Why are tech firms offering the feds such deep discounts?

The US General Services Administration (GSA) on Tuesday announced a OneGov agreement with ServiceNow which will see it receiving discounts of up to 70% on certain offerings, as well as a 40% reduction on standalone versions of the company’s Information Technology Service Management (ITSM) Pro software.

This follows similar OneGov agreements with Oracle and Microsoft, with the latter announcing on Monday it planned to offer a suite of productivity, cloud, and AI services to federal government workers free of charge for at least the next 12 months.

The Oracle deal involves federal government agencies receiving a substantial discount on the company’s enterprise software applications, as well as on Oracle Cloud Infrastructure.

Key features of the ServiceNow agreement include the discounted price of up to 70% off the list price on upgrades to a new ITSM Pro or ITSM Pro Plus Bundle through September 2028.

OneGov, which was launched on April 30, “establishes pricing based on the volume of the entire government rather than the lower discounts previously available through separate agreements on an agency-by-agency or transactional basis,” the GSA  said at the time.

Jonathan Alboum, CTO of ServiceNow’s federal business, said that the company first engaged with OneGov when it was launched. Throughout the negotiations, he said, the conversations with GSA “were open and honest and focused on how to drive efficiency into agency operations. We worked together to come to these streamlined terms.”

Deals may also help ‘non-government’ firms

He added that ServiceNow also serves about 85% of the Fortune 500, but would not confirm whether enterprise customers get the same levels of discount. “We work individually with each new customer, as well as our existing customers at the time of renewal, on the most effective pricing structure for their needs,” he said.

Adam Mansfield, who leads Microsoft and ServiceNow advisory practices at consulting firm UpperEdge, said both organizations are “using aggressive discounts to remove friction in sales cycles, win government market share, and accelerate AI adoption in a highly visible sector. For non-government organizations, this signals that both vendors are willing to trade margin for strategic positioning, and buyers can use that as leverage in negotiations.”

But especially with ServiceNow, he said, “the consumption-based licensing tied to AI poses hidden risks for customers. Once use commences, usage often exceeds thresholds and limits, driving spend higher than expected. Enterprises must properly negotiate strong guardrails up front to avoid the cost overruns that these vendors are banking on.”

According to Mansfield, “when a vendor offers 40%–70% discounts to the US government, it shows that the technology can be delivered profitably at far lower price points than commercial customers are paying today. Enterprises should use this as validation that there is significant room to push back on their current pricing structures.”

‘World’s largest SaaS customer’

Scott Bickley, advisory fellow at Info-Tech Research Group, said that since the formation of the Department of Government Efficiency (DOGE) by the Trump administration, he has been bothered by the fact that until recently, the GSA has “not provided really meaningful discounting to government agencies at the federal level, which is, in my mind, a crime.”

The US federal government, he said, “is the world’s largest customer of any software or SaaS solution. Regardless of whether it’s disaggregated across hundreds of agencies purchasing software, they should get pricing based on the cloud of the whole. It’s all coming from one source of funding, which is the US taxpayer.”

Bickley said that while the discounts being offered by Oracle, ServiceNow, and Microsoft seem fair compared to what federal agencies might have received prior to the signing of a OneGov deal, if the scale of the spend — billions of dollars — is taken into consideration, “these discounts would in the private sector easily eclipse the high 80s, 90s percentile.”

Despite that, he described the three agreements as “a pre-emptive strike on the part of the vendors to say, ‘OK, we have to put a little skin in the game, we have to give something back.’ This will curry favor with the [Trump] administration.”

The most recent government deals, said Mansfield, “highlight just how far vendors are willing to go in the race to dominate AI. The discounts help grab market share today, but the underlying licensing model comes with a high probability that customer spend will grow dramatically over time.”

Enterprises, he added, “may not see the same steep discounts, but with the right strategy, they can secure both meaningful savings and contractual protections to prevent the runaway downstream costs that often come with consumption-based licensing.”