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ServiceNow’s New York Release Brings a Price Increase in Disguise

ServiceNow has mastered the art of implementing subtle license changes and price adjustments with each major release of its software, resulting in regular price increases for its customers. This has occurred with the London, Madrid, and, most recently, New York releases.

Cloud vendors are no strangers to the practice of renaming their products or rebundling features into different tiers of access, usually resulting in an overall price increase for their customers. Historically, this process takes place over the course of years, and to be fair most of the new products in the SaaS space do contain new functionality as well. Whether or not customers desire or use that new functionality is a moot point, as they are a captive audience in the SaaS space and will have to pay up.

ServiceNow is taking this practice to a whole new level, and its customers had better pay attention, as the trends in recent license changes will lead to renewal increases of 10-20% or more for most clients.

Granularization and Monetization (G&M) Is the New Trend With Madrid Release

The pattern we have all grown accustomed to is the “software bundle.” The vendor sells a product suite that contains multiple products or applications for one set price. This was the fact with ServiceNow’s IT Service Automation (ITSA Unlimited) product. It was great for customers, as they could negotiate a straightforward per-user price and receive all the benefits and capabilities of all of ServiceNow’s products. That was the bait and hook.

Once ServiceNow obtained critical mass in terms of revenue growth, logo acquisition, and overall vendor lock-in across a substantial customer base, it pulled the rug out from under clients as their renewals came due. Customers were informed that ITSA Unlimited was end-of-life and replaced with multiple products, each with its own price tag, among other license metric changes.

Derived from UpperEdge.

In addition to at least four new products taking the place of one bundle, ServiceNow also modified the license metrics. As a customer, you now must take whatever price ServiceNow presents at renewal time – unless you have planned in advance to decompose the changes in license metric, product granularization, pricing per product, and shifts in features/functionality and try to make an informed determination around how this impacts your overall cost basis and if you even need all of the products once they are un-bundled.

While license metrics are still user based, the well-known user types of Requester, Approver, and Fulfiller were replaced with Worker, Planner, and Analyst, all with different price points and feature shift. But that's not all. Some of the more impactful changes are noted below:

  1. The Customer Service Management (CSM) product now has only one tier of user: "CSM user."
  2. Governance, Risk & Compliance (GRC) has migrated to an enterprise model, requiring all employees in the enterprise to be licensed. The per-employee cost is lower than the previous model, but the requirement to license all employees raises the overall cost of GRC.
  3. HR Service Automation is now HR Service Delivery, and the familiar Fulfiller license metric has changed to “HR user,” extending the same concept seen in GRC to a broader swath of users that require a license – like all full-time and part-time employees, contractors, and contingent workers that touch the ServiceNow HR application.

The Trend Continues With New York Release

Just as customers are coming to terms with the changes noted above, ServiceNow decides to change the game again with the New York release, further keeping customers off balance as it raises prices and further complicates its product offerings. The IT Operations Management (ITOM) bundle has become the latest product to undergo the G&M transformation.

IT Operation Management (ITOM) is now:

  • ITOM Health
  • ITOM Visibility
  • ITOM Optimization

Each new SKU comes with its own price model that is far more granular as to the type of devices that touch the application! ITOM was previously licensed by a simple “node” license metric, in which a node was any virtual or physical server.

ServiceNow has introduced the concept of Configuration Items (CI), which are broken down by types such as Containers, PaaS Servers, and Unresolved Monitored Objects (say what?). Where ITOM discovers, monitors, and provisions CIs stored on the CMDB, they must be licensed with the appropriate license metric.

ServiceNow will sell you on the benefits of the new G&M model, namely that you now only have to purchase the exact product or “custom bundle” that meets the organization’s needs. As you will see below, this actually places a much more significant burden on IT procurement and service management functions to conduct an in-depth dive analysis into both current and future needs, across multiple product offerings.

Our Take

Most IT shops are not proactively planning for SaaS renewals a year in advance, much less monitoring their vendor landscapes for product and license model changes that will directly impact bottom-line costs. ServiceNow is banking on that and, coupled with the “vendor lock” achieved in the SaaS space, it generally holds the best hand in contract negotiations.

In our vendor practice, we are regularly seeing clients bring their renewals for evaluation trying to mitigate a 10%, 20%, or even 30% or more cost increase due to these license and price changes. How can you protect yourself from these legal but predatory practices?

An escalation clause that limits cost increases upon renewal is an excellent first step, but it is insufficient on its own to provide adequate protections. These clauses are generally restricted to the exact SKUs listed on the Order Document, and as we have seen, these SKUs change with each new release.

ServiceNow customers must ensure that any escalation cap language is coupled with a proper renaming/rebundling clause that grandfathers the organization under the legacy license model and/or restricts the price increase of the overall usage and functionality based on the previous total spend. Without this protection, plan on a double-digit price increase come renewal time.

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