Since ServiceNow’s inception back in 2004, it has been known — right or wrong — as an IT helpdesk vendor. It was perceived as a vendor that sold products and solutions that catered solely to the needs of the IT department. Specifically, ServiceNow primarily focused on selling their ITSA (IT Service Automation) product. Back in 2014, ITSA was rebranded as ITSM (IT Service Management), in an attempt to market and sell at the functional department level rather than solely to the IT department.
To obtain the type of growth they were expecting, ServiceNow realized that they needed to be able to transition from being a tool for IT to a platform that would enable business transformation. They needed to not only rebrand their core product offering but also to develop additional products based on their already successful platform that could be sold to other parts of their customer’s business.
This rebranding and product development strategy is no different than the strategies attempted by many Cloud providers hoping to move from “niche” or “best-of-breed” vendors to key strategic partners. What these Cloud vendors have learned is that it is more often easier said than done, but some have been quite successful in making the transition. One such vendor would be Salesforce.
The strategy being deployed by ServiceNow, in fact, is very much aligned with the approach that enabled Salesforce to set their sights on reaching $60B in revenue by 2034. It is this symmetry that has led to the successes ServiceNow has already had and will likely lead to even greater achievements moving forward. It is also why all current and future ServiceNow customers need to properly prepare themselves for what is about to come.
Negotiating with ServiceNow
ServiceNow, just like Salesforce, will look to its customer base to further drive revenue growth through price increases to already adopted products and push (upsell) parts of the business to adopt additional offerings.
Like Salesforce, ServiceNow has experienced impressive revenue growth in a very short period of time (Q3 2017 subscription revenue grew 43% year-over-year) and it has grabbed significant market share (40% of the Global 2000) by moving beyond their initial core product tailored to their initial core target audience. Both companies have been able to effectively upsell within their customer base.
Salesforce started with CRM and focused on selling to the CIO and the head of Sales or the Chief Revenue Officer. Salesforce now offers additional products to meet the needs of different lines of business owners as well as the CIO. Whether it be their Service Cloud or Marketing Cloud product, Salesforce is experiencing significant revenue growth and high adoption rates.
ServiceNow’s path includes intentionally moving beyond ITSM (even though it still accounts for roughly 50% of their business) and leveraging its underlying platform to build and sell products to different business owners within the customer’s organization. Most specifically, ServiceNow is aggressively pushing their ITOM (IT Operations Management) product into their customer base either in term or at renewal.
ITOM is a very strategic product for ServiceNow and represents a great opportunity to not only upsell within the organization but also to increase the pace of revenue growth given the associated magnitude of fees. During ServiceNow’s most recent earnings call, CFO Michael Scarpelli pointed out that ITSM is what gets them in the door and then they “follow with upsells.” He then immediately pointed out that “ITOM tends to be bigger deals.”
ServiceNow Customers: Be Prepared
If you are a ServiceNow customer, it is critical that you begin to effectively prepare yourself for your upcoming renewal. Given how aggressive ServiceNow is being and will continue to be, it is never too early to start. You need to develop an effective internal playbook to handle a persistent ServiceNow sales organization that will be looking to get time with as many individuals within your organization as they can, in attempt to move your organization beyond ITSM.
It will be critical that you not only have internal alignment but also the proper consistent message ready to be delivered to ServiceNow. Should you elect to move forward with adding an additional product like ITOM to your ServiceNow portfolio, it will be important to ensure you are not only paying the right price upfront but that you have the proper downstream price protections in place.