ServiceNow: Deal Challenges and Best Practices
Updated: Aug 14
ServiceNow consistently enjoys a 97% annual renewal rate because the company develops such “sticky” relationships with clients. Explosive year over year growth in 2019 was recorded in both their subscription revenues (up 34%) as well as from emerging products (up 45%). In 2020, we expect to see new CEO Bill McDermott (formerly of SAP) continue to grow ServiceNow through acquisitions and bundling of products, and with vertical industry-specific solutions. The supplier is initially targeting the banking and telecom industries, in partnership with Deloitte and Accenture, respectively.
One of the most effective ways ServiceNow increases its “stickiness” with customers is by introducing product changes twice annually, in March and September. It might be a re-bundle, re-brand, licensing metric change, new functionality, or an entirely new product. The releases are named after cities around the world in alphabetical order and enable the vendor to hike prices, sometimes for the same functionality. ServiceNow is moving towards an N-1 support schedule, meaning you are only supported for the current release families and the one prior. This can often impact a customer’s flexibility on when to move to a new product version.
Orlando, the most recent release (mid-March 2020), features three new products: an additional operations product called Cloud Insight, which we see as a way for the vendor to sell more enterprise bundles; and the other two products are intended to enhance the Now platform and mobile offering.
The frequency of these releases poses considerable risk to customers. A good example is with users of the company’s ITSA Unlimited, illustrated in the chart below. Basically, the list doubled between the older SKU and ServiceNow’s current product lines for clients looking to maintain existing functionality.
What can clients do to neutralize these aggressive tactics? ClearEdge has distilled a list of best practices for use in ServiceNow engagements:
Inspect data and mitigate risk. Review the vendor order form and Master Order Agreement (MOA) for key terms. Ask for competitive renewal caps, price holds, functionality protection, custom products, grandfathered products, and a support schedule that works internally. Make the supplier earn your business by granting concessions.
Develop an accurate forecast. Use utilization reports to map historical growth and past activity; assess user profiles to determine who needs a Requester, Approver, or Fulfiller license type. License types can significantly impact the bottom line. (Sales reps are highly motivated to sell the Unrestricted model, which covers the whole organization at a fulfiller level but often at a high total cost of ownership. In addition, use your forecast to reduce the supplier’s proposed (inflated) quantities.
Establish viable deal alternatives to ServiceNow. For starters, create minimum and maximum deal scenarios. Then, review ServiceNow’s competition. Because the vendor’s solution offerings are so multi-faceted, the competitors fall into three buckets, depending on which type of workflow you need to address: - IT workflows. The primary competitors are BMC, Cherwell and Ivanti. - Employee workflows. Consider SAP Success Factors, ADP, and Oracle solutions. - Customer workflows. Look into Salesforce, Pega and Zendesk offerings.
Leverage “upfront spends” to increase your discount. ServiceNow sales reps are commissioned on the amount of net new spend in year one of a deal.
Understand which products the sales reps are most incentivized to sell. Currently, they are highly motivated to sell HR and CSM. Including any of these products in a deal can provide “a carrot” to the sales rep and leverage to the buyer.
Dan Beyh is an Analyst II at ClearEdge Partners.
This blog post was inspired by the 2020 ServiceNow Supplier Briefing. You can access the full recording to this webinar below. To learn more about ServiceNow, see related blogs on our website (about the Impact of ServiceNow's latest release, SAP’s influence on McDermott, and ServiceNow’s 2020 strategy) or contact your ClearEdge representative.