How Edison led the way in usage-based pricing.
There’s a lot of lore surrounding the invention of the lightbulb. But regardless of who’s side of history you’re on, Edison’s legacy is staggering. His contribution to bringing electricity to the masses is unmatched. What can CX leaders today learn from his story? Let’s find out.
Today, we’re talking with Shawn Olds, Co-Founder, and CEO of boodleAI on usage-based pricing and how it can revolutionize your entire customer experience. Edison adopted it back in the day. Should you?
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"It's easy to build something and be convinced everybody's gonna love it, but you need to make sure that you're not putting your own bias over what customers are saying." - Shawn Olds, Co-Founder, and CEO, boodleAI
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Time Stamps
* (0:00) Can someone turn on the light, please?
* (6:21) What’s boodleAI?
* (11:57) Lamborghinis and lightbulbs
* (14:14) The pros of usage-based pricing
* (16:44) How to listen to your customers
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Sponsor
This podcast is presented by Oracle CX.
Hear more executive perspectives on CX transformation at Oracle.com/cx/perspectives
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Links
Connect with Shawn on LinkedIn
Narrator: Thomas Edison once said, “We will make electricity so cheap that only the rich will burn candles.” It was a bold and, as it turns out, prescient statement from the man who invented the lightbulb.
I should backtrack. Thomas Edison did not really invent the lightbulb. That’s one of those enduring myths, up there with “George Washington had wooden teeth.” What Edison did do was make incandescent light more accessible to the masses.
But it didn’t start out that way. In fact, the story of U.S. Patent number 223,898 begins from much less humble beginnings - at least, in terms of early customers. Cut to the gilded halls of JP Morgan’s Madison Avenue mansion. It’s 1882, and Morgan, you’ll recall, was the famed New York banker who made his fortune by building the United States’s international credit with England. He was also the primary investor in Edison Lighting Company, which gives you dibs on being the first to have your private residence installed with electrical wiring. When Edison finished with Morgan, W.H. Vanderbilt asked Edison to light up his home next.
These were not cheap electricity bills. Nor did their installations go off without a hitch. Edison nearly burned Vanderbilt’s house down when two wires got crossed with tinsel. In Morgan’s case, the on-site steam engine and electrical generator throbbed so intensely, “Mrs. Brown next door complained that her whole house was vibrating.” Still, it was an early step in bringing electricity to the public.
Edison opened the country’s first central power plant a few months later. It was called Pearl Street Station and it was a massive undertaking. Edison and his team of muckers laid out 80,000 feet of insulated copper wiring across lower Manhattan, effectively creating the first modern-day electrical grid. They also invented 360 additional parts, spanning from switchboards to conductors to fuses. For all his grandiose statements about burning candles, Edison could also be the embodiment of his other famous quote: “genius is 1% inspiration and 99% perspiration.”
Once inside the Pearl Street basement, a process would begin where mechanical power was converted into electrical power. Coal furnaces made steam, steam created power, power turned the generators, and from the generators came electricity. On September 4, 1882, Edison flipped the switch at the station and provided light to 58 New York customers for the very first time. Though it only spanned one square mile of the city, the public could finally say --let there be light.
[SFX: “Let there be light.”]
or
[0:50-0:58 of Todd Rundgren’s “I Saw the Light”]
Edison’s promise to make good on cheap electricity experienced a great jolt that night. Today, we pay for only what we use, helping to maintain his now vast electrical grid. Some pay more, and some pay less. But when customers are given this option, it makes for a - dare I say - more powerful outcome.
Not everyone can be a genius like Thomas Edison. And not every customer can be expected to pay top-dollar.
But if you can take the inaccessible and turn it into the accessible, you might be onto something.
Do it at an affordable cost, and you’re ready to ignite.
But let the customer dictate the cost themselves? Now that's a more than a bright idea.
Today we are talking about usage-based pricing. And how it can transform your company.
Intro: Welcome to Often Imitated, a podcast about remarkable experiences from the past, and how they inspire people to create great customer experiences today.
This episode is all about usage-based pricing. How it was prevalent in the early days of electricity, and how it’s a model that can be effective for CX leaders today. In this episode we’ll hear from Shawn Olds, Co-founder and CEO of BoodleAI. But first, a word from our sponsors.
Often Imitated is brought to you by the generous support of our friends at Oracle. Make every interaction matter with Oracle Advertising and CX. Connect all your data and empower your entire business to deliver exceptional customer experiences from acquisition…to retention…and everything in between. Hear more executive perspectives on CX transformation at oracle.com/cx.
Narrator: The invention of the light bulb did not bring electricity to a mass market overnight. Most Americans still lit their homes with gas light and candles for another fifty years. Nor was it without its stumbles, as Mr. Morgan and Mr. Vanderbilt can attest. All of this, with nothing to say of the man himself. Edison could be ruthless, even sociopathic. In the “Current Wars” with George Westinghouse and Nikola Tesla, Edison would try to discredit Tesla’s alternating current by using it to electrocute stray animals. He even once demonstrated it on a death row inmate, effectively burning the man alive.
But for all his faults - and its faults - electricity would come to change the world as we knew it, and its pricing structure is a big part of that.
We all pay for electricity now from usage based pricing.
To help us understand better the power of usage-based pricing, we spoke to BoodleAI co-founder and CEO, Shawn Olds..
BoodleAI is a platform that helps companies enrich data for sales, marketing, and fundraising teams.
Shawn: So boodle AI it's core set out to democratize data science and machine learning. So we help nonprofits find their best donors and we help commercial companies find their best customers. And rather than just helping them find someone that comes in the first time and then turns, we're trying to use affinity based data to help them find their lifetime donors or their lifetime customers being able to retain them and grow.
so the core problem we're solving is helping people to prioritize prospects. They may have, um, helping them to retain the current customers they have, um, and helping them when they do reach out for new D new customer, a new donor acquisition, reaching people with whom their message or their product will resonate
Narrator:
How BoodleAI works, is you upload your contacts, and their analytics engine, matches your contact records to the persons real world identity by using multiple databases of all 220 million adult Americans. And boodleAI enriches each contact record with up to 1,200 additional data points.
You can see how that is very helpful to sales and marketing teams in large companies.
Shawn: in a commercial company, it's one of two, people's going to end up buying. It's either the sales team, because they have a list of prospects. They want to go after and they want to prioritize them. Or it's going to be the marketing team who wants to take advantage of our rich household advertising.
But Boodle AI didn’t start with large corporations with a data science team. They started by serving nonprofits.
Shawn: So one of the advantages of having started out with nonprofits initially, Is non-profits are notorious for having very bad or limited data. So when we set out, initially we told the development team, we needed to build an identity resolution engine that could work with just a name and an email address. And that's it.
Non-profits They don’t have gigantic data science teams after all. Or tons of money to invest compared to a e-commerce company.
Shawn:Um, you look at an e-commerce company when they sell. What do they know about the consumer after you bought something from the mean they know your name, they know your email address, they know what you bought. They know where they shipped the product to. They really don't know much more.
So our identity resolution allows, uh, the system to go in and find me in the customer data.
Identify me as living in Northern Virginia and not the shone olds that may live, we're bringing in data points that are really focused around a person's affinity, many predictive analytics companies bring in what's called, um, intent-based data.
And intent-based data is largely based on cookies, which is, you know, cookies are disappearing here in the next couple of years. Um, so by bringing in affinity based data, what we're really looking at is who a person is or who a cohort of people are allowing a company to really identify the con the best consumer down to this particular skew they may be selling.
So we wanted to build an engine that made sure that when ads were delivered to someone, it was really targeted to them and was something that would appeal to them and, um, be something they could actually use and care about.
Narrator: BoodleAI notes that by using over 1,200 different data points they canmatch more accurately than their competitors.
Once that data is enriched, BoodleAI highlights a new potential list of customer personas and share it with their customers. But when they rolled out that product, they got a surprising response.
Shawn: Um, we run a report called an emerging customer report, emerging persona, right? So we're, we're showing, uh, companies, people they didn't realize were customers they should be appealing to, but after all of that, our customers would look at us and go, well, what do I do now with this? What do I do with all this information?
Imagine a non-profit who has a list of 1,000 donors. BoodleAI looks at that list and tells them that their donors have certain distinct characteristics. And point them in the direction of 10,000 prospective donors that fit those characteristics. Those nonprofits still weren’t able to take action to pursue those 10,000 new prospects.
Shawn:And that was really informative to us. And that was great feedback. And we realized the customer experience wasn't complete. And so we started this enrich household advertising, which allows organizations to take all that information and then plays very targeted. Into the households of the individuals they want to, to secure his customers or keep his customers.
BoodleAI released a new product called enriched household advertising, which delivers personalized ads directly to those targeted households that they identify after data enrichment.
Shawn: We moved from enriching data. To doing the enriched analytics to then actioning those analytics.
Actioning those analytics was the final key. With this new product in hand, they thought they hit the sweet spot.
And yet, the business hit a bump.
Shawn: So we were a typical fast company. I don't know the exact SIS, this statistic, but I'm betting it's over 90% of companies in the SAS business sell an enterprise license. And so our typical enterprise license lowest level was $18,000 a year to get on the platform. And at the beginning of this year, while our sales were increasing, I noticed that our sales team was losing a lot more deals.
There were a lot more going to close loss, people telling us no. And so my co-founder and I reached out to some of these people started the email with we concede you're not buying. Would you just give us five minutes to understand why? And to a T every single one of them cited pricing.
At this time BoodleAI was selling an enterprise license, which was very expensive for certain customers like the non-profits but very affordable for their enterprise customers.
Shawn:And so that was kind of an epiphany for my co-founder.
And I, we, we realized we were selling a Lamborghini and most of the people we were talking to were at their corner, seven 11 a mile from their house with a gallon of milk, and they just wanted to get home. And we were going to sell them that Lamborghini, and they were never going to get it out of fruit.
And they were going to be upset because they weren't going to see the value in it. And so with some research, we happened upon what HubSpot did right before the IPO showed what Twilio launched with and what many other SAS companies use out there, which is usage based modeling. And as you know, Ian usage based modeling is not about lowering your pricing.
It's just about breaking everything into its component parts, and then offering those components so that your users can select what they really want to use. And then let them grow with the platform as needed. And so in the middle of Q2, we launched that. Um, and we actually got it down to a point where we can get a company or a nonprofit on the platform for $499 a year.
Now they're not driving away in the Lamborghini, but they're able to get on the platform and test it out and then grow with it. And that's what we're seeing is people get on and within a month or two, they're putting in more records, they're using different parts of the platform that appeal to different parts of their bids.
Um, and increasing their license in doing so, but they're increasing that license based on the fact that they've already seen a return on investment.
Narrator: Back to electricity, J.P. Morgan and W.H. Vanderbilt are the ones who would be driving the Lamborghinis. The rest of us just needed a Corolla.
Which is why we have usage based pricing on our electricity. I don’t use as much electricity as the Oakland A’s stadium, so I am charged much less. But I am also charged less than my neighbor who keeps every single light on in their house. I waste less, and pay less.
Usage-based pricing is so important for companies like BoodleAI for two reasons. For one thing, it makes customers happier because they know they aren’t getting charged for what they don’t use. And secondly, you’re *still* getting your big clients to buy the Lamborghinis.
And any client can start in a carolla and upgrade to a lamborghini the second they want to drive faster.
Shawn: In the sales process on an enterprise license, you've really got to throw a bunch of case studies and convince the person that's buying on the other end. That the investment they're about to make is going to pay off at some point. And from day one, they're, they're looking at the license and how much it cost and where's my money.
Where's my money. Where's my money. Um, when you let a person come in at $499, most of our clients come in around a thousand dollars. Um, but they come in around a thousand dollars. They're, they're, they're not as my OPIC on the cost. They're willing to experience the platform and see what it is. And then, you know, I mentioned the success we have with charity navigator.
You have a client. Comes in and around a thousand dollars and within a month they secured $20,000. Well, now they're just sitting very happy. Whereas had we sold an $18,000 license to them and they got $20,000, they would feel like maybe they had broken even at that point, but there was still more to get.
Um, and so it's just shifting that mentality for your customer so that they can get comfortable with what they're doing. And then the other great thing is even my sales team used to have to be the one kind of pushing down the door and getting. Now, we've got someone already in the house going around and advocating for us once they get in at a thousand dollars and they see the success, our sales team doesn't have to work anymore.
We have an internal salesperson in the form of the customer who bought.
Narrator: Usage based pricing isn’t about lowering the pricing, but about having value-based pricing. You are only going to use what you need. And you are happy to pay for more when you are getting more value.
Shawn: We, we looked at it again, as you said, not about lowering our pricing, but it pricing it to value, uh, pricing it to what the, the, the customer values and that price is going to go up over time because they're going to value new things. But on the day they make the purchase, we wanted to make it a no brainer for them to get in there.
Um, and that pricing devalue allows them to get in the door and experience the platform. And then as you said, allows them to lever up when they, when they need to get on the freeway and go a little bit further.
Narrator: Usage based pricing allows people with different needs to only pay for what they use. Back to ol JP Morgan, this would be like if he had 20 rooms in his mansion but only wanted to use electricity in 5 of them. He might want those other 15 rooms to have electricity at some point, but he doesn't want to pay for it just yet.
If your pricing only includes the “mansion package”. Mr. Morgan might look somewhere else.
It is critical for CX leaders to conduct exit interviews on losses and wins to find those nuggets.
Shawn has great advice on how to pick up on those ultra specific needs for each customer.
Shawn:one of the best pieces of advice, uh, that you can have is, and I learned this in my early consulting days. Um, I kind of learned it when we were in the military, but you don't realize it it's, it's formalized when I got up to consulting and it's, it's actively. Uh, don't make assumptions. It's easy to been as entrepreneurs.
It's so easy to build something and just be convinced. Everybody's gonna love it. Um, you know, it's, you, you've got a new baby and everybody wants to see your baby pictures, right. Uh, you just know it. Um, but it's sitting down and really listening to people and hearing what they say and, and active listening involves repeating that back.
Saying, this is what I heard just to make sure that you're not putting your own bias over what they're saying. So the biggest thing I think you can do is just listen to your customer set and, and hear what they're saying. And, and then implement that. And as I said, not push one customer's point of view, but take what several customers tell you, prototype it, put it out, across, share it with other customers and get their input.
And if you get a consolidated, unanimous view that this is the right thing, Then putting that into the product roadmap, because if you take every new idea and throw it the product roadmap, you're going to destroy your development team.
Narrator: Don’t make assumptions and listen to your customers. It’s that 99% of perspiration after the 1% of genius.
Shawn: listen to the customer, find out what their light bulb is, find out what they need to, to illuminate Uh, to get out there because you can give them all the electricity in the world, but if you don't understand what you're actually powering, um, you're not going to be able to help them.
Narrator: The genius of Edison’s light bulb was to take an energy source, refine it, and then make it accessible to the masses in an affordable way. Similarly, BoodleAI has turned the esoteric into the accessible by building a platform that enriches data and helps their clients more effectively target their customers at a cost that works for them.
And while the lightbulb symbolizes an idea of genius, it also serves as a reminder to just follow what’s in front of you. Customer experience can be a process of discovery.
Thomas Edison couldn’t have known what was around the corner when he set out to bring his incandescent electric lamp to the masses. But something tells me he had a good guide.
You might feel like you are doing a lot of perspiration, and we all are. It is important remember that the 1% of inspiration is right around the corner, usually hiding in the darkness. You just need a little light to see it.
This podcast is brought to you by the generous support of our friends at Oracle. Make every interaction matter with Oracle Advertising and CX. Connect all your data and empower your entire business to deliver exceptional customer experiences from acquisition…to retention…and everything in between. Hear more executive perspectives on CX transformation at oracle.com/cx.
This is your host, Ian Faison, CEO of Caspian Studios. Thank you for listening to another episode of Often Imitated. If you like what you’re hearing, tell one friend. This podcast was narrated by me, Ian Faison, written by Ben Oddo and produced by Mackey Wilson, Ezra Bakker Trupiano, and Ben Wilson. You can learn more about our team at CaspianStudios.com