Tag: pricing

Striking the Right Balance: The Dynamics of Cloud Discounts in Enterprise Software Agreements | Blog

To prevent the pitfall of aggressively pursuing discounts on cloud platforms without other considerations, enterprises should implement a holistic procurement and negotiation strategy that takes into account four key factors. In this blog, we share our analysis of a Salesforce contract for a major customer. Continue reading to uncover tactics for negotiating enterprise software agreements.  

The webinar, Adapting to Change: Boost Value in Outsourcing and Software Contracts When Uncertainty Persists, also explores how enterprises can drive more savings from their outsourcing contracts.

In the intricate landscape of negotiating enterprise software agreements, securing the best possible discounts often requires a delicate balancing act. We recently witnessed the interplay of aggressive discounting and product portfolio when helping a multi-billion-dollar brand optimize its contract with Salesforce. The process of obtaining discounts on different Salesforce Cloud platforms (Core Cloud, Marketing Cloud, and Commerce Cloud) proved to be both intriguing and complex. It led us to consider: Does achieving best-in-class discounts on one cloud come at the expense of suboptimal discounts on others?

Assessing the large Salesforce customer’s existing contract with Salesforce presented a fascinating dichotomy. Price benchmarking of their contract for two Salesforce cloud platforms revealed their current prices were very competitive, and the discounts on most of the products were in the highest tier Salesforce offers. It seemed like a sweet victory for the client, securing substantial savings that underscore the power of negotiation and the value Salesforce attributes to retaining a significant customer.

However, as we progressed with our analysis, the third Salesforce cloud platform revealed a huge gap in their existing prices and the prices offered to organizations of a similar size and total spend with Salesforce. Through our rigorous normalization and benchmarking process, we identified a savings potential of up to 35% on their current annual spend on the platform.

Our analysis presented a very interesting and intriguing scenario. The best-in-class discounts Salesforce offered to the client for two cloud platforms indicated that their spend with Salesforce was optimized. But closer inspection indicated they might not be getting the best deal from Salesforce after all.

Is this a tactic used by large SaaS companies to ensure that the overall revenue from an account remains intact? While this is an important question that enterprises must strive to answer, the scenario also prompts a critical reflection on the intricate dance of negotiation within enterprise software agreements. Does the pursuit of extraordinary discounts in one arena inadvertently lead to less favorable terms in others? The answer, it seems, lies in the complex interplay of perceived value, strategic importance, and Salesforce’s bottom line.

Salesforce, like many enterprise software providers, employs a nuanced strategy where discounts are tailored based on the perceived value of each cloud service. In this approach, a particular cloud platform becomes the focal point for driving loyalty and retaining major clients, justifying the high discount percentages. Meanwhile, other cloud platforms, though integral, might be subject to a different calculus.

Adopting a holistic approach

To avoid the pitfalls of a purely discount-centric approach, organizations should adopt a holistic procurement and negotiation strategy that considers the following factors:

  1. Overall spend: Evaluate the total spend across all Salesforce cloud platforms and benchmark it against similar deal sizes to identify areas for potential optimization. A larger deal size might result in better negotiation power for the enterprise customer
  2. Business needs and priorities: Prioritize cloud services and usage patterns that align with the organization’s strategic goals and operational requirements
  3. Negotiation expertise: Leverage benchmarks provided by a specialist firm to elevate negotiation strategy and secure favorable terms across all Salesforce order forms and contracts
  4. Strategic timing: Acknowledge that certain months, especially year- or quarter-end, may present higher chances of securing extra discounts as sales teams aim to meet targets. Additionally, negotiating yearly or upfront payments can potentially result in additional discounts

The above case on enterprise software negotiations often echoes a cautionary sentiment – the importance of a holistic approach. Striking a balance between the immediate gains in one segment and the long-term relationship across the entire suite of services is paramount. It prompts organizations to assess not just the magnitude of discounts but the overall value proposition, ensuring each SaaS cloud or module’s role and strategic importance are properly valued.

Achieving best-in-class discounts in one domain may indeed come with trade-offs in others, emphasizing the need for a comprehensive understanding of the software landscape and strategic collaboration between enterprises and their software providers. The dance of discounts is delicate, requiring astute negotiation skills and a keen awareness of the broader software ecosystem.

To discuss software contract negotiation and for a detailed analysis of your software contracts, please reach out to [email protected]. Explore more about Everest Group’s contract benchmarking offerings.

How to Navigate the Huge Price Uplift of Microsoft 365 Copilot: Software Contract Negotiation Tips for Enterprises | Blog

Microsoft’s recent rollout of its Artificial Intelligence (AI)-enabled productivity tool Microsoft 365 Copilot for enterprise customers has generated a lot of buzz. Its steep US$30 monthly charge per user has ignited debate about how its cost will impact IT spend, the Return on Investment (ROI), and the expected benefits for employees. Continue reading for recommendations on successful software contract negotiation for Microsoft 365 Copilot. The webinar, Adapting to Change: Boost Value in Outsourcing and Software Contracts When Uncertainty Persists, also explores how enterprises can drive more savings from their outsourcing contracts.

Microsoft 365 Copilot is a productivity enhancement tool backed by generative AI and integrates with the Office 365 Suite (Word, PowerPoint, Excel, Outlook, Teams, etc.). It aims to transform employees’ daily tasks by unlocking creativity, boosting productivity, and enhancing skills.

By leveraging Large Language Models (LLMs) content in Microsoft Graph (emails, chats, attachments, documents, etc.) to generate contextualized human-like responses, and touted by Microsoft as the “most powerful productivity tool on the planet,” the tool boasts numerous applications and use cases.

How can enterprises buy Copilot?

Copilot is available for Microsoft 365 E3, E5, Business Standard, and Business Premium customers. It is an add-on license on top of these M365 editions and isn’t available as part of any bundle.

Price Surge for Copilot Adoption

Microsoft 365 Copilot comes with a hefty price tag of US$30 per user per month. The following table summarizes the additional costs that enterprises are looking at when considering buying Microsoft 365 Copilot licenses. (Based on list prices.)

M365 Bundle M365 List price (per user per month) Cost uplift
M365 E3 US$36 83%
M365 E5 US$57 52%
M365 Business Standard US$12.50 240%
M365 Business Premium US$22 136%

This does not paint a very attractive picture for IT and procurement departments as the cost increase can be greater than a company’s current spend on the M365 suite.

Adding to the complexity, Microsoft has yet to reveal how they will apply the contracted volume discount on the Copilot licenses an enterprise purchases.

Software contract negotiation tips

Everest Group helps clients across geographies and industries with software contract negotiation techniques to optimize their software spend. Almost all our enterprise customers have large deals with Microsoft. We help them navigate price increases at contract renewal, negotiate best-in-class discounts, and optimize key contractual terms like price protection clauses, etc.

Below are some measures enterprises can take to mitigate this significant cost increase and assure a robust ROI when adopting Microsoft 365 Copilot in their organizations:

  • Optimize spend for the overall Microsoft portfolio of an enterprise: Microsoft’s move to limit the eligibility to purchase Copilot solely to customers with M365 E3 and E5 subscriptions subtly pushes other enterprise customers to upgrade to these options, thus increasing their spend with Microsoft.

Even for existing M365 E3 customers (many of whom settled for this lower-cost option compared to E5 licenses), the total cost of M365 E3 plus Copilot ($66/user/month) is more than the M365 E5 license ($57/user/month). As a result, justifying investing in this new tool is financially difficult. Enterprises looking to buy Copilot licenses should ask Microsoft to improve their overall cost to make it easier to seek budget approvals and drive Copilot adoption

  • Optimize Copilot licenses: While Copilot benefits look promising, the actual impact is yet to be assessed. Given the different nature of work of employees across an organization, the tool might be more effective for some user groups. Therefore, enterprises should conduct a thorough persona profiling to determine the correct number of users who should be given access to this tool to maximize ROI. This step will help ensure enterprises get the most out of the M365 Copilot licenses required
  • Seek training investment: Given its wide range of applications and methods of use, Copilot will require training and support for employees to uncover the true potential of this tool. Enterprises should ask Microsoft to provide complementary training and workshops to increase M365 Copilot adoption

Microsoft Copilot is undoubtedly a futuristic tool aimed at streamlining daily operations and helping employees focus on tasks that add real value. Nonetheless, understanding its licensing, pricing strategy, and the value it can generate for an enterprise is imperative.

To discuss software contract negotiation and for a detailed analysis of your software contracts, please reach out to [email protected]. Explore more about Everest Group’s contract benchmarking offerings.

To learn current pricing trends and how enterprises can find greater value and lower costs in their outsourcing, cloud, and SaaS contracts in the new year, Adapting to Change: Boost Value in Outsourcing and Software Contracts When Uncertainty Persists.

Choosing the Right ServiceNow Model for your Organization: Comparing Shared and Dedicated Instances | Blog

Deciding between ServiceNow’s dedicated and shared instances can be challenging for organizations. By comparing the options against seven key parameters ranging from organizational size and business process complexity to the cost of ownership and customization options, enterprises can make a well-informed decision. Continue reading to learn more. 

For assistance with benchmarking the ServiceNow implementation and managed services effort and price, contact us at [email protected].

In recent years, ServiceNow has significantly expanded its portfolio to move beyond IT Service Management (ITSM) and IT Operations Management (ITOM) to offer comprehensive enterprise solutions that help clients drive business growth, improve employee efficiency and productivity, increase resilience, and enhance customer experience.

The ServiceNow platform represents a major organizational cost that includes securing the platform license, initial implementation, and maintenance. As cost optimization becomes increasingly important, many enterprises considering ServiceNow adoption grapple with deciding between a dedicated instance model or a shared instance model to save cost.

To make an informed decision, let’s first understand what defines the shared instance and dedicated instance of ServiceNow. By comparing certain key parameters, organizations can choose the most suitable option.

  • Shared instance here refers to the managed services provider’s (MSP’s) domain-separated ServiceNow offering. It is a multi-tenant environment that is shared among multiple customers of SP (Service Provider), with each customer having a separate domain of their own
  • Dedicated instance implies a single-tenant environment used exclusively by one customer. This means that all the infrastructure resources, databases, and application processes are reserved solely for individual customer use

Based on our research and discussions with industry leaders, we recommend enterprises consider the following seven key parameters when evaluating which model to choose in adopting the ServiceNow platform:

Key parameters Shared instance Dedicated instance
Organizational size Better fit for small to mid-size organizations with simple and straightforward requirements Large enterprises with varied requirements, needs, and complex operations benefit more from dedicated instance
Business process complexity More suited for organizations that have simple workflows and are looking to implement basic ITSM processes like incident, problem, and change management More ideal for organizations with complex workflows and ever-changing business processes and integration requirements
Total Cost of Ownership (TCO)

(Inclusive of licensing, implementation, ongoing maintenance, upgrades, etc.)

Low TCO as the cost associated with setting up, maintaining, and managing domain separated instance is spread across multiple customers Large enterprises with dedicated budgets for these initiatives usually prefer this higher TCO option
Customization and flexibility Minimum customization is possible on shared instance   as this is a standard one-size-fits-all offering from the MSP Offers the highest level of flexibility, customization, and personalization tailored to the organization’s needs
Privacy, security, and compliance Due to the shared nature of the instance, data segregation and protection measures need to be very well configured to achieve security and ensure privacy

 

Dedicated instance is solely for one enterprise, and the control elements are assigned to that enterprise alone

From a compliance point of view, enterprises operating in highly regulated industries usually prefer this model

Time to floor This plug-and-play model allows enterprises to quickly onboard Organizations can efficiently transition onto the ServiceNow platform, but making the platform live and operational takes some time
Scalability and future vision Scalability can be limited for any particular enterprise as multiple customers share the same resources It can easily be expanded to accommodate an enterprise’s changing user base, service offerings, and resource requirements

Even though the shared instance model can cost 35-75% less (as shown below) based on our research, price should not be the only consideration when implementing a ServiceNow solution. Enterprises should consider all the parameters discussed and take a holistic view.

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Many enterprises struggle with choosing between the shared or dedicated instance model, as both have their own set of advantages and drawbacks. While each organization has unique requirements, considering the key parameters outlined above will help enterprises select the best setup for their needs and move them in the right direction.

For a more detailed analysis and assistance with benchmarking the ServiceNow implementation and managed services effort and price, please reach out to [email protected].

Also, don’t miss our annual webinar, Key Issues 2024: Creating Accelerated Value in a Dynamic World, to learn the major concerns, expectations, and trends for 2024.

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