AI-native software is changing the economics of SaaS.

For years, cloud cost management was mostly about visibility: dashboards, budgets, showback, chargeback, and rate optimization. But as AI usage, token costs, observability bills, and cloud consumption become material parts of software gross margin, the problem is moving closer to the code itself.

In this episode of Terminal Value, I sit down with Mike Weider, Founder & CEO of Frugal, to discuss the shift from traditional FinOps to Application Cost Engineering.

We cover why legacy cloud cost tools mostly helped companies measure spend, how Frugal maps cloud and AI costs back to the code driving them, why AI-native companies face a more urgent gross margin problem, and why cost optimization may become part of the developer workflow.

Chapters:
00:00 Cold open: AI’s gross margin problem
00:25 Welcome to Terminal Value
01:20 Why cloud cost management matters more because of AI
01:50 Interview begins
02:00 The first wave of cloud cost management
04:20 Showback, chargeback, and the finance/engineering tension
06:35 What Frugal is building
07:00 Why cloud cost optimization is too reactive today
09:35 Moving cost visibility into the developer workflow
10:00 Mapping cloud, AI, and observability costs back to code
12:10 How FinOps and engineering work together
14:45 Building trust in cost-to-code automation
17:45 Why Frugal uses a forward-deployed engineer model
20:00 Why AI still needs the right context
21:45 Frugal’s ICP and where customers get the most value
23:25 Why AI-native companies have a gross margin problem
24:35 Frontier models, cheaper models, and evals
28:00 Pricing AI-native software
31:20 How AI changes engineering teams
32:35 Engineers as conductors of AI agents
35:20 Where Frugal sits in the software stack
37:20 Why FinOps dashboards still matter
39:00 Competition from FinOps, observability, and coding agents
41:05 The future of cost-aware code
43:00 Key takeaways from the conversation

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