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ServiceNow: Customers 'struggling to understand the value of ELAs', says Gartner

Enterprise agreements can increase pricing, marring an overall positive assessment from the analyst

Updated ServiceNow customers struggle with its pricing policy, feeling they are being nudged into higher price brackets and failing to benefit from supposed discount packages, according to Gartner.

A vendor rating document from the omnipresent research giant said ServiceNow – a company promising user-friendly workflow software knitting together enterprise applications – "continues to execute well, expanding its offerings and driving execution around digital business transformation."

But there were a few points of criticism, pricing among them.

Gartner acknowledged ServiceNow had made progress on pricing, but said some customers still face challenges.

They include a strategy which sometimes repackages functionality into new product type (SKU) as a way to "upsell customers into newer and more expensive feature-rich products."

At the same time, ServiceNow would move customers away from legacy bundles to individual solution pricing as features move from an "MVP status to mature." This too results in unexpected increases in pricing.

Lastly, enterprise license agreements – meal deals supposed to lower prices of individual products – sometimes increased prices, Gartner found.

"Customers are struggling to understand the value of enterprise license agreements (ELAs) expecting enterprise pricing to be lower, but ELAs are not all geared toward lower pricing (and may be higher than 'à la carte') but are designed to enable greater flexibility in terms," the ServiceNow vendor rating said.

The Register has offered ServiceNow the opportunity to respond.

Another point Gartner makes gives observers the opportunity to reflect on ServiceNow's claims about its position in the software market.

The company grew out of the IT support function, essentially providing ticketing and helpdesk software.

But CEO Bill McDermott has described ServiceNow as the "defining enterprise software company of the 21st century" as he promoted its expansion into HR, supply chain, and customer support.

Gartner said: "While ServiceNow's product line continues to grow, technology workflows remain a key revenue generator. Gartner estimates that these generate about 70 percent of ServiceNow's total revenue."

The research group also found 57 percent of net new average contract value for ServiceNow is from technology workflows, which is still growing strong.

However, Gartner found ServiceNow had improved its ability to engage directly with lines of business and was the fastest-growing vendor in HR service delivery and customer service.

ServiceNow had worked closely with partner organisations "to combine the power and productivity of the platform with the domain expertise," creating innovative industry solutions.

"Despite their breadth of innovation, these developments at times can appear disconnected from each other, raising questions about the long-term packaging and costs of new capabilities," Gartner noted. ®

Updated to add:

A ServiceNow spokesperson has been in touch to say: "ServiceNow deeply respects Gartner's perspective on the market. We work closely with them to inform their research, and we act on their feedback. We've been open about our growth path, which includes expanding into solution areas our customers prioritize – HR, customer service, security and risk, ESG, ERP, and more – and delivering on our reputation for fast time to value and measurable RoI.

"In fact, in 2Q22, while ITSM was in 12 of our top 20 deals, Customer Workflows, Employee Workflows, and Creator Workflows were in even more – and our 99 percent renewal rate remains the industry's benchmark.

"Are there areas we can improve? Like any business, yes. We have taken many steps to reduce complexity and increase transparency in our pricing, and we'll continue to tie together the value and business outcomes customers receive with our platform and products."

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