Snowflake CEO Sridhar Ramaswamy has issued pricing advice for software companies operating in the artificial intelligence (AI) era, emphasizing that they must demonstrate product value before expecting revenue generation. He argued that usage-based pricing models are better suited to the changing economics of AI than traditional subscription models.
Consumption-Based Pricing Strategy
Speaking after Snowflake reported stronger-than-expected first-quarter results, Ramaswamy highlighted that the company's consumption-based pricing has helped it navigate uncertainty as AI reshapes the software industry. "It's important to understand that all software companies are not the same. We recognize revenue only when a customer actually uses Snowflake's capabilities. We have to show value to make money," Ramaswamy told Fortune.
The Snowflake chief explained that the company has built its business around charging customers based on actual usage rather than fixed software seats. This model, he believes, aligns revenue generation with customer outcomes. His comments come as software companies grapple with the rise of agentic AI, which is increasing pressure on traditional enterprise software pricing models that charge per user or seat.
Challenges for Seat-Based Pricing
Ramaswamy predicted that companies heavily dependent on seat-based pricing could face challenges as AI tools enable employees to complete more work with fewer resources. The growing adoption of AI agents has prompted many software vendors to rethink their pricing strategies, with consumption-based and outcome-driven models gaining traction across the industry.
Snowflake's recent quarterly performance has strengthened confidence in its approach. The cloud data platform reported revenue growth of 33% year-over-year in the first quarter, its fastest pace in two years. The company also announced a commitment to spend $6 billion on Amazon's Graviton chips over the next five years, reflecting rising demand for its services.
AI Integration and Product Development
The results come at a time when several software-as-a-service companies have faced investor concerns that AI could disrupt traditional software businesses. Since taking over as CEO in 2024, Ramaswamy has overseen Snowflake's efforts to integrate AI capabilities across its platform. About two-and-a-half years ago, the company began a broader initiative to embed AI into its products, leading to the development of Cortex Code, an AI coding agent, and Snowflake Intelligence, an agentic application designed to help users work with data more effectively.
According to Snowflake, Cortex Code is now being used across more than 7,100 customer accounts, while the number of accounts using Snowflake Intelligence more than doubled quarter-over-quarter. Looking ahead, Ramaswamy said the company is focusing on what he describes as a "control plane," a central workspace where users can coordinate tasks across multiple applications rather than simply query data. He described it as a "cockpit of work" that could allow businesses to orchestrate workflows and AI-driven tasks from a single interface, reflecting the industry's broader shift toward agent-based software systems.
For Ramaswamy, the transition to AI is not only about developing new products but also about adopting pricing models that directly connect revenue to customer value. He believes this strategy will become increasingly important as AI changes how software is consumed.
