Generative AI has the potential to make work easier by handling tasks like drafting emails and summarizing meetings. However, figuring out the right price for businesses to use these tools poses a challenge for software vendors.
Craig Roth, a research vice president at Gartner, explains, “This is untested technology, both in terms of what it can do and how you can monetize it. What you see is vendors experimenting: they’re trying to balance actually making revenue off of this with trying to negotiate some market positioning and competitive advantage.”
Since the launch of OpenAI’s ChatGPT, significant language models (LLMs) have been integrated into various software tools, especially in collaboration and productivity apps. These models offer features such as automated note-taking in meetings, summarizing text chat and email transcripts, generating email drafts, advanced document search, and even creating images for presentation slides.
Various pricing strategies have emerged for accessing these features, with some vendors choosing premium prices while others go for lower costs to encourage adoption among business customers.
While it’s common for software vendors to have different pricing levels for similar services to compete for market share and profitability, the unique nature of generative AI presents specific challenges. There’s the cost of computing to process user queries and uncertainties about how quickly this cost may decrease. Additionally, the value these tools bring to customers and how much organizations are willing to pay are essential considerations.
Determining a specific dollar value involves navigating through these uncertainties. Currently, vendors and customers are in a process of figuring out the appropriate price point, creating a dynamic situation, according to Roth.
Who’s charging what for genAI features?
One year after the introduction of ChatGPT 3.5, many office software vendors have either implemented or announced plans to integrate generative AI features into their products. Notion was among the early adopters, offering its genAI features in February for an extra $10 per user per month. Since then, different genAI tools for office applications have emerged, each with its unique approach to pricing and accessibility.
In certain instances, an extra fee is applied. Microsoft, for instance, introduced Copilot for Microsoft 365 to its larger customers in November, with a stated cost of $30 per user per month in addition to E3 and E5 subscriptions (with a minimum purchase of 300 seats). This grants users access to Copilot features in various office applications like Word, Outlook, and Teams. The pricing details for smaller businesses are still pending, as there is an ongoing early access program for SMBs.
Microsoft also offers a more affordable choice for using some AI assistance: the Teams Premium plan, priced at $7 per user per month, gives users access to certain generative AI features based on OpenAI’s ChatGPT models — like summarizing meeting conversations and generating notes.
Google, another major provider of office applications, introduced Duet AI for Workspace in August, featuring genAI capabilities in apps such as Gmail, Sheets, and Docs. Access to these features comes as an add-on to paid Workspace accounts, costing $30 per user per month, as per a Google spokesperson. However, this pricing information is not clearly displayed on Google’s website at the moment. Instead, customers are directed to a 30-day free trial, according to the spokesperson.
Many believe that these prices can be negotiated for both Microsoft and Google, especially for large customers. Some other vendors are offering generative AI features at no additional charge to their paid customers.
Zoom’s AI Companion offers various generative AI features across its product range, expanding beyond its initial video meeting software focus. Besides interacting with the AI Companion during video calls, such as asking for action items, the AI assistant can also create email drafts, draft text chat messages, and generate content for Zoom’s digital whiteboard app. According to Zoom’s CEO Eric Yuan, over 220,000 customer accounts have enabled the AI assistant, as mentioned in the company’s recent financial results.
Other companies in the collaboration and productivity sector, like Cisco with its Webex AI Assistant and the all-in-one workplace app vendor Coda, have also adopted a similar pricing approach. Another alternative is to offer access to genAI tools based on a credit system.
Box has chosen this approach for its genAI offering, Box AI, which is currently in beta. With this method, customers on Box’s paid Enterprise Plus tier can use a certain number of queries at no extra cost, with a limit of 20 queries per user each month. An additional 2,000 queries are also provided at the company level. According to a TechCrunch report in October, customers exceeding this limit will have the option to purchase “additional blocks of AI credits.” Unfortunately, Box did not respond to Computerworld’s request for details on Box AI pricing and usage. Other vendors, such as Slack, are still testing genAI features in private preview and plan to make them more widely available next year.
Finding the right balance
Offering generative AI features at no additional cost provides clear competitive advantages and is good news for customers. However, it remains unclear how vendors adopting this approach will balance lower prices with their own operational costs. For instance, Microsoft’s GitHub Copilot is reported to have operated at a loss, averaging $20 per user each month, with some power users costing Microsoft $80 each month, as per a Wall Street Journal report in October.
“GenAI is quite expensive to offer,” said Gartner’s Roth. “It costs a lot of money: whether you license one of the big large language models or try to create your own, there’s a lot of processing power involved.”
Even if offering generative AI assistants for free helps vendors gain market share in the short term, they might face challenges if customer usage increases substantially. Those currently providing genAI assistants at no cost may eventually transition to a tiered or usage-based model, according to Irwin Lazar, president and principal analyst at Metrigy.
On the other hand, determining the right pricing can be tricky, as some customers might hesitate to invest significant amounts in a new technology that is still emerging in the market.
“The customer side, the value part of it has been really vague,” said Roth. “Exactly what am I getting out of this? If you’re just using it to improve your productivity to convert paragraphs into bullets or start your emails for you, it feels great, but exactly what is the value that you’re getting out of it? Can you put a dollar amount on it?”
Many businesses are likely to approach investing in genAI features cautiously during the early stages of availability, with cost being just one potential factor. Microsoft anticipates that revenue from Copilot for M365 will “grow gradually over time,” according to Microsoft CFO Amy Hood. Copilot will follow typical enterprise adoption cycles, as mentioned by CEO Satya Nadella during the Q1 2024 earnings call.
“Right now, our research shows a high level of interest in genAI tools, but companies aren’t yet committed to paying for them until they better understand ROI,” said Lazar at Metrigy. “I expect that we’ll see limited adoption of Copilot [for Microsoft 365] and [Google Workspace] Duet in the next six to 12 months as companies conduct trials to see if there is actual identifiable ROI.”
How will this all play out?
Customers of major office app suites can expect to pay a premium for genAI features for the next one to two years or possibly longer. This strategy helps vendors like Microsoft and Google manage costs while gradually enhancing the program’s quality based on a limited but functional user base. Gartner’s Roth estimates that premium prices may persist for at least six months, potentially a year, before gradually decreasing. This is attributed to the expected improvement in the affordability and efficiency of underlying technologies, especially the high-end chips powering LLMs.
GenAI is expected to become a standard feature in most productivity and collaboration software packages in the next few years. According to Gold, in about three years, genAI will be considered an “integrated capability” in productivity suites, seen as a standard function rather than an optional add-on. The costs associated with providing genAI features will likely be incorporated through price increases to core products. However, in the short term, there are ways to access genAI without significant investment. For example, a version of Microsoft’s Copilot is available in the Edge browser, offering generative capabilities even though it’s not fully integrated with Microsoft 365 apps like Word and PowerPoint.
Additionally, there are AI writing assistant tools that offer some genAI features for free. However, businesses should be cautious about where their data is stored and processed. Roth mentioned, “There are alternatives, especially if you’re not using it extensively. So, there is competition for those who sell genAI features at a premium. In many cases, you don’t have to rely on the genAI integrated into the productivity suite.”
