be long before your gym implements pay-per-use models too.
We’re thrilled to join the Amberflo team on this journey and welcome them to the Norwest family!