Once upon a time, few companies needed metering or usage-based billing. This is changing, and fast, as the world shifts toward ever more granular pricing based on consumption. As FirstMark investor Matt Turck expresses it, “The problem is only getting worse as the software industry transitions from subscription-based to consumption-based revenue models. What started as a trickle is becoming mainstream.” First it was the software-as-a-service companies, followed by fintech companies, and now artificial intelligence companies such as Mistral; they all need the same sort of billing infrastructure that powers infrastructure companies like AWS. Sounds simple, right? It’s not. Complexity skyrockets once you need to correctly track the usage of billions of monthly events.
Lago, which recently announced a $22 million Series A financing round, solves this by enabling companies to track millions or billions of rows of usage and convert that into proper usage and pricing, all in real time. Other companies, such as Stripe, have created proprietary, cloud-based billing solutions. However, as Lago Cofounder Raffi Sarkissian says in an interview, billing and metering are now essential infrastructure, which means they are ultimately a developer problem to solve. And that means billing and metering are ripe for open source. As Sarkissian notes, even Lago’s big customers like Mistral tend to get started with developers using Lago’s open source repository, “playing with it, and finding it’s good.”
This balance between open source and cloud is one thing that makes Lago so interesting, as well as being representative of a larger trend of open source as business.
Spend money, save time
Many years ago, then MySQL CEO Marten Mickos suggested that developers spend time in order to save money (by building rather than buying software), and companies often spend money to save time. If used well, open source can give both camps what they want, with just enough “buy” to satisfy companies that need to move fast, and just enough “build” to give developers control over the technical outcome. As Sarkissian expresses it, the more companies need usage-based metering and billing, the more traditional vendors like Stripe or Chartbee are “not good enough” because they don’t enable the fine-tuning that open source affords. When developers “end up building [solutions] themselves,” it consumes “a lot of resources internally.”
Lago’s business depends on enough companies trying to save time by spending money on its self-managed or cloud-based premium offering rather than its free tier. But open source is also critical, precisely because Lago’s metering and billing solution is infrastructure, and the fastest path to giving developers confidence in infrastructure is to open it up. As Sarkissian stresses, “Open source [comes] first” because developers want “to control the data [they’re] sending,” see inside the engine (to give them more comfort), and “connect that internally with all the tools [they] have.” Open source is all about trust and control, but Lago’s cloud offering allows companies to give up some of that control on their own terms, once they trust the code.
Open source also makes it possible for developers to contribute modifications that make Lago more useful for themselves, while sharing the burden of maintaining those modifications. Lago sees three categories of contributions, Sarkissian notes: integrations into other systems, usage tracking changes, and pricing models. Lago is focused on creating a solid foundation upon which others can build. For Sarkissian, open source is not about being cheaper. It’s about giving developers and enterprises the control to manage complex pricing. Lago investor Turck agrees, suggesting that open source for Lago “enables a level of extensibility and composability that is uniquely suited to edge cases.”
If billing still sounds like it’s really the responsibility of MBA business types, similar to what we see for CRM or ERP systems, it’s not. “The first people to feel pain when it comes to billing are the engineers,” says Sarkissian. Finance and business teams tend to follow the engineers’ guidance.
Competing against roll-your-own
Ultimately, Lago’s biggest challenger isn’t a company like Stripe. It’s “roll your own.” “The [primary] competitor we face is homegrown and homemade billing,” Sarkissian says. Because complex pricing systems are infrastructure, many development teams try to fix the problem themselves. Metering and billing starts with one or two engineers but soon requires dozens or even hundreds of engineers working exclusively on billing. With a solution like Lago, these companies can “shift their resources” away from billing and back to their core business needs.
Importantly, though, it’s not just about Lago’s product. It’s about how they make that product available, as mentioned above. “You create trust [through] open source by being transparent,” Sarkissian stresses. It all starts with open source.
For Lago, open source means the Affero GPL (AGPL) license, which gives developers freedom to build with Lago, but effectively prevents competitors from taking the code without contributing back. It encourages contributions from developers and gives them flexibility while protecting against free-riding competitors. This sounds like smart development—and smart business.