When Software Becomes the Customer, You Pay by the Transaction, Not the Seat
Businesses used to buy software for employees to click through. Now programs buy other programs, and the bill follows the activity.
Invest Like the Best with Patrick O'Shaughnessy · Eric Vishria – The Past, Present, and Future of SaaS and Software - [Invest Like the Best, EP.183]Think of a salesperson starting the day in Salesforce. A person stares at a screen, types in customer notes, and clicks to run a report. The buyer pays per employee who uses it, like chairs priced by how many people sit in them.
Eric Vishria, an investor in several of these API companies, says a new generation of companies flips that. At Stripe, the payments company, or Twilio, the messaging company, or others like Contentful, Commerce Layer, Modern Treasury, and Duffel, the customer is often not a person at all. It is another piece of software.
The connector is something called an API, which stands for Application Programming Interface. It is simply the way one program talks to another program, without a screen in between. Vishria likens it to Lego bricks, ready made blocks of code a business can snap together to build something larger.
Consider a loan application. Forty years ago, a borrower sat with a loan officer, handed over documents, and waited weeks while people assembled files and a committee decided. Then companies started using software to help, with electronic forms and digital signatures. Where things are heading, Vishria says, is businesses moving toward being encoded in software, a phrase he credits to Jay Kreps, the founder of Confluent.
In that encoded version, a customer clicks a button and supplies basic information. Software then calls the bank, calls the mortgage company, pulls the records together, analyzes them, and returns a decision in real time, much as happens today with credit cards.
When the user changes, the price has to change. Older software companies such as Salesforce and ServiceNow charged per seat, meaning per person using the system. API companies charge based on transactions or volume. That pricing is "exactly consistent with who the user of the software is," as Vishria puts it.
Questions people ask
What exactly is an API in everyday terms?
An API is a set of rules that lets one program ask another program to do something, like charge a card or look up an address, and get a predictable answer back. Developers paste a small snippet of code into their own app, and that snippet quietly handles the complicated work behind the scenes.
Does this mean the normal apps and websites we use will disappear?
No. Screens and buttons are still useful when a person needs to see or decide something. APIs matter most for the repetitive, machine to machine work in between, where having a human retype information would only slow things down.
Is paying per transaction more expensive for customers than paying per seat?
It can be cheaper to start because there is no large upfront license, and costs rise only as usage rises. For very high volume customers, vendors often offer tiered rates where the price per transaction falls as volume grows, much like wholesale discounts.