Knowing what matters most to your current cloud vendors, those you are considering, and those you ultimately add to your portfolio of cloud products and solutions in the future will help you assess what leverage you have when it comes time to negotiate your initial deal or your upcoming renewal.
Not all cloud vendors are created equally or even alike, but when it comes to the topic of what they want from their customer base, there are shared goals and objectives that are simply undeniable. Beyond the obvious and probably overused “land and expand” universal objective where they get in the door with a core product and then spend the majority of their time trying to upsell the customer, below are a few things that all cloud vendors want from their base (by no means, not an exhaustive list).
ACV (Annual Contract Value) growth
How much a customer spends on an annual basis is absolutely an indicator of strength, both internally and to the market. It is also a clear indicator of being able to effectively execute the often-publicized overarching objective of expanding the customer base’s portfolios of products over the course of the relationship and since inception. Cloud vendors and the analysts that cover them also know that as the annual spending rises, the baseline spend grows, which can be hit with an increase at renewal. Depending on if the customer put in place renewal term price protections, this increase could be significant.
Cloud vendors want each of their customer’s annual spend commitment to increase and they don’t want to wait for the next renewal date for this to happen. Sales teams are actively trying to push for the adoption of additional products resulting in increased annual spend mid-term. Often, a request to expedite adoption will be made around quarter ends as part of an “if you can pull this in now, I can give you this once in a lifetime discount” type of discussion.
Also, the magic number when it comes to ACV is $1M. Most cloud vendors report the number of net-new deals as well as the number of current customers that have an ACV of greater than $1M.
It is one thing to get a customer to “sign up” and contractually add a product to an order form as part of an initiative (often driven by an expected business outcome or objective), but it is another to get a customer to actually adopt and utilize the product as envisioned. Cloud vendors – especially cloud platform vendors – know that actual use will lead to “stickiness,” and the stickier the cloud vendor (and their cloud products) become, the more likely renewal becomes an expected and ongoing formality.
Regarding SaaS cloud vendors like Salesforce and ServiceNow, it is important that they work with their customers to ensure that the employees (that is, the customer’s user community) are actually using all of the features (or most) included in their cloud subscription (e.g., Sales Cloud Unlimited and ITSM Pro, respectively).
When it comes to cloud platform use (like Microsoft Azure, Google Cloud Platform, or Amazon AWS), utilization is an even bigger deal given the associated “fly-wheel” effect that comes with it. Once a customer starts the meter, it is most likely not going to stop. And if we are being honest, the meter is not going to stop unless there are far bigger business issues going on. In fact, for most customers, it is not a matter of whether or not the meter is going to stop; it is more a matter of how fast it will run overtime. The more and faster it runs, the more fees the customer will owe the cloud vendor and the cloud vendor knows that.
More and more cloud vendors are starting to shift their focus to line-of-business executives and even the CEO when positioning the need for their products and solutions as part of the enterprise’s digital transformation. Salesforce has been very successful at taking this approach and executing a plan that has allowed them to rapidly grow their revenue, gain adoption of more of their products over time (land and expand) but also build strong brand loyalty throughout the customer’s ecosystem including the most senior executives.
Cloud vendors obviously still must maintain and pursue executive-level IT relationships, but they know that the individuals that are setting the course and direction for digital transformations (the line of business executives and the CEO) are the ones that they need to get in front of and convert to enthusiasts. Beyond the fact that these individuals are decisionmakers and leading the digital transformation, they are also often the ones that control the budget and purse strings. Cloud vendors and their sales teams need to sell them on the vision and how a partnership with their firm and use of their cloud products will enable the outcomes and digital transformation they are seeking.
A perfect example of a cloud vendor doing everything they can to get this type of attention is ServiceNow. The rebranding efforts and brand campaign, including TV commercials and signage around major cities, is aimed at raising visibility with more C-suite executives (including CEOs) in order to help get them in the room.
Knowing what matters most to your current cloud vendors, those you are considering, and those you ultimately add to your portfolio of cloud products and solutions in the future will help you assess what leverage you have when it comes time to negotiate your initial deal or your upcoming renewal. Of course, knowing is only half the battle. How you use the information is ultimately going to determine how successful you are in your negotiation.