As you prepare for any negotiation, it is important to first assess and understand the goals and objectives of the party sitting across the table from you. What is it, at that moment, the other party really wants? What does a “win” look like for them? This isn’t just an enterprise cloud negotiation best practice; it applies pretty much universally.
The problem is far too often that enterprises jump into their cloud subscription renewal negotiations without spending the proper amount of time assessing what matters to the specific cloud vendor involved at that moment. Yes, there are things that certainly matter to all enterprise cloud vendors, like spend increase and product expansion, but having had the opportunity to help many enterprises negotiate with various cloud vendors, what matters to some doesn’t matter to all, and just because something mattered at one point in time doesn’t necessarily mean it still does.
When it comes to your upcoming ServiceNow subscription renewal negotiation or even the establishment of a net-new relationship, this couldn’t be truer. Having helped enterprises prepare for their ServiceNow renewal and the ensuing renewal negotiation, knowing and properly applying what matters most to ServiceNow at a particular point in time, was truly the key to success.
Here are some of the things (not all) that matter most to ServiceNow right now:
$1M in ACV
Annual Contract Value (ACV) — the amount of money you pay ServiceNow on an annual basis — has always been important, but for ServiceNow, the $1M threshold is vital. As they look to show potential and current enterprise customers, shareholders, and the investment community that they are a key enterprise cloud vendor, they have set $1M in ACV as the indicator of success. It is this reason they report the number of deals (net-new and total customers) that have met or exceeded $1M as part of their quarterly earnings. We have seen multiple cases where, if the enterprise customer moved forward with adopting a particular product under consideration thus causing the ACV to clip $1M as part of a renewal, it provided meaningful leverage to achieve additional concessions and deeper discounting.
Emerging Product Adoption
ServiceNow has long been known as a cloud vendor for core IT (ITSA, ITSM, ITBM, ITOM, etc.) and they have sold their cloud products primarily to the IT department. As they look to change the perception and become more of a true enterprise strategic cloud vendor, they have spent a significant amount of time and money developing and trying to get adoption of various new non-IT “emerging products”.
ServiceNow has identified CSM (Customer Service Management), HR, Security, and Intelligent Apps as their emerging products. It is critically important to gain adoption of these products. It not only expands the go-forward footprint (i.e., the stickiness) within enterprises but more importantly, it expands it in areas they have not had attention or access previously, like the lines of businesses. ServiceNow knows that getting adoption and access beyond IT is going to be the key for them to become the strategic cloud vendor that they aspire to be — and are becoming.
Each quarter, ServiceNow reports the percentage of net new ACV tied to emerging products as well as the number of “top 20 new deals” in the quarter that included the adoption of an emerging product. During the earnings call, they also make sure to call out customers that have adopted an emerging product, especially when it is a story involving a long-standing customer that has looked to ServiceNow as a go-forward strategic partner to help drive their digital transformation.
If you are an enterprise customer and are considering the adoption of one of the various emerging products (even if it involves a small rollout out of the gate), there is a significant amount of leverage to gain if approached correctly. This is especially the case when HR Service Delivery is involved.
Executive Level Attention
As part of ServiceNow’s overarching and companywide strategy to change the market’s perception of itself and elevate their brand in enterprises (you may have seen the new logo, commercials, and billboards), they are aiming to become a strategic cloud partner rather than a tactical IT vendor. ServiceNow is spending a lot of time trying to get an audience with the CEO as well as other executives within the IT department (e.g., the CIO) and the lines of business (e.g., the Head of HR). An ability to gain access and attention is critically important to them.
ServiceNow will push hard to get commitments during renewal discussions, especially when there are future roadmap dialogues taking place or there are net-new products involved. They will want these IT and line of business executives to participate in demos and/or workshops. They are also very much interested in locking down attendance at Knowledge, their annual conference. We have seen situations where attendance and access drove significant commercial concessions even when products were only being evaluated and could not yet be pulled into the renewal.
As you prepare for your upcoming ServiceNow renewal negotiation it is certainly important to take each of these areas into consideration as you build out your plan and approach, but it is also important to remember that this list will change (at least the weight ServiceNow places on each could change) and how you approach ServiceNow, based on your understanding, will become critically important as well.
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