LiveRamp switched to usage-based pricing after customers demanded it, though they also wanted downside protection. The move aligns incentives between the company and clients, moving away from fixed costs tied to data volume. The shift raises a question: is the industry adopting usage-based models because AI is squeezing margins.
Usage-based is a big hot topic. It's, it's kind of happening to everyone. It's a major inflection in the market. And I think LiveRamp was aware and cognizant of this transition, you know, maybe relatively early. I think you, you started marketing token-based pricing before most AI companies were using that language. So maybe can you walk us through just that journey? When you guys realized this was the future for you all, how you went about making it happen, what you've learned from it.
Yeah. So the, the company level decision was made before I joined. How they evolved to it was, was very much customer driven, right? Customers had been asking for it. That's what they've always asked for. Although you do have to be careful because my experience is like customers will ask for things in a simple way. Like they'll say they want usage based, but then they want protection on the downside and the upside. So, so it's like, okay, what did you really mean? When you say, uh, you want usage-based. But absolutely, it was, it was, it was very customer-driven. I also think it, it aligns the, um, the incentives and the growth with us and the customer, right? Because we're growing with them as opposed to being more of a fixed cost, um, based on like the volume of their data or things like that.
So it's interesting, it sounds like you guys went towards usage-based because it was customer-centric and maybe lined up with how your value crude to the customer, but it wasn't because of margin compression. And it feels like the major inflection today is that almost everyone will go towards usage-based because they will be selling AI, which will have some degree of margin compression. Do you buy that? Do you disagree with that? Do you agree with that?
I could definitely see that. I think either way, like, yeah, we were not doing it for margin compression. It was customer, but I think in a way it. It impacted our margins because there were customers that wouldn't do business with us because they weren't willing to invest a huge amount up front just to start with. Whereas with a usage-based model, you could start small and grow, um, and so that land and expand. And so I think if with AI and things like that, it's compressing your margins because your metric isn't aligned with the costs, then that's something different in a way, but I'd also want to know, is your metric aligned with the value the customer receives? And does the cost drivers of things like AI that's compressing your margin, does that align with the value the customer receives? Because I've always tried to split those two out. I could definitely see there are certain companies that would shift to usage-based because of compression on their margins, but I would really question each of them to make sure that's only part of the story. And that this usage base aligns with how the customer uses your product. Because if not, then I think there's other ways to address that without going to usage-based.
