The Coming SaaS Pricing Armageddon

While much focus these past years has been on inflation it has mostly focused on physical goods. Anyone at the grocery store knows you are paying 30% or more than in the past. Airlines, food, housing, etc. have all gone up substantially. As written previously this has been exacerbated by extended low interest rates. The time to pay up on goods and services is now and soon the one sector that seamlessly decreased over time is in for a rude awakening. While service companies and specifically SaaS have maintained healthy margins their pricing powers will be over once companies actually need to make profits. Employees which are a significant cost to these businesses have increased expenses and those costs will be flowing through the rest of the economy. Some economist are still hoping for the transitory inflation case but are mistaken when they see pauses in the increases. Inflation won’t infinitely jump but it takes time for pricing to make it’s way through the economy. There are lumps of increases sometimes stuck in the pipeline that eventually get processed. The concern will be if these increases don’t stop ultimately leading to a severe downturn.

Now looking specifically at some SaaS pricing changes we can see that many businesses will have trouble maintaining these increases. I will start with my “favorite” increase so far which was Zipcar (not really a sass) a service used to rent cars on demand. I had used it as a benefit from a past employer years ago but since then never used the service. Suddenly I get a letter demanding payment and that they will send me to collections for a mere $40. Already I can see they are having troubles when they send emails such as this as no experience in communicating subscription-based charges.

Next, is a service many developers have used while building apps. Twilio / Vonage can help with sms and phone based apis but if you have used them you are seemingly reminded of the price increases each month. While I doubt they always have much power it shows how telecoms are pushing up prices which then push to SaaS companies and their end users. The price increases may be a few cents each month but over the past year they are start to add up.

Another, interesting increase is one that went from essentially free from 2015-2019. 2020 they went from $0.002 to $0.004 to $0.006 to $0.02 within a matter of 2 years. No communication about increases and to make matters better they removed the past invoices. Only to be hidden through saved ones. Good advice for anyone to keep track of the per unit billings by saving pdfs as some companies are trying to be sneaky about their price increases. A 10x on their pricing is pretty incredible but even better is there are barely any new features that make up for the increase. While some may say we were getting a great deal in the past it is true but the sporadic increases have started the look at alternatives. I believe this will be a pattern for many SaaS companies that were ventured back during the free money years. The bill is finally coming due and these companies are hoping you are too ingrained into their system to move.

Some might think this applies to specific companies, but I can see these changes across the market. New Relic a massive APM tool smartly moved to usage based pricing. They claimed it would result in cheaper pricing for many but overtime that also increased. The same plan that was prior to 2020 would be easily 4x of what it is today. Their stock unfortunately got a big boost but then has since fallen. While not everyone is diligently reviewing their billings they eventually start to scrutinize it when the economy falls.

Google another major player in the SaaS market is also not immune. Anyone managing their GCP bill has seen it steadily increase over the past year or two. My favorite instance was when they 30x a product with no communication to previous users. I had written in the past about GCP and a strategy that would help win more business. They smartly went down this road and making solutions more for enterprises with minimal technical knowledge which requires hefty prices. Having a multi cloud approach is even more important these days. Taking a look at Azure I found a similar product that fulfilled the same requirements at a usage that was 30x cheaper than Google putting me back at my expected costs. Now more than ever will it be important to monitor these costs as cloud providers are hoping you are locked into their platform. Taking advantage of committed use discounts is another good thing to have but sooner or later there may be a need for an alternative tool. Architecting your technology stack to be cloud agnostic will be a winner moving forward.

The one bright spot I saw was when Stripe released their Financial Connections product. They broke Plaid’s near monopoly on the market which had a minimum $500 monthly spend. Now the product is still the same price around $1 but it’s a small win at least for some use cases. Software competition is still alive and while many say not to use pricing it can still be a very strong factor in certain economic conditions.

Lastly on Twitter you can find some good mentions of unannounced price increases. Companies don’t want it known but people in the industry seem to enjoy venting on Twitter about companies doing it. For example, Auth0 5x their rates.

These instances are a mere canary in the coal mine with more increases to be seen in the coming year when many review budgets. These cases were first hand and doing some searches on Twitter and surveys finds similar results I agree with this sentiment and think we are in for more increases. The problem is sometimes the companies get too confident with their pricing changes and many are all interconnected using each others tools. If one SaaS raises their prices it might affect many as mentioned above as a clogged pipeline. Eventually it moves through the system resulting in cracks in the overall network. Just as the price increases have seemed easy to implement so should awareness about price cuts. Businesses need to be aware of pricing and may underestimate initial churn due to increases when the economy is strong. This is why its essential to revaluate pricing strategies constantly. This comes to the conclusion that software is in for some mutually assured destruction. The players with the pricing power will cause casualties in the market with eventually a downturn that may bring balance back.