How companies price AI ?
Leaders approach when pricing AI
Since in some cases ROI depends on service revenue, it is interesting to understand how to estimate the price of using AI. According to the various individuals who responded to my thesis, four approaches are predominantly used within companies.
I. Cost Price
The use of AI can be charged at cost. This approach can be used, for example, by companies that have a customer acquisition strategy. The proposal to have a cheap AI solution allows the company to attract customers and then offer them other more profitable services on the side. For example, this technique is used by some GAFA to attract customers to use their cloud services.
II. Price by Cost Factor
It is possible to estimate the price of using AI from a multiplier factor related to the cost. For example, this can materialize by multiplying the cost of its use by two. The advantage of this approach is that the price paid by the end user depends on its use. It is therefore possible to support users by offering them a service that meets their needs as they grow.
III. Price According to the Value Provided
The estimation of the price can be based on the value that is generated by its use. It is therefore necessary to understand the value brought to the user. A way to do it might be by discussing with them. This involves understanding how AI helps them solve their problem by quantifying its impact. For example, this can be materialized on the time saving that the use of the algorithm induces. However, this price is never directly indexed on the real value brought. Indeed, to achieve this, it would be necessary to know the margin generated and it is almost impossible to obtain this kind of informations.
To sum up, we can consider the amount of costs as the lower price. Moreover, we have to consider the competition in the estimation of the final price. For the maximum price, it is possible to consider the following equation which depends on the competition:
Max Price = Value created — Value best alternative + price best alternative
IV. Free
It is also possible that the price is free. Indeed, for some projects, the end user does not pay for the use of the service. This can for example be materialized by the addition of features included in the price formula already defined. This can be explained by the desire to improve customer satisfaction, also called NPS. Moreover, the use of AI such as for cost reduction by task automation has no direct impact on the end user. Therefore, in this context, there is no need to pass this change on to the user, as the goal is to save money.
Conclusion
The evaluation of the price of solutions related to artificial intelligence is not a topic that is widely discussed in the scientific literature. However, what emerges is that there is no single approach to best estimate the pricing of AI. The use of each method depends on the overall strategy of the company. Moreover, these thoughts apply to users outside the company, as it is not relevant for internal use.
