So what does AI revenue mean?

Let me reiterate. Before that, here is a quote - 

"Not everything needs to be said. The silences, the words that aren't spoken, lead us to the questions we should be asking." — David Powning

• AI will create massive value as it will sit on existing internet, cloud, IOT, data, infrastructure, etc. So its pace of distribution is expedited; something we have never seen before. This distribution will get converted into revenue; no doubt.  

• In the coming years, AI will create efficiency gains in most of the sectors and roles … 😀 

• AI revenue gains are showing up in pocketed use cases such as IT development. However, they are consolidated to a handful of players.

So what isn’t spoken as per David’s quote?

Until now, Saas products were tagged as tools. This line item (tools) in the enterprise budget is not that big and got resistance to grow internally as well. Hence, in my observation the tool companies competed with each other and the TAM kind of never expanded for years. 

However, now with the advent of AI on top of saas, the pitch became that these AI tools will help enterprises become efficient or grow revenue. 

What AI revenue is/ may not?

In simple terms, for enterprises efficiency can come in many ways. Two popular ways are making existing people efficient in their tasks, getting the tasks done with less team members and in some cases, reducing the staff and still efficiently continuing existing business and growing revenue. Did not mean to hurt feelings … 🙋

Then I started thinking, in this approach, AI tools can claim some of the budget assigned to humans and/ or services. Service line items are one of the biggest for many enterprises. When I say AI tools, then I am referring to AI tools following the Saas (recurring revenue) as a business model. With AI, enterprises are now considering re-budget according to this. In this way, the existing Saas system of record TAM/ budget line items will remain as is and AI tools will be tagged to the people budget line items. This will increase the Sass TAM (Total Addressable Market) many fold. 

AI tools can follow seat based, consumption based, outcome based, fixed + variable or similar pricing model on top of the business model. Different industries and customers have carved variations of these and made them successful for their use cases … 👍 

So what does AI revenue mean?

Before I answer this question, I want to mention that revenue is revenue. Let's keep revenue, revenue multiple for the next 5 years, stock price, liquidity, macro picture, sentiment and many other variables aside. 

Revenue is revenue. 

AI revenue = customers paying for your AI.

Example - you launch burger (analogy for AI product) which was not there.

So Burger MRR (with assumptions) = burgers sold per month x price of each burger.

Burger revenue can grow by higher % because it is burger (AI). But still burger revenue is burger revenue and rest is non-burger/ other products revenue. I hope point noted.

A couple of months back I have written about what is an AI company? And now here is what does AI revenue mean?

So if you are an established enterprise and adding revenue, some of it may be tagged as AI revenue. I am saying maybe assuming AI tools are being used for optimisation, revenue generation. Here are some of the examples in revenue generation - 

• A saas tool has an agentic AI product which is upsold to its existing customer base and it is adding 15% to your existing ACV (annual contract value). 

• You have proprietary data from your decade plus business and you put a model on top of it. Now, whoever of your customers need data access, insights; you are charging them for tokens. 

• You have a platform and you launched a new AI add-on for anomaly detection. This is helping your Fintech customers find anomalies in data and take appropriate action on it. The cost of one anomaly turning into a real issue (risk) is very high. The customers will be paying for risk mitigation … 👏 

Similar examples you can think of. 

Lets not confuse AI revenue with AI for revenue generation. Above are examples of AI revenue. Examples of AI for revenue generation are here - 

• AI tools which help you prioritise sales pipeline. 

• AI tool which can generate/ write proposals for customers based on existing proposals. 

• You are blasting your pipeline with personalised messages, targeted campaigns and finding additional opportunities to focus on. 

Hope you get the point. It is hard to imagine Uber/ ride hailing platforms when location sharing, tracking as a technology was launched. In hindsight, the entire Uber as a company is standing on location sharing, tracking. In my point of view, AI revenue is also similar. As we go on, in the next couple of years, many frontiers will open and those will be the new revenue opportunities … 💰 

Here is another interesting angle. What is AI competing with? I get it Sir. You are correct - “competition is for losers”. Please, please allow me to complete. Do you think AI is competing with Us, people, our money, tasks we do, currency, our work, way of getting things done, collaboration, physical things, or all of the above? Example - how many of you believe that Cricket competes with Bollywood? Or does the NBA compete with Hollywood? Real estate definitely competes with gold; everyone agrees. 

Understanding where AI is competing, where it is strong, where input from people is key, how it can join hands with humans, what it can automate and so on will help all of us find more revenue opportunities … 🏆

I am sure you learned something today. 

PS - see the text on the picture. AI journey won't be easy for sure; but it's a decade plus opportunity. Refer to David's quote mentioned above - not everything needs to be said.