Snowflake CEO says monster quarter shows why software firms need new pricing models to thrive in AI age

Sridhar Ramaswamy sees big software players starting to separate the AI ​​winners from the losers. As of now, cloud storage company Snowflake, where Ramaswamy is the managing director, is on the rise.

Ramaswamy had a terrific performance in the first quarter of Snowflake and has been a success overall this week. The results helped its shares soar 36%, pushing five-day gains to more than 50%. Shares rose after the 14-year-old company said it would do so Will pay $6 billion to Amazon Reflecting the strong demand Snowflake is seeing for its services, the tech giant’s popular Graviton chips are expected to remain in demand for the next five years.

Positive results for Snowflake were much needed following the stock crash that destroyed many software-as-a-service businesses due to investors’ fears that artificial intelligence would replace traditional software vendors. Snowflake is among a group of companies that have established themselves after launching major AI initiatives that combine agency technology with the data the company processes. Ramaswamy said the strong Q1 results (revenue up 33% year over year, the fastest increase in two years) validated the company’s long-held consumption-based pricing model and showed that traditional software can transition to AI computing.

“It is important to understand that not all software companies are the same,” Ramaswamy said. Luck It’s Friday, days before Snowflake hosts its tech summit in San Francisco.

Ramaswamy said Snowflake’s difference is that it prices its products based on consumption from the start. “We only realize revenue when the customer actually uses Snowflake’s capabilities,” he said. “To make money, we must show value.”

Software pricing has been among the top issues vendors like Snowflake have had to address since the advent of agency AI, which has put pressure on the industry’s traditional enterprise seat-based pricing model. Ramaswamy predicted that companies dependent on seat-based revenue will struggle to justify their bonuses as employees use AI to accomplish enormous amounts of work.

Ramaswamy became Snowflake’s chief executive in 2024, just as the AI ​​boom was taking place. Snowflake’s bet was that the underlying “infrastructure layer” that supports and operates user-facing products, along with its consumption model, would position the company well for the long term.

About two and a half years ago Snowflake started A broad effort to embed artificial intelligence into its platform. He eventually developed Cortex Code, a coding agent, and Snowflake Intelligence, a mediating application. In its latest earnings, it noted that Cortex Code is used in more than 7,100 accounts, and accounts using Snowflake Intelligence have more than doubled from the previous quarter.

Now the next step is what Ramaswamy calls the control plane, which he describes as a “business cockpit” where users orchestrate tasks across different applications rather than just querying data.

“I liken it to the new scanner,” Ramaswamy said of the control plane.

Snowflake relies heavily on Amazon Ramaswamy said they are doubling down on the cloud provider because of the quality of chip performance. Amazon is Snowflake’s largest partner and accounts for over 70% of how it runs its business.

Snowflake and other major software vendors are going to great lengths to prove their long-term sustainability in the age of AI. sales force Chief Executive Officer Marc Benioff He said this on Wednesday The company “gained record levels for our investors” Reference is made to $25 billion, the largest ever accelerated share buyback in a quarter; This comes as the company has shown some positive results for its AI product, Agentforce, but is still looking for more growth to tempt investors.

While Salesforce and others try to allay fears from the so-called SaaSpocalypseFor the most established players, this sentiment has become more positive over time.

Like Benioff, Ramaswamy remains optimistic even as large labs like Anthropic are testing highly autonomous systems. startup’s much-hyped Mythos model. Ramaswamy declined to say whether Snowflake had early access to Mythos, but argued that responsible companies should be able to leverage such powerful technologies to create and run automated security scans on the software they ship.

“You need to figure out how to leverage the awesome power of these coding agents and operate them responsibly,” he said. “I’m also very paranoid about making sure I really know what he’s doing and that I give him permission.”

Ramaswamy also said he sees a shift from hundreds of different “off-the-shelf” SaaS applications to a future that may include far fewer large applications and more specialized, small-scale applications.

“There will be big apps that people will continue to buy, but there will definitely be consolidation,” he said.

This story first appeared on: Fortune.com