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The Margin is a podcast from MGI Research that explores the evolving world of business monetization. Hosted by MGI Managing Directors Andrew Dailey and Igor Stenmark, the show features candid conversations with founders, CEOs, product leaders, and industry experts at the forefront of pricing, billing, and revenue operations. Each episode dives deep into the strategies, technologies, and trends shaping how companies generate, capture, and grow revenue—from subscription and usage-based models to AI-driven monetization. Whether you're in finance, product, or IT, The Margin offers practical insights to help you navigate complexity and drive growth in the digital economy.
Andrew Dailey: Hello and welcome to The Margin, a podcast exploring the forces shaping business monetization. I'm Andrew Dailey, Managing Director and Analyst at MGI Research. For all the hype around usage and consumption business models, one company in particular stands out for having built a $100 billion business based on usage pricing models. That business is Amazon AWS. Joining me today is Puneet Gupta. Puneet helped build and scale consumption-based billing infrastructure at AWS. While at Amazon, he saw firsthand what makes usage pricing work and what creates friction in the process. After AWS, Gupta joined Oracle to help build the infrastructure supporting its nascent cloud effort. Gupta is such a strong believer in usage models. He founded a company called Amberflo, a solution that enables usage, billing, and I will discuss key business, cultural and technical considerations for companies who are exploring usage models and why he believes CIOs have a unique opportunity to lead in the shift to consumption business models. Puneet, welcome to The Margin.
Puneet Gupta: Andrew, good to be with you.
AD: So you've been involved in building some of the largest monetization engines in the world. Give us a little bit of your background. What's the backstory? How did you get here?
PG: Yeah, I guess, first, just right off the bat, I attribute a lot to just luck, being at the right place a little bit at the right time, but couple of, experiences that I'll call out, particularly as it relates to the topic that we're going to be talking about. My journey started with this whole, modern world of consumption, usage-based pricing and billing almost now I want to say 12 years back, maybe even longer. And that starts from, I was pulled into Amazon Web Services in the early days as an outsider—
AD: I've heard of it.
PG: Yeah. And even back then a lot of folks, I started to hear about it. But you can imagine back in 2011 is when I joined. So still relatively early days. But there was already starting to see the hockey stick. Anyways, I came there, I'd already worked in the industry about 15 plus odd years across different companies, large companies, mid-sized companies. So I had a fairly good idea about just the business landscape. Both internal and external IT tools. And I got to tell you, coming into Amazon from outside, I think, a lot could be said, but I think that's a very binary path, like a, some people take to it and others just turn right around and, and say, yeah, this is not for me. For me, this was like heaven. And, anyways, we'll unpack more of it, but that was sort of seminal in many ways that time spent over there. I had a chance, as a general manager with the team there to launch a couple of new tier one Amazon AWS services. My team built Amazon Cloud Search, Amazon Elasticsearch. I think it's called now OpenSearch. And, just, what a phenomenal writer. You get to do that from the ground up as a GM classic, Amazon AWS model. They hire for the leader, they bring you in sort. So those two bits, a team concept and you're really building something from the ground up. So I just had a phenomenal time. That's where I kind of sunk my teeth into this world today that we're calling usage-based pricing and billing. So that's where the journey started. And then from there on, I also had a chance to build something similar at Oracle. Oracle got serious about building cloud infrastructure organically, internally from the ground up. So, played a small part there and also ended up owning the metering and billing side. So that's the sort of the journey.
AD: At Amazon they were going through, as you said, the hockey stick. What were the unexpected surprises both positive and negative with a consumption-based, a usage-based pay-as-you-go kind of model?
PG: It's almost becoming a normal. But go back to 20—when they started in 2007, there was no such thing as usage.
AD: It was unheard of was.
PG: Exactly. So you got to ask the question what must have gone through their minds to say we're going to blaze a trail here and we feel that this is the right model. And of course, it's proven out that it is the right model. A couple of things. First, things were just a little bit unique to Amazon in general that kind of steered them in this direction. So as you know, back then they were essentially a B2C company retailer. And so they did not have any enterprise muscle, so to speak. They were never sold in a B2B context. It's essentially a consumer facing company. So they realized, “we're new to this B2B selling. We don't have any—"
AD: No Salesforce.
PG: They had no Salesforce. Right. And so no blueprints, no Salesforce. So they're big on acknowledging where their strengths are and they really have a very well-defined process to kind of go through that whole assessment. So they realized, okay, here's our strengths, here's our weaknesses. We don't know much about B2B selling motion, don't have any feet on the ground or anything like that, but they're big on and what they're guiding post is it has to be value driven, right? What are they do? We hear about this thing called customer obsession. Many companies talk about it, have it, follow it. And for them it means that we got to deliver something of value, but not just for the sake of value. We must have a method of instrumentation in place so we can track—
AD: They're big on metrics.
PG: They're big on metrics.
AD: Measuring everything. Yeah.
PG: So that was sort of the unique combination. They felt that we can do B2B motion so we’re going to launch something where our product teams are in control of the roadmap and of the innovation cycle. So we are decoupled from the traditional B2B sales motion.
AD: What do you think the key considerations are for an organization that's not Amazon, but that's thinking about going towards some type of usage or consumption-based model?
PG: I actually get asked that reasonably often. People ask even for the prospects that we engage. We see them in different stages. Some are kind of not sure, want to kind of dip their toe, a little bit anxious. Of course it impacts your revenue stream. So you want to tread a little carefully, right? But I say the folks that it is the right question. But there's something else that's masquerading behind the scene that you should really be asking yourself that will then lead you to whether usage-based pricing and billing is right for you or not. And that simply is, quite frankly, that do you want to be innovative? Do you want to have a faster pace of innovation in today's environment? Okay. And if that is who you already are, if that is part of your company culture and if you are lacking and you want to catch up on that or you want to accelerate, then you will find that usage-based pricing and billing is an enabler to that. What I just said, I think if you now play back and look at some of the companies who we know now who've succeeded and have really grown well on the backs of usage-based pricing and billing, I think one of the things that's again, less talked about, often less compared, I think you will see that they all tend to be forward leaning. You will see them. They are innovative. They are launching new products, new features at a rapid pace. And this is one of those unsung heroes that's in the back that's really the causal and the effect.
AD: Who, if you can name names, who do you think are the leaders? Who are the companies that you would point to as being innovators, both in terms of their industry but also in terms of their ability to monetize?
PG: The list is endless. I mean, so of course, we start with the large cloud providers and it's okay, fine. You can put them in a separate bucket. That's infrastructure. That's this, that’s that. But then you look at the next batch of companies that have come in the last ten years or so for the whole of the world, all the the past companies, the Snowflakes, the Databricks, the Mongos. Right. You pick anybody and sort of, the platform as a service category. They're all leading with usage-based pricing and billing. Everybody's talking about no matter what industry, what vertical, what application, what product, you're having a conversation, already had a conversation about how do I take generative, how do I uplevel my product and services and my customer experience and the hidden nugget there that you have to come full circle on very quickly. The moment you go down that path, you're down the path of usage-based pricing and billing.
AD: We talk about usage-based, consumption-based models. If you look one or two levels below that, there's a lot of variety and variation. Can you describe that and what what do you really see in practical terms, in terms of what people roll out to the market?
PG: There's actually quite a bit, in fact let me maybe start by, again, something we, we get asked about and I hear a lot, a couple of minutes or confusion points around usage-based pricing and billing because I suspect maybe some folks might still be, may have heard about them or might holding them back. So one is what I often hear is, “yeah everything is great, but I'm not going to do usage-based pricing because it lacks forecasting or I can't do budget planning.” Well, okay, I'm sure you've heard it too. And my response to that is, but I think you can see there's enough evidence for what I'm going to say, this fear that it lacks, visibility forecasting, budgeting. This is not a limitation of the model. This is a limitation—this is simply saying to you that you don't have right tooling in place.
AD: What do you tell customers who want predictability in what their bill is going to be? Right? Something may cost a dollar. It may cost $1 million. I'm not going to get fired unless it goes over my budget.
PG: Yeah. Fair enough. So, and actually, just so I left out a point about so what, maybe some of the models, on the backs of which that you can then get the visibility, predictability. So let me also highlight when we think about usage-based pricing and billing. And if you haven't dabbled into that, we think of sort of this canonical pay-as-you-go construct, right where you pay in arrears. We don't know how much the customer is going to use. So at the end of the month, either the customer is going to be surprised or I'm going to be surprised. So pay-as-you-go, I would say, is only one form of usage-based pricing and billing. Pay-as-you-go is not usage-based pricing. In billing one to one, right? And in fact is probably also not one of the popular models. Pay-as-you-go exists usually is a great, lever for motion initial, getting customers in the door free trials for each year kind of get them in. But a more popular usage-based model is what's called prepaid. And it's sort of, you may call it I like a cousin of a subscription model, but slightly different prepaid is, which will still pay you the money upfront. So let's say you size the customer up and so looks like you will be spending on average about seven to eight, $10,000 a month. Why don't you pay me $120,000 upfront for the year? So 12-month contract prepay. We're still going to meter you month over month on your actual usage. And we're going to draw down against the prepaid.
AD: You mentioned the need to have the right tooling in place to keep track of what the actual consumption usage is, to be able to tie that to product use and then value in addition to the tools. What else to organizing actions need to have to support this kind of model?
PG: First is just sort of cultural alignment like I said, a lot of this will sort of masquerade behind pricing and billing. And I think one of the mistakes that organizations can, can do, and unfortunately some do is you just look at it as a one-off side IT project around pricing and billing. Well, it's certainly that, but it's actually a lot more than that. And I think you need that alignment before you go down this path, which basically means that the shift to usage-based pricing and billing, or should you be so lucky to start life with usage-based pricing embedding, what are you really indicating to both your internal employees and to your customers is you are going to be a data driven and that ripples through your culture. So how decisions are made, how you actually service your customers, it will ripple through every aspect how you comp your sales teams, how your product and engineering teams work through innovation and new products based on the signals that they get on the backs of this data, how your customer support teams respond to your customers, how you do revenue recognition, accounting, finance. So it's an organizational wide decision okay. So I would say you do a little bit of huddle around that and get alignment. And what we already talked about at least today in 2024 hopefully that vector's clear. You put your company on a path of usage-based pricing and billing. And like I said, it doesn't have to be pure like pay-as-you-go. What's called a hybrid. You can have sort of this prepaid, all these different models. Believe me, it's a gift that just keeps on giving.
AD: Let's assume I buy into your argument for adopting a consumption-based usage-based model. Recognize the need for investment. As you look across the market, there are a lot of options. Is there a litmus test that you could put to a company to determine if they really can handle usage and consumption-based billing?
PG: There is, and I think this is also one of those moments where we've seen this the strategic trajectory play out like particularly in tech every five, ten years, we start to see a disruptive wave. And there's a change of guard. This is no different. So simply, I would say, I think if there's any solution in the market that had existed from today to maybe prior to four years ago, it's built on a different foundation. It's not built on a foundation to help you succeed in scale on usage-based pricing. And really let me add some more, maybe credibility to to that statement. So, see usage-based pricing. Like I said, the narrative will always be around pricing and billing because that's the value value factor. But when you unpack this, this is ultimately a sort of a multi-pronged technology stack. Okay. Let me give maybe a couple of anecdotes. So we used to say that in the world of usage-based pricing and billing, usage is the system of record, not pricing. Pricing is ephemeral. Pricing will come and go, pricing will change depending on what your customer-facing pricing plan is. Sometimes it'll be predicated based on your underlying cost. So if your cloud provider changes something, they'll probably have a ripple effect into your customer facing pricing. So pricing in a usage-based world is ephemeral. It's a good thing that's it’s ephemeral because it's giving you that flexibility.
AD: You need to be adaptable.
PG: You need to be adaptable. Right? Okay. But the system of record is usage, not price. And or put another way, as long as your usage records are intact, you're set for life. So what is usage? What is the IT technology primitive, the building block that gets you usage? And that is what's called metering. And this part has been missing. And most I.T infrastructures because quite frankly they never have the need for it. But you got to get metering. You work your way forward from metering into pricing and billing into usage-based pricing. In billing, you don't work your way backwards from pricing and billing into metering. And then therefore my statement that any vendor that has been around offering pricing and billing solutions for maybe four or five years prior to today, they were not billed for the usage-based pricing and billing. And while they can claim that yes, we have layered things on. But back to what I said, you cannot layer things on. You have to start with the foundation of instrumentation and metering, and then you build applications on top of the metering infrastructure.
AD: From your perspective, is metering the same thing as mediation?
PG: People use it sometimes interchangeably. There's a difference. So mediation, again, if you're coming at it from pricing and billing, well, it's a fairly well understood term. Though, even within that there's different folks. So one is mediation is people will look at it. We have a mediation, issue like sometimes things go wrong with my pricing and billing and we go into a mediation issue to solve that, which basically means that a wrong invoice got sent out or wasn't measured or instrumented.
AD: It's a data cleanliness issue.
PG: Metering is is a new artifact. So because if you think about it, mediation was still there even let's just look at the traditional world of quote unquote old school pure subscription, $99 per user per month times 12 months, times ten users. Okay, there's no metering needed. I mean, that's the back of the envelope calculation, right? So the remediation that happened there was of different sorts. Something broke or something didn't get put right or reconciled right. In this world of usage-based pricing and billing, there's a whole data stream ingestion stream of events that are flowing in constantly that you have to track and just aggregate meter that is metering. So metering is, in the modern world of usage-based pricing and billing, a decoupled artifact yet integrated with billing a decouple artifact that simply answers the question to anybody inside the organization what is being used? By whom? Where? How much? Period? That is the job of a metering service or metering platform to do that consistently, do it accurately, do it in real time. And now I can layer a pricing and rating engine on top. Now I can layer a quoting engine on top. Now I can do all kinds of things once I have this layer.
AD: Who owns the change management within the organization?
PG: So, two fronts again, change management. So let's say on the pricing side, if something has to change that ownership post that will rest with the product teams. Right. And let me also draw the connection there. So when we say usage-based pricing usage of what usage of product the product is, product has the best knowledge of what is my cost per footprint for this feature that I'm launching? What is the value that I can claim on that feature? And they may get different signals, but they are in control of this product. Outside of that, I would say, and if we're talking CIOs, particularly CIOs, we're talking mid-market on up. So I would say if you are in that position, my God, what a time to be alive, right? Just it with open arms. And what that means is think don't get sidetracked. You got to do what you got to do, but don't get sidetracked. And 100% consumed by one off application here. One off application there. Seize this moment. Put in a infrastructure in place as a CIO for your organization that positions its the entire organization for growth over the next five, ten years, which basically means putting an infrastructure in place that can take advantage of generative AI and any form of AI ML that's coming into the future where you have institutionalized and put a platform in place that does usage tracking, cost tracking, and giving any teams inside your organization who are wanting to go in and build new products, experiment with new products, launch new features, ability to for them to deliver more, and flexible, customer facing usage-based pricing plans. I think you do that as your job as a CIO, your CFO’s happy, your product teams are happy, your accounting teams are happy, and your support teams are happy, you’ll never look back.
AD: And you've put an imprint on the business for years to come.
PG: For years to come. Exactly right.
AD: Thanks so much. Thank you for listening to the margin. If you have questions about today's episode, or if you'd like to schedule a consultation with an MGI analyst, reach out to us at insights@mgiresearch.com. You can also reach us on LinkedIn, Facebook, and X, and you can find out more information about our research and advisory work at mgiresearch.com. Until next time.