The concept of SaaS as a business model changed the game in technology by moving users away from buying software outright to paying for service availability based on time-based subscriptions, typically priced monthly or yearly. Today, a London startup called m3ter that is, creating tools to take the next step in that evolution (more granular usage-based pricing) is announcing funding thanks to strong demand.
The company has raised $14 million, a Series A that it will use to double down on new markets like the US and to develop more technology for its users. Notion Capital is leading this round, with Insight Partners, Union Square Ventures and Kindred Capital all previous backers of its Seed round of $17.5 million last year — also in the round. The company doesn’t disclose his valuation, but CEO and co-founder Griffin Parry tells me that he now estimates he has about 3-4 years of track record.
M3ter came out of hiding just over a year ago, a debut that coincided with the announcement of that seed round, and in that time has grown its business by 375%.
Its customers these days are typically tech companies built around API calls, a natural fit for usage-based pricing models, and include payments company Paddle, identity verification company Onfido, and company emerging fraud prevention Sift.
And indeed, the very concept of starting a business to help other tech companies adopt and adapt to usage-based pricing stems from the founders’ own experiences: Parry and co-founder John Griffin previously founded GameSparks, a usage-based game development engine. based pricing. That startup was eventually acquired by AWS from Amazon – arguably the granddaddy of popularizing API usage-based pricing through its cloud services platform.
One of the unique aspects of usage-based pricing is the granularity it provides customers: they pay only for what they use. In essence, that’s something that has proven more popular, especially in today’s tough times, when companies are more cautious than ever about how they spend money, possibly at the expense of being less focused on simply budgeting based on expenses. predictable.
and while it is certainly not ubiquitous among all SaaS companiesit has definitely grown in popularity.
OpenView research found that 45% of SaaS providers in 2022 were adopting usage-based pricing compared to 33% the year before. The prediction for 2023 had been 55%, but as Parry pointed out to me, that figure has been revised to 61%, along with another 10-15% growth if you add the companies that have said they are considering it.
(Unsurprisingly, M3ter isn’t the only company looking to cash in on that. Based on SF Metronome, backed by some heavyweights from the Bay Area; and more legacy companies like LogiSense are among those also building usage-based pricing platforms).
“Software companies are looking at pricing as a strategic lever these days,” Parry said. “As a customer, you don’t want to leave money on the table, and you also want to focus on growing more efficiently.” Efficient in this sense essentially means spending the least amount of money possible to get there.
In the past, he continued, it was all about predictability and knowing each month that you were paying a certain amount for a service, “but things have turned in another direction.”
Parry admits that there remains a significant cultural shift among SaaS companies, especially those that might have built their businesses around time-based models: growing pains that are probably not much different from those faced by SaaS companies. software when they stopped selling. standard software for products sold in subscriptions.
But on the other hand, the introduction of usage-based billing also means opening the door to getting more granular data about what customers are using and how they are using it, which in turn can inform not only what customers are is offering, but also what the SaaS provider is building and investing in as a business.
To that end, M3ter will use part of the funds to continue developing its own more sophisticated tools. They include a data science product called Cost Allocator.
Based on the feedback M3ter has been getting from its users, it will allow clients to determine gross margin performance per user, which Parry explained to me will help them figure out how to adjust prices accordingly. (The idea here is that you can create rewards or lower prices for those who use more than one service, or charge more per use for those who aren’t power users.)
Pricing Experimenter and Usage Forecaster are also products in development. Respectively, the former will allow M3ter’s clients to test pricing models in real time with simulations based on the data it has accumulated; and the latter will apply a similar model to determine what a company could do in different business evolution scenarios. All of this can also be used to help companies establish pricing, but also to develop more nuanced approaches with different users, including continuing to offer some of them more traditional SaaS packages if that turns out to be a better fit.
The startup’s approach to product development, working with its customers to create what they want, fits closely with the fact that, at the end of the day, M3ter itself is also a usage-based business and works to respond to who your customers are. doing.
Some of the products his clients are building using his platform include database startup ClickHouse offering usage-based pricing for their cloud offering; and the Chargebee subscription management platform that offers event metering, usage-based pricing, and billing capabilities.
As I mentioned earlier, your customers these days tend to be tech companies built around API calls, but there’s a clear opportunity to embed this into all sorts of other products, from consumer entertainment to anything a person can handle. interact online or in an app. .
“As pricing becomes a strategic priority for more software businesses, the one-size-fits-all approach seems increasingly outdated,” Notion Capital’s Jos White said in a statement. “m3ter’s technology will drive this transition to smarter, usage-based pricing. The company’s co-founders have already laid a strong foundation with an exceptional team and product, as well as a deep commitment and alignment with their early customers and partners.”
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