 Hey, welcome back everybody. Jeff Frick here with theCUBE's 2018 and new year. I think this is actually my first interview of the year. I'm pretty excited to have a CUBE conversation here in the Palo Alto studios to talk about a pretty interesting topic. It's been growing over time, but it's getting more and more sophisticated in a much bigger region. That's dynamic pricing, right? It's not just stick the sticker on the item like it used to be back in the day and that's the price. And it's a much more complicated, much more sophisticated. And we're excited to have Alex Shartsis. He's the CEO of Perfect Price. Alex, good to see you. Thanks for having me. So dynamic pricing, right? We've saw it, I guess probably the airlines are maybe the first ones to do it or you know, priceline.com was kind of the first one to talk about, you know, hotels have rooms that they can't get rid of, but it's moved a lot further down the path than that. I mean, now even the Giants, I think have flex pricing, whether it's the Dodgers on a Friday night or it's Toronto on a Tuesday. Yeah, I mean, I think it's kind of just a really interesting subject because everybody's experienced it, right? I mean, you may not know you've experienced it, but everybody, whether you've taken an Uber or taken a flight, stayed in a hotel, even at this point, gone to an A's game or Giants game, you've been dynamically priced. And I think what people don't realize is a lot of times they benefit from it. You're able to get that flight for a little bit less, you're able to get the Uber for a little bit less, especially than a taxi. And yeah, sometimes there's surge pricing, there's last minute fares, there's things that are more expensive, but it's something that every consumer has dealt with. And I think a lot of us think about pricing from a consumer standpoint, because we're all consumers, but from a business standpoint, there's nothing more impactful than dynamic pricing. Yeah, and pricing in and of itself is such a complicated issue. And you go through some of the stuff in your website, you know, are you coming at it from a cost point of view? Is it a cost plus kind of a model? Or is it a value model? So there's a lot of factors, right? There is no kind of perfect price. You don't want a price at the top of the market, you know, then you're giving up some volume. So what are some of the factors when you talk to people as the pricing evolution is happening, from kind of what they used to do to what they're trying to do now with dynamic pricing and how you can help them? Yeah, so I think if you think about sort of pricing evolving from, the cost plus was kind of the beginning. Like I bought the potato from the farmer for five bucks a pound and I'm going to sell it for 10 bucks a pound. And that covers my cost of shipping it and having a stall at the bazaar, whatever. I think, you know, today, a lot of companies still do that, which still shocks me. But there's, you know, it became this sort of in the middle of last century, which is kind of weird to say value-based pricing became a thing. So it wasn't that I would sell them for 10 bucks a pound because it's just double what I paid for them. It's people are willing to pay 10 bucks a pound. And if I try and sell them for 12, nobody buys them or a lot fewer people buy them. And if I sell them for seven, I run out and could have made a lot more money. So what value-based pricing was is really like, what is my customer willing to pay? And the bazaar was a great place. You'd have a conversation. You know, Alex, how much do you really need this potato? How much do you really want this thing? Oh, you're wearing a nice suit. Think I'm going to charge you more for this. And that obviously went away when the department store was invented and people would walk around and see a tag on the item. And so what we do and what I think our customers are really benefiting from is this notion of really accurately figuring out with that, not only the value the customer is getting, but also factoring in all the other business related costs and fixed costs and things like that, that should or should not be part of that equation so that the company can sometimes sell maybe at a loss on that one unit. But you know, in the case of a travel business like an airline or a hotel, loss is a very subjective thing. And you're able to make money by lowering the price for a certain segment or for a certain time or for certain origin destination, whatever that combination is, and increase your overall profitability by doing so. Plus bring in some customers that wouldn't have been able to buy from you before. So that's an interesting point of view, right? Because always, you know, kind of what are you optimizing for? Are you optimizing for the single transaction or are you optimizing for the bucket of transactions? And then that can get you to very different places. So as, have you seen it kind of evolve? What are some of the key factors that tell one of your customers you've got a great opportunity to increase profitability, increase revenue, increase client satisfaction. Again, what are you measuring? What are you optimizing for by incorporating a dynamic pricing? And then how do they get started? Right, good questions. So we went into this thinking, you know, there are a lot of businesses that are stuck in, you know, cost plus pricing and they would benefit the most from dynamic pricing or from using AI to price things because they're doing such a bad job of it today. And it turns out they like doing a bad job of it for whatever reason and we have, I've not been successful at convincing them that maybe there's a better way to do it. But the companies that already have a lot of people and a lot of invested in pricing in some fashion, some companies call it revenue management. Those companies are the ones that really benefit. And the reason is they've already seen an impact. So one of the key things for us is has you, one of the first questions we ask people is why are we talking about pricing? Did you do something? Did something change in your business that you noticed that had an impact? And every one of our customers has been able to say yes to that they, somebody made a mistake and they changed their price and they saw a huge swing in their business and they realized, oh, maybe we should think about it this time. It's usually some kind of a mistake that undercuts it. Not usually, but it's, I mean, more than once it's happened. You know, another part, and sometimes it's like, oh, we should use software here and not let people fat finger things in. But for the more sophisticated companies, they've already seen, you know, they've been, some of the companies we work with have had pricing teams since the 70s. And so they have constantly improving and they see using AI to do dynamic pricing is the next evolution. And they don't want to get left behind. They know it's core to their business. And just as enterprise software is moving to the cloud, machine learning people are starting to use or have been using the graphics core for a while. Like you can't ignore that trend if it's core to your business. So that's interesting. So we didn't really kind of talk about the impact of AI and surely AI or for intelligence to do a better job of optimization because as you said, if you've already invested in pricing, it's a complicated thing. There's so many factors. I mean, I love thinking about, you know, kind of Amazon and the Amazon pricing strategy or the vendors within Amazon even. And then how do you factor in convenience? How do you factor in prime? I mean, there's other, these other things that have absolutely nothing to do with the physical price that can enable you to, as you said, you know, get more revenue, get more profitability in these factors. So now we have AI, we have these crazy big machines. We have cloud computing and big data. Huge disruptor to this marketplace and a really new opportunity to bring a lot more power to bear out of magic. Yeah, I mean, I think, so Amazon's a great example because people have really experienced dynamic pricing with Amazon just because you put something in your cart the next day it changes by five cents. And Amazon's dynamic pricing is really interesting because Bezos is very vocal about being consumer centric. And so they're looking at what the market's doing and what things are priced elsewhere. And they're always trying to be competitive and give you value because they recognize, you said earlier, you know, is it what are you trying to optimize for? Is it revenue, is it profit? There are other things you can optimize for that actually improve both of those numbers like how frequently you come back to that as a customer. If I'm Amazon, do I go to Amazon or do I look at Target or Walmart first? That is a huge impact in Amazon's profitability. Beyond, I mean, and you may do that because of price that one time or over your experience with Amazon as a retailer. But so I think what's interesting about AI is that it enables us to go just like the ad industry did went from having a lot of humans trying to solve a problem that really wasn't solvable by humans. So taking a lot of shortcuts, doing what they could, it actually solves the problem. So if you think about the ad industry, you might, if you're spending $10 million on ads, which I'm sure some of your listeners would be, and you're running a campaign, you probably have an agency, they probably have 10 people managing your campaign. They're looking at where the 30 or 40 creatives, the thousand publishers it's running on, they're pretty soon the numbers get big. I'm not going to do it right now on camera, but you multiply it out and you're talking about millions. And they're all multivariate, right? So there's all the different different spaces. Is the purple creative doing well on the female focused websites for 20 to 30, but not for 40, 50, and at some point you can't keep track of all the permutations. And one of the fun, one of the weird twists I learned working in that industry is that when you get down to actually people to click and convert, that's a very small number. So you might have millions or tens of millions of impressions, but you might only have a thousand or 2,000 customers that ended up out of it. So you're trying to back out, okay, well that was a customer. Where did they start? And that becomes a very, very thin line to draw. And 10 years ago, that was all people. Everybody, you know, you had an agency who had literally thousands of people that would traffic those campaigns. And today 78% of those campaigns, 78% of those ads are served by AI. Those decisions aren't made by humans anymore. And I think if you think about dynamic pricing for businesses that are very large and have really complex businesses, like, you know, rental car companies, hotels, airlines, transportation, trucking, where you're dealing with thousands of different factors, why would you trust that to people if you don't have to? Yeah, as long as you have the data, right? And this investigation is pretty interesting. You guys have a better appeal to people that already understand the value of dynamic pricing, which you're really offering them is a new way to do it. And the AI-based way to do it, a cloud-based way to do it. Yeah, the one place where we found a lot of interest that hasn't been, that haven't had sophisticated solutions in the past are companies that don't have a lot of direct competition. And because a lot of, at least in travel, a huge part of the revenue management function is what are the Joneses doing, right? If I'm a Hilton, like, what's the Marriott around the corner, rent it, you know, selling their rooms for. And for better or for worse, I think there's a place for it, but I don't think it's quite the same place. It's just easy for a human to go to your boss and say, well, boss, the Marriott around the corner is at $250 a night, so we're at $260 because I think our rooms are nicer, right? And yet in your data is actually the optimal price. Like if you look at your data, you can actually get to that price. Maybe you set some rules or you put some limits on the AI. So if the Marriott's at 300, you're not at 1,000. Maybe you should be, right? You should maybe think about that a little bit if that's what the AI is thinking. But people, if you don't have that crutch, if you don't have a direct competitor around the corner from you, then it becomes really hard. And that's why Uber started doing this in the first place because the new taxi pricing was wrong. But Travis and Ryan and the people who started Uber there, they key part of the value proposition was always being able to get a car. And so the only way you do that is basically by pricing people out of the market when you don't have enough cars. And then that one person who really like needs to go to the hospital or, you know, as a VC and needs to go to a New Year's party, whatever it is, like they can pay the $200 to get to that thing they really need to because there still is a car as opposed to not having a car. Right. So you bring up a whole nother kind of layer of complexity. And that's the third party providers. And it just fascinates me that every day it seems like there's a new Travago or Kayak or God knows how many, you know, other kind of secondary marketplaces there are. So how does that factor in when you not only you're worrying about your own pricing vis-a-vis your competition around the street or kind of your classic set of competitors, but now you've got this whole another layer of distribution that's kind of outside your direct control with a whole different type of a pricing structure I would imagine in terms of supporting. Right. And are you seeing that expand to other places or is travel such a unique thing because of the perishability of the assets? Yeah, I mean, so I think it will expand to other places. I mean, we think transportation in general, you know, also trucking and I mean, everything that that has these sort of high operating leverage models where you have a lot of vehicles or, you know, or distribution centers or things like, yeah, there's the more accurately you fit your pricing to demand the more money you'll make the better run your business will be the more time it'll save. It has a lot of implications. You know, I think one of the things that's really interesting about, you know, the different channels is traditionally they have played a role, you know, you think about like Nordstrom Rack or TJ Maxx or price line, right? Hotwire, right? You as the Hilton don't want to, you know, ruin your brand by renting your rooms for 50 bucks a night, even though, you know, they're going to be empty. So you give them to Hotwire or you give them to price line. That's I think always going to play a role. A lot of these other places are drawing from the same inventory. So it's just, you know, yet another front door for you as a hotel or an airline or a rental car company to get business from. What's interesting is because of software but because of legal agreements and also because of software, there isn't a lot of variation in price even though every travel site says, you know, cheapest prices or best price guarantee or whatever, like they're all getting their pricing data from the same place. It is the same price. And so it's sort of, you know, unless it is remnant inventory unless it is, you know, Hotwire where it's opaque or you don't know what you're getting. If you're renting, if you're getting a room at a Hilton, you can be pretty positive that wherever you book that room at a Hilton it's going to be the same price. Right, right. So it's just pure marketing when they're trying to compete because ultimately the system kicks out what that third party available price is or is that even dynamic? Well, if you think about, you know, if I've worked in the travel industry for a while so I don't want to share things that I shouldn't share but if you just think about if you were the company that powered all of these different sites and had your own big consumer-facing website would you be okay if Hilton could rent its rooms for 50 or 100 bucks less on its website than it lets you rent them for? Probably not. Probably not. So, so, so before we run out of time, I mean, so kind of what are the key, the key kind of attributes of the business that really lend itself to having an opportunity to increase profitability and revenue with dynamic pricing? So the biggest one is that you've seen you've had some experience, it can be however trivial and you've seen an impact that, you know, pricing did impact your business. Second one is having a significant number of things that you sell. You know, so if you're ring and you sell doorbells and you have one product, you know, dynamically pricing that product is going to cause a lot more problems than it solves. But if you're a rental car company and have thousands of cars or a telecompany with thousands of rooms, anything where there's either a lot of variation over a small number of products or a large number of products with a lot of variation. And finally, you know, to us, it seems like there's just, there's this, you're already a data-focused company. Other people have written about this, but like you know that there's value in your data. You haven't figured out how to get it out of there yet or maybe you're doing some things with it. But you are committed to running your business more efficiently. That just, I guess the marketers would call it a psychographic profile, but that kind of attitude, you know, not being content with, hey, we've done this for 40 years this way and it's worked great, but really wanting to leverage your data and knowing that there is enough data there. Those are the three things that really give us this signal that there's a difference. And we don't worry about price protection, I guess. Nobody goes back once they buy their item. They're like, yeah, this is what I want. It's a cognitive dissonance. It's perfect. So, and I just wondered too, what industries are people not thinking about maybe that you're starting to see get more involved in dynamic pricing? I mean, obviously we know travel and those types of, you've mentioned cars a number of times, we've talked about kind of some of the crazy stuff that goes on on Amazon, but is there some other kind of, you know, ones that people might never think about? I mean, I think the two big ones are the transportation, trucking industry. Just, you know, there's a ton of permutations there and not, they kind of got left out of Web 1.0 and so I think there's just a lot to be done there. The other one is event ticketing. You mentioned the A's and the Giants, but they're kind of the exceptions. I think, you know, there's a lot of ink has been spilled over price gouging and scalpers and things like that. And I think if that industry took a hard look at pricing their products more effectively, they would, everybody would be better off consumers and the promoters and the venues themselves. Yes, in the Bob Lester's letter, he likes to talk a lot about the concert industry. All right, well, Alex Chartz is CEO of Perfect Price. Thanks for taking a few minutes out of your day and sharing the story. Thank you. All right, he's Alex. I'm Jeff. You're watching theCUBE from our Palo Alto studios. Happy New Year, everybody. See you next time.