In the early stages of AI’s current wave, there’s still lots of experimentation. Most of that is around where the technology works and doesn’t work, as we examined yesterday. But it’s also about the all-important matter of price elasticity. What are users willing to pay, and how does pricing impact demand?
Making matters more complex, some companies fold in AI as a free demand driver or loss leader to boost their core product or revenue stream. Apple is a good example of that, given that Apple Intelligence is positioned as an enticement to buy (or upgrade early) your next iPhone… with limited success so far.
Others are going in the opposite direction and decoupling AI from an embedded feature to a paid standalone product or subscription. Adobe is one example of that approach, having spun out Firefly from a feature that threaded throughout the Creative Cloud to a standalone app for $19.99 per month.
And let’s not forget one of the most recent and formidable entrants: Amazon. Alexa+ launched at the same $19.99 price point but is advantaged by Amazon’s secret weapon for bundling incentive: Prime. If you’re a Prime member ($15.99 per month), you can enjoy all the benefits of Alexa+ in the same bundle.
Meanwhile, Google is somewhere in the middle, with AI Mode now a feature of search, while it also has premium tiers for things like Gemini and Veo. Meanwhile, it has to overcome a classic innovator’s dilemma in embracing AI, while it upends the traditional search architecture and revenue model.
The Art of Yield Optimization
Beyond the above examples – non-AI companies that integrate AI in various ways – there are the AI pure plays. OpenAI will see a combination of users paying for premium app features, as well as B2B2C revenue. The latter equips brands with APIs to build customer-facing AI agents and interfaces.
On the premium app front, ChatGPT has been a large-scale experiment in what the market will bear. Its pricing tiers so far have been largely replicated by others. For example, its $20 Plus tier is not coincidentally the same as recent premium-tier entrants such as Adobe and Amazon, noted above.
And at the higher end, Perplexity just launched a premium tier that mirrors ChatGPT’s $200 Pro tier. Known as Perplexity Max, it offers unlimited access to its experimental language models, its spreadsheet and report generation tool, and its new Comet AI-powered browser (a separate article… stay tuned).
Perplexity’s move follows other premium tiers at similar price points from Google, Anthropic, and Cursor. That either means that there’s something to this price point in the art of yield optimization; or they’re simply copying ChatGPT while planning to feel out the market and course-correct from there.
Either way, we will likely see variance in the going rate for various tiers of AI services, as well as feature-based competition. As things heat up, there could be downward pricing pressure – unless of course demand grows faster than supply and the market doesn’t become saturated anytime soon.
