Software Spotlight

Michael Bernzweig (00:02.389)
Are you ready to unlock the secrets of B2B SaaS success? Tired of sifting through endless noise to find actionable insights that actually move the needle?

Welcome to Software Spotlight, your weekly deep dive into the transformative world of Software-as-a-Service. Your host is Michael Bernzweig, who in 1998 launched Software Oasis as one of the first platforms enabling businesses to download, license, and deploy software instantly across their networks with a single click. Today, Software Oasis has evolved into one of the leading communities where businesses find top tech consultants across the USA and Canada.

Each week, Michael sits down with industry titans, innovative leaders, and game-changing executives to bring you exclusive insights you won't find anywhere else. From emerging technologies to market trends, Software Spotlight delivers the strategic intelligence you need to accelerate your SaaS career and stay ahead of the curve.

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I'd like to welcome everyone to this week's edition of the Software Spotlight. I'm your host, Michael Bernzweig, founder of Software Oasis. And today we're actually joined by Lucas Lovell. He's the VP of product over at Paddle in England, and he's joining us live. So with that, Lucas, welcome to the Software Spotlight.

Lucas (00:25.39)
Thanks Michael, very happy to be here.

Michael Bernzweig (00:27.081)
Yeah, no, fantastic. And I can tell from some of the questions that came in ahead of the episode, there's a lot of interest from a lot of SaaS founders out there. So I want to make sure we get some of those in. But initially, for anyone that may not be familiar with either yourself or Paddle, if that's possible, if you could give us a little bit of your journey and a little bit of what's going on over there at Paddle and what the organization does.

Lucas (00:56.824)
Sure. Sounds good. Sounds good. So yeah, my journey into tech is quite interesting. I actually studied law at university and then was a little bit disinterested in the career path, is how I'd put it. I think I realized halfway through studying law that I didn't want to be a lawyer itself or practice as a lawyer and was thinking about where I wanted to spend my career.

Michael Bernzweig (01:11.873)
Sure.

Lucas (01:23.782)
And I had a bit of a keen interest in business and technology and out of law school decided to launch my own startup with a couple of friends, as lots of people do, and went about our business and found my way into SaaS that way. So we launched a SaaS company back in Adelaide, where I'm from in Australia. And that was a multilingual customer support automation platform that we sold to travel companies.

We raised a bit of money through some investors. We relocated that company to Paris in France, which was super exciting for us in our mid-twenties, going out and seeing the world, joining a couple of acceleration programs over in France, and then ultimately trying to grow the company in France. For us, there was a big pull to Europe because of the market size. Our customers were...

Michael Bernzweig (02:16.385)
Sure.

Lucas (02:19.186)
mid-sized travel companies like small hotel chains and tourism operators. And there's obviously a very big market of them in Europe as one of the travel capitals of the world. So that was a really exciting move for us and quite fruitful. We managed to grow the company there quite successfully over a three to four year period. But ultimately found ourselves in a little bit of a pickle when the pandemic struck. We were pretty firmly

baked into the tourism space, the product was very integrated with other tourism products. And that was really our core ICP was selling to those types of tourism companies. So we were, so it was quite challenging. And it obviously, as you would expect, created some problems for us as a business.

Michael Bernzweig (02:57.493)
To say you were in the epicenter would be an understatement,

Lucas (03:12.11)
So at that point in time, you know, there's a, a lot of detail in the story, but I won't bore you with that. Um, we decided to, to, to pursue other things. And at that point I relocated from Paris over to London to join the product team at paddle, which is now four years ago to the day. Actually, um, I just found out that it's actually my paddleversary today as, as they call it. And it's been, it's been four years and it's been quite the journey. Um, so.

Michael Bernzweig (03:31.551)
That's what I was going to say, happy anniversary there.

Lucas (03:39.416)
When I joined the company four years ago, was probably about roughly a third the size of what it is today. We had, we just completed our series C funding round at that point in time. The company was around a hundred people in terms of head count and a much smaller product and engineering org, maybe 25, 30 folks. Versus what it is today, a company of 300 people, about a hundred in product and engineering.

Michael Bernzweig (03:46.069)
Okay.

Michael Bernzweig (04:01.195)
Sure.

Lucas (04:08.223)
and many, many ups and downs over the course of those three or four years, but it's a wonderful company and a business that is seeing a lot of success today. One of the biggest milestones that lots of people will probably know us for and definitely boosted our profile in the US, especially as a European company, was the acquisition of ProfiWell that we did in, I think it was April, May, 2022 is when that acquisition got announced.

Michael Bernzweig (04:36.681)
So that was just after you came aboard,

Lucas (04:39.534)
Yeah, about a year, a year and a bit after I came aboard.

Michael Bernzweig (04:42.497)
And that's notable because we're software Oasis is located just outside of Boston and I believe they were originally in this area as well.

Lucas (04:47.598)
There you go.

There you go. They were headquartered in Boston. So yeah, that was a big milestone for the company. That was also part of our Series D. So we announced a Series D and acquired Profit World. And since then, I've working on integrating the Profit World products into the paddle ecosystem, which we've done, and continuing to advance and innovate on top of our existing stack, which is a really cool piece of infrastructure for many software companies around the world.

To give you a very brief introduction on Paddle and what we do, we are a end-to-end billing and payments platform. We operate under a merchant of record model, which means that we take full liability for the transaction and take on the burden of sales tax compliance. We file and remit all of your sales tax on your behalf and help capture payments globally. People use Paddle to capture revenue all around the world to power all of their payments.

And we work very closely with customers of all sizes in the SaaS space to help them reach their ambitions of selling and growing a SaaS company successfully.

Michael Bernzweig (05:59.295)
which honestly is a game changer, especially for organizations that are globally dispersed and may not be familiar with the local rules, regulations, compliance, all of that. So you've been on my radar for a while from that perspective. I don't think at the time that Paddle launched as under that model is the merchant of record model.

I'm gonna say you were one of, if not the first, to really get your hands around that whole concept.

Lucas (06:33.71)
Yeah, I think we're definitely one of the earlier merchants of record. We've been in business for 12 or 13 years now. So it's been quite the journey. think what is probably most unique about us in terms of the category that we sit in is that we're a merchant of record for software companies. There are quite a number of merchants of record out there, some of which target more physical products. But Paddle is very much...

Michael Bernzweig (06:59.593)
Sure.

Lucas (07:02.284)
focused on software companies and helping, helping software companies operate and grow their businesses successfully. So yeah, the merchant record is really powerful as, you mentioned before, I mean, it, it, provides a ton of value to folks who are, who are looking to, to scale and go global quickly. we work with very ambitious founders who have global ambitions from day one, because what they don't want to do is, is, is let the complexity of scaling internationally become a headwind or a constraint on their business.

And the merchant of record model enables them to sort of, I guess, take all of that off their plate. So we do all that work for them so they can focus on their product and on growing their business. And sales tax is the classic use case and the classic example of where the merchant of record model really comes to life. So as I mentioned before, we calculate, file and remit all of the sales tax on behalf of our customers so that they don't have to worry about that in lots of jurisdictions around the world.

Michael Bernzweig (07:56.501)
You make that sound easy, but it's not so easy. I mean, as in a global economy and obviously with high volumes of transactions and many, many details that are unique to software as a service and digital products.

Lucas (08:16.174)
Yeah, exactly. Exactly. And there's lots of complexity out in the world. So we basically take on full liability for the transaction. we are compliant. We take on the compliance as well. So making sure that our customers are compliant with local laws and local rules is also a really key part of the proposition as well to support their growth internationally.

Michael Bernzweig (08:41.725)
So for SaaS founders that may be either not compliant or trying to hold all the pieces together on their own through a bunch of solutions band-aided together, what would life look like before and after for a lot of those merchants?

Lucas (09:02.86)
Yeah. So there are a couple of routes that you can go down. So if you think about paddle being an all-in-one offering, so it's a single integration, all-in-one offering, the alternative to paddle or where you might be in a world before using paddle could be through a direct integration with a PSP, such as Stripe. And what that means is then you have to then find a way to handle all of that other stuff alongside your implementation with Stripe.

Michael Bernzweig (09:29.237)
Ready.

Lucas (09:31.822)
So you might be bringing tools together like Avalara to use for using Avalara to calculate sales tax. And you might be using, you might be using ChargeBee or Rekirly to do subscription billing. You might also be using Stripe billing as well, but there are, there are a number of different products that you might be using in order to, in order to support the stack that you would get with a paddle all in one. And the way we sort of, the way, and you might be using Fraud, like Fraud tooling is another example. So all of that.

Michael Bernzweig (09:54.443)
shit.

Lucas (10:01.358)
comes out of the box with Paddle. So with Paddle, you're getting all of that in one single integration. So by integrating with Paddle, you get all of that stuff inside. So it's very much a piecemeal approach where you're coupling together a bunch of different tools to form the stack or an all-in-one approach which you're getting with Paddle.

Michael Bernzweig (10:24.255)
I love it. obviously the fraud management is a very important component, especially in the digital space. mean, you have all kinds of different organizations like Riskified and Signified and all of the others, you know, handling fraud for a lot of organizations, but it sounds like that's baked into the solution as well.

Lucas (10:36.483)
Mm-hmm.

Lucas (10:44.628)
That is baked into the solution as well. So we take the heavy lifting of integrating with a number of different fraud tools and building rigor and system around fraud management so our customers don't have to. So as you mentioned before, by plugging into Paddle, you're getting all of that inside the Paddle platform.

Michael Bernzweig (11:05.546)
So for a founder that may be either early in their journey or even later along, obviously the all-in-one capability is very attractive, but from a cost standpoint, is there a benefit from that end as well, not paying a portion of fees to a bunch of different vendors versus just having obviously one single transaction amount?

Lucas (11:16.749)
Mm-hmm.

Michael Bernzweig (11:34.475)
through paddle or is it not really a cost benefit?

Lucas (11:39.616)
No, I think you're spot on. I think there is a cost benefit. The way we think about the value that we provide our customers is very much we help them increase their revenue, we help them reduce their costs, and we help them reduce their risk. And the way we help them reduce their costs is by removing a lot of the operational burden that they have to take on in order to support a lot of the things that we do at Paddle for our customers.

So whilst paddle on a take rate level, by, we charge 5 % and 50 cents per transaction and like a direct PSP integration will be lower on a transaction basis for the payment. By the time you add all the other tooling into that, and by the time you also cater for some of the operational overhead of supporting things like sales tax in your finance org, for example, we have pretty high confidence that paddle comes out cheaper.

So on both the revenue access and the cost access, we feel that Paddle provides value to our customers, such as the net result is better for them in a product that is also helping reduce their risk exposure, which is especially relevant for SaaS companies who have global ambitions from day one and want to sort scale their companies internationally. So yeah, there definitely is a cost component when you look at what you get all in one with Paddle. And then when you assess that against the price or cost attached,

Michael Bernzweig (12:38.175)
Yeah.

Lucas (13:07.938)
to other tools in the stack plus some of the operational burden that you take on by not using a merchant record.

Michael Bernzweig (13:16.277)
Yeah. And I've always, you know, from my standpoint, in any of the companies I've run, always looked at, you know, if someone can do something better than we can, or more efficiently outsource it, if it's something only you can do, or you need to do internally, do it internally, you know? So I think, you know, and at the end of the day, I mean, I guess if you look at it in a similar fashion, you know, I think that all of the different components are

can be very distracting from focusing on your main core business and improving your product and listening to your customers and getting ahead of the competition in other areas versus getting bogged down in the whole payment space and getting sidetracked.

Lucas (14:04.694)
Yeah, exactly. So one of the things that we talk a lot about is the idea of helping companies maintain focus. The effort of a SaaS company should be going into their customers and their product. It shouldn't be going into their payment stack. They should be using payments as a growth lever to help them identify growth opportunities and support their ambitions, but they should be spending their resource building their product and serving their customers. And I think

that's where the merchant of record model becomes really attractive because it's not only about reducing costs, but it's also about creating focus in your organization where things like fraud and compliance and sales tax and having to create entities when you go into new markets and having to like think about different merchant accounts and currencies. Suddenly those things don't, you don't need to worry about that because you get it all in one in paddle. So it's really attractive.

Michael Bernzweig (14:57.809)
It's a lot of individuals. It's a lot of people. It's a lot of tech to hold together. So, you know, I know actually in one of the companies I ran was in the physical goods space, you know, payment methods were very important. You know, we had good credit, bad credit, no credit, know, digital wallets, non-digital wallets, traditional payments, you know, everything that was possible.

On the platform, are there a variety of different payment methods available for, you know, SaaS founders or is it very limited or?

Lucas (15:38.168)
Yep. No, we do have a variety of different payment methods. We have a big focus at the moment actually on expanding our payment method offering, but we already do have quite a few in there. So we handle most major payment methods in core markets like North America, Europe, Australia, et cetera. So credit cards, Apple Pay, Google Pay, Wallet payments, we support.

Michael Bernzweig (15:49.419)
Sure.

Michael Bernzweig (16:02.401)
Okay.

Lucas (16:04.024)
We support other payments like payment methods like Ideal in the Netherlands. We support bank contact. We support Alipay in China, Alipay recurring as well in China. We also support a range of South Korean payment methods too. And we are increasingly adding to our payment method offerings so that we can support our customers in more markets. And it's a big part of what we do, right? Because ultimately being able to offer a local payment method to a buyer in a core market,

greatly increases your likelihood of acquiring that particular buyer, especially if you're deploying a PLG model. So if you're enabling customers to self-serve through the buying experience and onto the product, which is quite typical of modern SaaS companies, you need to be presenting local payment method options and giving them the optionality to buy your product in a way that they want to buy it. I think, I mean, I often say this to...

Michael Bernzweig (16:39.137)
for sure.

Lucas (17:03.22)
software founders as well. don't want something in the buyer. If you have a high intent customer who wants to purchase your product, the last thing you want to do is not support that buying experience. And there are lots of ways or lots of things that you can do to put friction into that experience, such as not offering the right payment method in that particular market. Or another great example is not supporting the currency.

Michael Bernzweig (17:17.184)
Right.

Lucas (17:32.682)
of that market and not displaying pricing local currency. Not displaying pricing local currency sends a message to those buyers that you don't care about them, that that market isn't important to you. So all of these things will impact the number of customers who convert through that funnel. And your job is to enable as many buyers as possible to successfully purchase your product through that funnel. And all of these things have a pretty material impact on your conversion rates, things like currencies and payment methods.

to make sure you're putting your best foot forward.

Michael Bernzweig (18:05.299)
Now, if you were to look at the current customers of Paddle, when a SaaS founder comes to you initially, can you kind of break down where they're at? are there SaaS founders in a few different spaces where they might be thinking about Paddle? Or where are they at when they come aboard?

Lucas (18:30.968)
Yeah, great question. So we have quite a range of customers on paddle in terms of size. So if you broke it down by size, we have companies that launch on paddle. And we also have much larger companies that are on paddle as well. So companies in the multi-millions of dollars of MRR, for example, and some household names, which if you go to our website, you can go and see some of these names on our customer page as well.

Michael Bernzweig (18:52.416)
care.

Lucas (18:59.682)
I think there are a number of different options when exploring a merchant of record makes sense. The first thing I would say is that payments is core infrastructure, right? And it has a high switching cost. So it's not the sort of product that you're swapping out every year. Most of our customers come to us keen to invest in a long-term partnership, knowing that they're probably going to be with Paddle for a while.

which is great from Paddle's perspective because it means it's quite a sticky business. but it also means that part of our sales process is helping our customers make a decision to rip something out and replace it. That does require some sort of development work. And we're quite, we're quite good at supporting that. Like we have implementations teams that, that support that. and we've also built a product that we think minimizes the cost of, of, of ripping and replace, of ripping and replacing Paddle was pretty.

Michael Bernzweig (19:25.899)
Right.

Michael Bernzweig (19:38.315)
Sure.

Lucas (19:54.678)
straightforward and quick to implement, especially these days. We've made a lot of progress in the last few years, but we still know that there there is development work required on, on, on, on the, on their side to be able to implement and successfully set paddle up. So there are, there are usually catalysts when that, when that becomes important. So often if you, if you start on paddle, we typically see people start and stay on paddle for a, for a long time. The other, the other component or the other point

at a SaaS company's life cycle where they might consider a merchant of record is when they are starting to scale and grow internationally. So we see this particularly in the US when US customers are starting to think beyond the US. And that is quite an interesting point in a company's life cycle where they go, I want to go and expand into new markets, maybe in Europe or in APAC. And there's a lot of complexity there.

what can I do to sort of be successful? And maybe I'm going to explore a merchant of record that can sort of remove a lot of that operational burden, as I've mentioned. So that's another common catalyst for exploring a company like Paddle. The other one I think is raising money. So when companies go to raise a series A or a series B and they're bringing on investment, they might be thinking a bit more about compliance.

and whether they're carrying any sales tax liabilities that will appear on a balance sheet. And when they want to get their data in order and get a bit more of a firm grip on their revenue and where it's coming from and how they're generating it. That is often another catalyst for thinking about their payment stack and whether it's fit for purpose. So there are a number of points at which we acquire customers at anything from early stage launch all the way through to mature companies at series B, series C.

doing millions of dollars in revenue where the MOR proposition can become compelling for one reason or another. But I'd say broadly, it's desire to expand into new markets or some sort of capital raise where they're taking on external funding and looking to get their house in order a little bit.

Michael Bernzweig (22:13.233)
Exactly. It's almost like when a company is audited for compliance and ISO or SOC or any of the areas of compliance, no one wants to onboard a compliance organization. But at the end of the day, think some of these processes are actually helpful because I think a lot of times you may start down a path.

because you're forced into it, but at the end of the day, you start to realize that some of these things, getting certain levels of compliance for a platform in place helps your organization grow and reach new markets that you never would have been able to had you not, so I think a lot of times people go into these things kicking and screaming, but then realize that possibly it's for their own good.

No one wants to go into open heart surgery, but if you need to, you need to. Now, another question, are organizations either too small or too large for a panel or does the solution really scale for any size organization?

Lucas (23:13.774)
Exactly,

Lucas (23:28.43)
Typically not. not. are a company that will, the product definitely scales for most companies, I think. We definitely aren't too small for anybody. So we have companies that come to us who haven't yet launched and choose to take their first dollar through paddle. We also have companies that are sort of pushing up close to sort of, you know, 70, 80, $90 million in ARR.

Michael Bernzweig (23:41.846)
Yeah.

Lucas (23:57.838)
going through paddle as well. it definitely scales. think as companies get bigger, there's typically a different reason for choosing paddle. They might choose to use this in certain markets where it's very complex to operate in because we're a merchant of record. We're the one who is taking on the complexity of operating in that market, at least from a payments and compliance perspective.

So some larger companies, especially in the US, might look at paddle to power their global revenue and keep their US domestic revenue through an existing sort of PSP integration. And I think also as companies reach a certain scale and size, and I'm talking like north of a hundred million ARR here, so very, very large companies, I think we definitely experience...

Michael Bernzweig (24:44.171)
Sure.

Lucas (24:49.422)
a bit of a de-risking of the payments platforms in so far as they might integrate with multiple and use different payments products in different regions. So they can have fallback options, but for any company who's looking for an all-in-one solution and sort of is between launch and a hundred million ARR or sort of, you know, at that series D, series D sort of level, is quite a wide spectrum, Paddle is something that is very good for.

And that sort of suggests it's not good for companies that are bigger than that. think that's just where our sweet spot is and where we tend to see most companies joining panels. you know, as I mentioned, our biggest customers are sort of 70, 80 million ARR and our smallest customers are zero. And then we have every flavor of in-between on the product. So it does scale pretty well for most founders.

Michael Bernzweig (25:38.729)
Makes sense and something you mentioned earlier that actually came up in a few questions. The importance of localization. Obviously, you know, there are a lot of different areas, you know, obviously tailoring pricing and, and, know, showing local currency and things like that are important. But are there other nuances to, you know, selling globally that, that maybe you can bullet point for some of the listeners that they may not have thought of?

Lucas (25:46.862)
Mm-hmm.

Lucas (26:08.354)
Yeah, sure. Sure. So I think as you pointed out, there are some obvious ones like local currency and language. Localization is another obvious one that most people tend to be on top of. And I think to those who perhaps aren't doing local currencies, and there are lots and lots of companies who don't do local currencies, you can get a lot of upside very, very easily by just deploying local currencies because conversion rates in local currency are much higher than conversion rates in non-local currency to the tune of 5-10%.

Right. So you can, you can get five, 10 % uplift through your, through your sort of PLG funnel just by deploying local currencies. It will exactly it's the, these are not small numbers. These are not small numbers, right. Um, but, but you'd be blown away by how many, how many companies just choose to sell in USD globally. The other thing that I think is, is, is interesting that is perhaps spoken about less is, um, localized pricing. So actually adjusting your pricing based on

Michael Bernzweig (26:41.727)
Wow, that pays for everything. Where do we sign?

Michael Bernzweig (27:00.501)
Thank

Lucas (27:07.284)
local willingness to pay and local purchasing power. Very few companies do this. So most companies will take a USD price, use that as the baseline, and then just exchange or do an FX conversion into a local currency and not actually taking into consideration whether purchasing power is higher or lower in that particular market. And if purchasing power is higher, you're not charging enough. And if purchasing power is lower, you might be charging too much.

And both of those things are inhibiting your ability to succeed. So, you know, to give you some data, if you look at the U.S. as a baseline, if you take the Nordics in Northern Europe, for example, purchasing power or willingness to pay can be 20 to 30 % higher. If you look at Western Europe, it's broadly similar. If you look at Eastern Europe, it might be 15, 20 % less. If you look at Brazil, it can be 10 to 15 % less than willingness to pay in the U.S.

We've got actual data on this, I'm just sort of throwing some numbers at you to give you an idea of direction. And if you're not localizing your pricing against purchasing power or willingness to pay, then you're going to see that negatively impacted through conversion and sort of getting customers through the door. So that's a good example of something that most SaaS companies don't tend to think about, but can be a really...

Michael Bernzweig (28:09.985)
Sure.

Lucas (28:34.85)
can be a really good lever to help you grow your company in those markets.

Michael Bernzweig (28:40.383)
You know, and it's interesting because so many different organizations have, you know, they sit on one side or the other of that pricing fence. And I think most notable would be the team over at WordPress. You know, I think they have an interesting view in which they actually, no matter where an individual works, pay the identical salary to every single employee globally.

And I think it's an interesting dynamic, but I would agree with you. think, you know, that a lot of, I think if I remember, think it's Matt Mellenwig that's running the organization now. He's been all over the news recently, but I think, you know, it's interesting, know, pricing the products locally obviously adds the opportunity for a big upside in terms of revenue for any.

any SaaS founder. So I guess on the other side of the equation, when you're looking, and I'm sure there's an advisory role, you're working with your clients, it's a long term partnership and all of that. Is there maybe a short bullet list of points that you can offer to our listeners in terms of what's important?

to prioritize when entering these international markets that they may not be in already?

Lucas (30:08.408)
Sure. do you mean prioritizing the markets themselves or just what, what, what sort of things should you think about?

Michael Bernzweig (30:14.753)
What should they be thinking about as they're entering markets they may not have been in previously?

Lucas (30:21.58)
Yeah, I think the first one, which is the most obvious to paddle is local buying habits. So how do people buy in that particular market? What currency do they use? What payment methods do they like to use? What is willingness to pay? Do people tend to do pricing exclusive of tax or inclusive of tax, right? Which is very, very different around the world. So here in the UK, we're very used to all pricing.

Michael Bernzweig (30:44.502)
Yeah.

Lucas (30:49.184)
including tax, whereas in the US, I think it's typically exclusive. those little things are just going to impact the way in which you're going to resonate with local buyers. And I think it's really important to get that right. I think you want to think about the regulatory landscape as well. So think about sales tax requirements, think about any consumer protection laws, which are becoming more commonplace. yeah, privacy, exactly. And how that might impact

Michael Bernzweig (31:13.451)
Data privacy is huge, right?

Lucas (31:18.274)
the ability to sell your product into that market. So that's an important consideration too. I think thinking about your messaging and positioning from a go-to-market perspective is important. I've learned that when I ran my own company. To give you an example, when we started selling into Germany, we realized that German people are very data conscious, right? Much more conscious than Australian people are. So when we went out to sell, we had to sort of bring that

Michael Bernzweig (31:41.857)
Sure.

Lucas (31:45.994)
into the sales process much earlier to sort of nip that in the bud a little bit in order to sort of get through the sale. you're sort of really rethinking the playbook a little bit, especially if you're an enterprise sales, sort of deploying an SLG motion. I think local buying habits, regulatory landscape, positioning and messaging is all super important if I had to put together a bit of a list of things to consider. And then I think the product itself,

Digital products these days tend to be pretty global, but sometimes there are things that you can do around support, making sure you've got product support and technical support in that country, in that particular language that catches a lot of people out. They start getting messages in foreign languages when they're entering into new markets about the product. So making sure that you're sort of buttoned up from a documentation and support perspective in terms of languages. So I think it's sort of like...

Buying habits of the local market, the regulatory landscape, positioning and messaging, and then operationally supporting yourself in that particular market through sort customer support and making sure you're set up to do that. I think they're the main ones that jump to mind.

Michael Bernzweig (33:01.793)
So for a founder that may be considering making the switch from wherever they are now to paddle. What's important for them to understand in terms of their responsibilities.

versus panels responsibilities in terms of that whole customer journey. Obviously there's the product and solution that they're delivering, but there's also the merchant of record component of obviously the transactions need to be fulfilled and the compliance and all of that. So where does the line get drawn? Who's responsible for what?

Lucas (33:39.702)
Yeah, good question. I think the first thing to say is that the SaaS company or our customers are still responsible for their buying experience. So we will provide the checkout, but you can customize the checkout and embed it into your buying experience. So in that way, your buyers feel like they're still on a buying journey that is ultimately

Michael Bernzweig (34:01.889)
Okay.

Lucas (34:07.416)
powered by you as the SaaS company. Yeah. But when they get to the payment page, they are also buying from Paddle because Paddle is acting as a reseller. Paddle is acting as the merchant of record. But the checkout itself, which is hosted by Paddle, but can still be used and embedded into the buying experience of our customers. And everything around pricing and currencies and payment methods

Michael Bernzweig (34:08.929)
fully integrated.

Lucas (34:35.552)
you have the flexibility to manage those things yourself. So when you get into Paddle for the first time, you will typically create your product catalog. So you will put all of your products into our catalog and then you will create prices and then you will turn on currencies and you can change prices per currency and you can do currency localization. You can turn on different payment methods. You can configure all of this inside of the Paddle product.

so that your offering is very much your offering. But when it comes to selling the product from a transactional perspective, the sales tax is calculated on our side. So you don't have to calculate or think about sales tax. What we will do is read the IP address and then based on the address form, see what country the buyer is in and then surface the right...

Michael Bernzweig (35:28.583)
So you're serving the correct details.

Lucas (35:31.84)
Exactly. Exactly. And then surface the right tax amount. And then we'll sort of register that transaction in that jurisdiction. And then we handle all of the tax for you. You log back into your dashboard and you can see all the transactions there. You can see all the customers there. You can see the subscriptions, et cetera, et cetera. So it's very much operating as a payments infrastructure platform wrapped up in a merchant of record model where technically we are operating as a reseller, which means we're able to provide that additional value prop.

Michael Bernzweig (35:57.185)
Thank

Lucas (36:01.614)
But the buying experience itself is still managed by our customers.

Michael Bernzweig (36:06.249)
Interesting.

And, you know, so I guess, you know, a lot of the differences are subtle, but important to keep in mind as organizations are making the transition. So from where you sit, which is a very unique space, other obviously AI is a major shift, you know, for me, you know, having founded the company back in 98, I would say the launch of the internet was one,

trajectory you know obviously AI is that next major paradigm shift and I think now all of a sudden we see all kinds of coding tools built on AI which which may be that that third paradigm shift but you know you obviously are seeing many new companies founded you know daily just at a mind-boggling rate how

How are you seeing things from your end in terms of other specific markets that you're seeing fueling the most growth in SaaS?

Lucas (37:14.232)
Yeah. I think AI is definitely the one. Lots of SaaS companies that are built on AI or have AI integrated into their product offering are growing faster than most other SaaS companies, to be honest. I think we're seeing growth rates that we haven't seen before in all software, not just in SaaS, but companies that are growing incredibly quickly.

Michael Bernzweig (37:41.472)
Great.

Lucas (37:43.79)
and are able to move so fast thanks to AI. I think from a payments perspective, we're also seeing AI start to change the way that companies think about pricing and packaging. And I think we're seeing more consumption-based pricing because I think there's a desire from AI companies to price and much more tightly couple price and value because

typically AI is something that you consume. for example, if you're using like a tool where it's priced based on, or where the value you receive is directly related or to sort of API calls that you make or requests or whatever it is, then...

Michael Bernzweig (38:27.021)
Which is really interesting as you point that out because if you look at, know, open AI, chat GPT, you know, Google perplexity, deep seek, all of these different models, they're fighting for market share right now. So obviously the solutions they're offering are not 100 % price based on the value delivered.

Lucas (38:52.078)
consumption.

Michael Bernzweig (38:53.375)
But on the flip side of it, a lot of the organizations that are using the tokens and the technology are charging, you know, based on, on the utilization. So it's kind of an interesting paradigm there or paradox. I'm not sure I'll have to go back to my English professor though, right?

Lucas (39:06.528)
It's really interesting, isn't it? It's a good point. It's a good point. Most of the big sort of household name AI companies are still charging on SaaS models that we've seen forever. Sort of standard free, like freemium models, like Chachi PT is a great example of a freemium model. But yeah, think, I think especially more so in enterprise AI, we're seeing more of these companies deploy consumption-based pricing, which is really interesting.

Michael Bernzweig (39:18.387)
Yeah.

Michael Bernzweig (39:35.839)
Yeah, no, interesting. And I guess at a high level, if you were to break it down in terms of the pricing models that you see SaaS founders struggling with. So it's consumption-based pricing, monthly pricing plans. Are there other big models that you see out there? Or are those the biggest?

Lucas (39:57.024)
Yeah. I mean, I think we're still seeing lots of subscription models like monthly subscription models or annual subscription models, which are very common. I think we're still seeing a lot of the typical sort of good, better, best type of model. I think we're seeing more of a shift towards pricing based on a value metric. So a metric that dictates the value that you're receiving from the product and pricing based on that metric.

Michael Bernzweig (40:03.157)
Right.

Michael Bernzweig (40:10.433)
Yeah.

Michael Bernzweig (40:18.25)
Yes.

Lucas (40:25.806)
And there are different ways to think about that. Like a great example is, you know, if you're a support platform or a customer support platform, might price based on how many tickets are raised or how many people are using, how many people in your support team who are using the product. So I think there's a number of ways in which usage-based components are starting to be more embedded into SaaS billing models. And I think that will only increase. It's been happening for a number of years, but I think AI will accelerate that.

I think we're seeing sort of typical volume discounting as well. So, you know, as you purchase more of X, the unit cost of X decreases. I think we're seeing more add-on type of structures. So where you sort of take your good, better best scenario, but then you can also buy good or buy better with some components of best by having them priced differently as sort of separate additional line item add-ons. So I think a bit more of like a build your own plan or build your own

Michael Bernzweig (41:03.392)
Right.

Lucas (41:25.774)
build your own set of tooling is becoming more common as well. Um, but yeah, I think, I think the one for me is, is, is just more value driven pricing, more, more customers demanding like pricing that is, is, is directly tied to value and more companies being willing to do that. Cause they're highly convinced in the value that they're going to provide.

Michael Bernzweig (41:41.472)
Makes sense.

And I want to wrap up with a couple of questions that kind of pull together a lot of the questions that came in. over the next several years, how do you see the SAS landscape evolving? And how do you feel the merchant to record model will play into where things are heading?

Lucas (42:03.854)
Interesting, interesting.

Where do I see the SAS world heading? I think embedding AI into your SAS is going to be key. I think we're going to continue to see more vertical SAS, so SAS solving very specific use cases for certain industries. I think vertical applications of AI is going to be fascinating as well. If you look at

A lot of the existing AI technology, it's sort of very agnostic of vertical. If you think of open AI and these sorts of products, I think we're going to see SaaS companies start to take different components of AI and build really sort of powerful verticalized solutions in particular customer segments. So I think we'll continue to see that. I think we'll see more advancements in billing as well. As I mentioned before, I think we'll see more billing models.

Michael Bernzweig (42:40.097)
Sure.

Lucas (43:02.994)
I think that world will become more complex. think we'll see more value-based pricing. I think we'll see more usage-based, consumption-based pricing, which is going to be interesting. And then I think from a merchant of record perspective, there are probably two things that jump to mind. The first one is that it's incredibly easy to be global from day one. And I actually think that's becoming the baseline expectation, but the world hasn't become less complex from

from a payments perspective and a compliance perspective. So I think that's a plus one for merchant of record insofar as companies want to be able to sell into many, many markets from the starting point. And I think a merchant of record helps companies do that by taking away a lot of that operational burden and making it less risky and very easy to deploy and sell their product.

in different markets. And then I think second to that, I think there is definitely a trend around the world of increased consumer protection in subscription billing, especially. So you will have seen recently the FTC's click to cancel rule. And then we also know that lots of like European jurisdictions are legislating for pre-billing reminders and sort of addressing the concept of subscription fatigue that's happening in the U.S. as well.

Michael Bernzweig (44:16.191)
Yes.

Lucas (44:31.032)
So think the regulatory landscape is getting a bit more complex and, and, know, selling into different markets is not, it's, is, is, is in many ways going to be harder because you have to look at and research and find out and understand different regulations. And I think consumer protection will continue to go in that direction. from that perspective, I mean, that's all stuff that, that, that a company like paddle takes off your shoulders. And I think if the world continues to go in that direction, then I think the value prop of, of, of a merchant of record will only expand. So.

That's obviously me from my vantage point as someone at Battle. But yeah, we feel pretty positive about the future.

Michael Bernzweig (45:02.621)
Yeah, no, I love it, you know?

Michael Bernzweig (45:07.539)
No, that's neat. And obviously, the growth is amazing. And I'll wrap up with this final question. So if you were giving some advice to a young, early stage SaaS founder who's considering global expansion but feels really daunted by all the complexities involved, what advice would you give them?

Lucas (45:20.568)
Mm-hmm.

Lucas (45:26.69)
I mean, I should say merchant of record, right? User merchant of record. No, think, I think, I think like for me, I ran head first into a lot of these problems and it inhibited my growth. think, well, the growth of that company, sorry. I think for me it's, think of payments as a growth lever. Don't think of it as a back office requirement. Think of something, think of it as a tool that if used correctly can be a tailwind in your business, can really help you grow.

Michael Bernzweig (45:28.961)
you

Lucas (45:55.328)
And if used incorrectly, it can be a headwind or a constraint on your business. And I think I always thought of payments as a back office requirement. I always thought of it as functional. I just need something to work and then everything will be fine. And I underestimated the impact that payments can have on growth and successful international expansion. So I think that's how I'd sum it up. Think of payments as a growth lever. Think about it strategically, not just operationally.

And hopefully it can help fuel your success.

Michael Bernzweig (46:28.683)
Fantastic. Well, for anybody that would like to reach out, we're going to leave all your details in the show notes. I really appreciate the deep drive on everything going on over there at Paddle. And thank you for joining us today on the Software Spotlight. So Lucas Lovell from Paddle over in England, thank you for joining us. And for anyone that is not currently subscribed, go to softwareoasis.com backslash subscribe.

and you can join our weekly email newsletter which goes out and covers all three of our podcasts, the Software Spotlight, Career Spotlight, and Consulting Spotlight. So once again, Lucas, thanks for joining us this week.

Lucas (47:10.574)
Thanks very much, Michael. Great to be here.