Sales leader John McMahon explains that while perpetual licenses offered years to fix issues, today's consumption-based models can see customers churn in a week if they don't see immediate value. This demands an intense focus on rapid value realization.

Usage-based pricing for AI faces strong customer resistance. Unlike cloud storage where usage is directly controlled, AI credit consumption can be driven by new vendor-pushed features. This lack of control and predictability leads to bill shock, making customers prefer the stability of per-seat models.

The biggest threat to incumbent software companies isn't a new feature, but a business model shift. AI enables outcome-based pricing, which massively favors agile newcomers as incumbents struggle to adapt their entire commercial structure away from seat-based subscriptions.

The ARR/SaaS model, built on predictable human usage, is failing. AI agents can consume resources worth thousands of dollars for a low subscription fee, breaking the unit economics. This forces a shift to metered, consumption-based pricing similar to utilities like electricity.

Even with steep discounts, customers are increasingly opting for monthly SaaS plans over annual ones. This behavioral shift signals a lack of long-term confidence in any single tool, as they expect a superior competitor to emerge within months, prompting them to switch.

The dominant per-user-per-month SaaS business model is becoming obsolete for AI-native companies. The new standard is consumption or outcome-based pricing. Customers will pay for the specific task an AI completes or the value it generates, not for a seat license, fundamentally changing how software is sold.

Unlike perpetual or even subscription models, consumption-based compensation holds sales reps directly responsible for the customer's ongoing product usage. Reps are on the hook to ensure credits are "burned down," effectively merging the roles of sales and customer success and forcing a continuous selling motion.

For businesses with high Net Dollar Retention potential, like infrastructure SaaS, enforcing long-term contracts is counterproductive. By "winning the business every day" and allowing customers to leave, you build trust and ensure your user base consists only of happy, growing accounts.

In consumption models, revenue is tied directly to daily usage, not an annual contract. This eliminates the luxury of time for value realization. The traditional handoff from a 'hunter' (AE) to a 'farmer' (CSM) is too slow and fragmented; the functions must merge for immediate value.