January 17, 2023
By: Ron Miller
Originally published by TechCrunch on January 17, 2023. See the original article here.
Over the years software pricing has shifted from rigid seat licenses for on-prem legacy software to subscriptions with tiered pricing, as software shifted to the cloud in the early part of this century. The latter helped transform the way we think about pricing and revenue.
Amberflo founder and CEO Puneet Gupta thinks there is a better way to think about software pricing, not based on seats or subscription tiers, but actual usage. That requires a pricing infrastructure to meter all of the different interactions with the product. Gupta started Amberflo to build that tooling to put granular metered pricing within reach of any company.
Today, the company announced a couple of milestones. For starters, it has raised a total of $20 million including a previously unannounced $5 million seed round and a new $15 million Series A. In addition, the company is making the Amberflo platform generally available today.
Gupta saw the metering idea in action when he worked at AWS from 2011-2014, and the idea stuck with him that it was an approach that many companies could benefit from. “I had a chance to build these services [when I was at AWS], and I saw this internal shared services thing called metering. Whenever we built a service, we had to connect to the metering stack. That’s where I became aware, and for me, it was an eye opener,” he told TechCrunch.
In 2020, Gupta started Amberflo to build a metering stack as a service that any customer could tap into. He thinks it should be particularly attractive for product led growth (PLG) companies. “If you are one of those PLG companies, we are providing you with a cloud native, next generation platform that gives you the tools to be effective within that. And then specifically, the tool allows you to launch your own usage-based pricing model,” he said.
While we are used to seeing companies meter software to understand things like application performance, page loads or software anomalies, this is specifically designed to measure resource usage. With this kind of metering, companies can then track usage at a granular level down to every transaction, API call or resource used.
Gupta thinks this could transform the way we think about pricing because it gives you the data on which to base your pricing in a very precise way with documentation to back it up. It also gives you the information on exactly how many people are using the software, something that he says you don’t typically see in subscription pricing because there’s little motivation to know the usage once you sell a certain number of licenses.
“In the subscription world, nobody tracks usage. Companies are actually disincentivized to track usage. If I’ve signed you up for 100 users, and you paid me for the 100 users upfront for the first 12 months, why would I track it and tell you that only 36 people have been using it for the first three months into the product? I’m not going to do that,” he said.
He says, usage pricing also gives companies a way to continue working with customers, who might otherwise churn. As Gupta points out, in the subscription world there is the binary of choice of being subscribed or unsubscribing, whereas with usage-based pricing, the customer could dial back usage instead of giving up the product altogether, and he sees that as a big advantage, especially in times like these where CIOs are looking for non-essential products to cut.
The startup currently has a dozen employees, but plans to quadruple in size in the next year with the new funding helping to fuel that growth. As he adds employees to the company, he is trying to build a diverse workplace, but admits it’s challenging.
“It is something we think about, and we pay attention to, but to be honest with you, we don’t have that kind of leverage and luxury right now to sort of institutionalize it as a matter of process,” he said. He added that the company is bringing in its first recruiter this week, which could help, and one of its investors, Norwest Venture Partners, has talked to him about building diversity as a core value, and he plans to take it seriously as the company grows.
The $5 million seed was led by Homebrew, while the $15 million Series A was led by Norwest Venture Partners. Operator Collective also participated.