In a recent video interview on the series "Usage Based SaaS," Andreas Zartmann, CEO of DigitalRoute, shared valuable insights on the evolution of usage-based pricing models. The discussion, hosted by Ajit from Monetizely, explored how usage-based pricing is transforming not just software businesses but various industries, and the technology infrastructure required to support this transition.
The Evolution of Subscription Economy
Andreas is enthusiastic about the current state of the market for two key reasons. First, the subscription economy has reached an evolutionary milestone where usage-based business models have become a central topic. Second, AI is accelerating this transition significantly.
"I'm super excited because of two things. First of all, I think the whole subscription economy has come to a step on the evolution where usage-based business models in general is a hot topic," Andreas explains. "And AI is pouring gasoline on that fire as well. Because as we discuss now in the marketplace, AI is priced very much around usage or consumption or some kind of outcome-based business model."
This shift represents more than just a pricing trend—it reflects a fundamental change in how businesses deliver value to customers. Usage-based models lower the barrier to entry for consumers to realize value from digital services, potentially driving growth even in challenging economic environments.
Beyond Software: Usage-Based Models Across Industries
While much of the conversation around usage-based pricing focuses on software, Andreas points out that this approach extends far beyond SaaS. Traditional industries have been implementing usage-based elements for years, often in ways we might not immediately recognize.
"I think the whole debate in the marketplace is very much around software, right? But digital services in general has been an emerging trend for many years now," Andreas notes. "Anything as a service in general helped some of the school book examples to move to usage-based businesses long time ago. Print as a service and everything travel, transport and logistics is very usage-based at its core."
He provides the example of shipping a package, which appears simple from the consumer side but involves complex usage-based calculations behind the scenes. When delivery locations change, costs adjust accordingly—demonstrating the fundamental metering and measurement requirements that underpin usage-based models.
Industry Adoption of Usage-Based Models
When asked about which industries are adopting usage-based pricing most rapidly, Andreas highlights several key sectors:
- Software as a Service: The most obvious and rapidly evolving sector
- Cloud Infrastructure: A perfect example of platform businesses that expand through additional services
- Finance: Traditional institutions facing disruption from agile competitors
- Travel, Transport, and Logistics: Industries with inherently usage-based operations
Andreas explains that companies typically move toward usage-based models when they hit maturity stages and need new growth paths. "You hit a certain maturity stage and this is where you add new services to your platform. Everyone has a platform play, right? You build one product from the beginning and then it emerges to something more because you need to either sell more to your existing customer base or you need to tap into new marketplaces."
The Technology Challenge
Despite the apparent simplicity of usage-based pricing in concept, implementing it presents significant technical challenges. DigitalRoute was born in the telecommunications industry during the transition to 3G, when telecom companies faced both massive data volume increases and the need for more sophisticated pricing models.
Andreas explains that leading companies standardize around four key components:
- CRM systems
- ERP systems
- Billing capabilities
- Usage data management
"Usage data doesn't come for free so to speak. You have to build the usage data set," Andreas emphasizes. "Usage data consists of information from your production system… it comes from your CRM about your customers, the order, the agreement, the legal part… So you actually need to build a process around managing that data set."
This usage data management layer is critical because:
- It aggregates data from systems that don't naturally communicate with each other
- It forms the basis for revenue transactions that must be accurate
- It enables real-time customer communication about consumption and costs
- It facilitates service optimization and catalog expansion
Usage Data Management vs. Metering Solutions
When asked how DigitalRoute's usage data management differs from metering or billing solutions, Andreas clarifies that they augment rather than replace billing systems.
"Every single consumer in this business model is equaling a meter," he explains. "Metering in general is a core component in this process around usage data management but usage data billing as well."
The comprehensive process involves:
- Collecting usage data
- Cleaning and cleansing it
- Processing and enriching it
- Controlling end-to-end data management before billing
DigitalRoute provides an extension to billing vendors and ERP systems, offering a standardized solution for this complex data management challenge.
The Impact of Generative AI on Pricing
Looking to the future, Andreas sees generative AI as a "massive booster of pricing evolution" for two main reasons:
- Cost Control: Companies embedding AI receive invoices for their AI usage and need to control margins
- Real-Time Pricing Needs: Dynamic, responsive pricing becomes necessary
"I think dynamic pricing will very rapidly emerge out of this," Andreas predicts. "AI drives a lot of cost and compute power. And at the end of the day, we're down to this very important sustainability question, right? And the way to solve for that is really to have people consume these services in a much more efficient way."
This vision resembles surge pricing models like Uber's, where prices increase during high-demand periods to manage capacity and encourage more efficient usage patterns.
Key Advice for Business Leaders
Andreas concludes with practical advice for companies considering a shift to usage-based models:
"Think about build for scale and complexity to come. Even if you think you're having a simple business model today, there's going to be much more data tomorrow and you're going to have to innovate to have your customers consume in a different way tomorrow to grow your business."
He strongly recommends against building these systems in-house: "There is standard software available for this area as well. You don't need to build it yourself or even more so don't go and build it yourself because it will not scale."
Conclusion
Usage-based pricing represents more than just a trend—it's becoming a fundamental approach to business model innovation that spans industries. As AI continues to accelerate the adoption of consumption-based pricing, companies must prepare by implementing robust usage data management systems that can scale with increasing complexity. Those who build for this future now will be positioned to create more efficient, sustainable, and growth-oriented businesses in the years ahead.