In a recent Pavilion GTM 2025 conference session, Ajit Ghuman, Co-Founder and CEO of Monetizely, shared critical insights about the unprecedented deflation crisis facing the software industry and how strategic pricing can be a powerful survival mechanism. As the author of "Price to Scale" and creator of "The Art of SaaS Pricing & Monetization" course on Maven, Ghuman brings 16 years of SaaS experience to address this existential challenge.
"My larger argument is that on a category that is already high deflating, you have now set off a deflation bomb. Software is rapidly getting commoditized and that is going to make the existing SaaS world, existing software world very hard to compete in," Ghuman explains in his data-driven presentation.
The Perfect Storm: Software Deflation Meets Economic Headwinds
Ghuman begins by highlighting a startling fact that many in the industry don't fully grasp: software is one of the most rapidly deflating categories in the economy. Using data from the Bureau of Labor Statistics, he demonstrated that if software was worth $100 in 2015, today it's only worth about $60.
This inherent deflation is now being supercharged by AI advancements. Referencing Mary Meeker's AI trend report, Ghuman points out that models like GPT-3.5 and GPT-4 have reduced in expense by 99.7%, outpacing even Moore's Law.
"On a category that is already high deflating, you have now set off a deflation bomb," Ghuman warns.
This deflation crisis is occurring simultaneously with other macroeconomic challenges:
- Rising interest rates
- Declining valuation multiples for software companies
- Tightening liquidity
- Increasing margin pressure from investors
The New SaaS Reality: Squeezed from Both Ends
The traditional SaaS model thrived in an environment of low interest rates, 80%+ gross margins, and high-multiple exits. But Ghuman argues we've entered a fundamentally different regime:
"AI-first SaaS has 30 to 50% gross margin. Even the ChatGPT, the $200 plan, I think Sam Altman sometimes said that they were losing money on it… So there's significant upfront cost, there's significant ongoing cost. So cost is not trivial. And at the same time, what people are willing to spend money on, the price of software is going through a deflationary bomb."
In this new reality, SaaS companies are squeezed from both ends: higher costs and lower willingness to pay. This is forcing a structural shift in the industry.
The Solution: A Five-Step Pricing Framework
Ghuman presents Monetizely's five-step framework for strategic pricing, emphasizing that pricing is not just about setting a number but a system that affects every aspect of the business:
- Goals and Segmentation: Define company objectives and understand market segmentation within the current economic context
- Packaging Decisions: Structure offerings based on segments
- Pricing Metric Selection: Choose metrics that align company and buyer incentives
- Price Point Setting: Determine specific price levels
- Operationalization: Implement systems to support the pricing strategy
"Pricing, the model you choose will affect your cash flow timing, how variable your cash flow is, sales forecasting, financial reporting, investments, your valuation, even the way that you are going to be valued," Ghuman explains.
Strategic Design Choices for Different Economic Regimes
The presentation outlines how pricing strategies should differ based on whether a company is operating in a high-growth regime (the old world) or a high-margin regime (the new reality for most):
High Growth Regime:
- Simple tiers (good/better/best)
- More usage-based pricing
- Minimal services
- Simple upsell/cross-sell motions
High Margin Regime:
- More complex or à la carte packaging
- Predictable pricing metrics
- High-ROI services bundled with software
- Curated upsell/cross-sell motions
- Separate price books for existing and new customers
The Rise of Software + Services
One of Ghuman's most compelling points is that the traditional SaaS model is giving way to a hybrid approach where software and services are deeply integrated:
"Software is going to give way, that is our thesis, to more software plus value added services. Services companies are going to start looking like software companies with more agentic offerings. And software companies are going to look like more services companies."
He shares examples of clients successfully implementing this approach:
- A cybersecurity company whose entry-level ARR for software is around $30K, but makes most of its money on $300-500K service deals
- An AI software company creating dedicated forward-deployed engineers and consultants as part of their offering
Citing Sequoia Capital data, Ghuman notes that while the SaaS market is around $400 billion, the services TAM is approximately $10 trillion, with only $20 billion currently automated.
Practical Implementation: Packaging and Pricing Metrics
Ghuman provides detailed guidance on implementing these strategic shifts:
For Packaging:
- The spectrum ranges from "high velocity" models (like Netflix, with simple, standardized packages) to "low velocity" models (like ServiceNow, with highly modular, customizable offerings)
- High-margin companies benefit from more à la carte packaging that allows deal customization and maximization
- Separate price books for new versus existing customers can help optimize both acquisition and retention
For Pricing Metrics:
- Companies must balance predictability (fixed metrics like users) with variability (usage-based metrics)
- AI and high-COGS software require more usage-based components to align revenue with costs
- Most AI products use a "three-part tariff" (cell phone plan model) with bundles and overages to provide both predictability and usage alignment
Conclusion: Making Your Bet
Ghuman concludes with a stark warning about the market volatility ahead and the need for deliberate strategic choices:
"Expect severe market whipsaw. Make your bet on the expected regime because you're not going to be able to change your systems, the way you do financial reporting, the way you fundraise very often, right? You have to make a bet."
The presentation makes clear that pricing strategy is no longer a tactical decision but a strategic imperative for survival in the age of AI-accelerated software deflation. Companies that recognize this new reality and adapt their pricing approaches accordingly will be positioned to navigate the challenging times ahead.
"Pricing packaging is not hard to get right, but it's not a decision made in isolation. It's a decision made in context of how you're operating, where you want to be. And then it's a structural part. It's not a price point decision. It goes along with the overall structure of your company."