Microsoft and ServiceNow Sell Agents on Consumption but Get Graded on Contracts

Microsoft reported $92.3 billion in fiscal first-quarter revenue on October 28. Revenue was up 19% and Azure up 48%. Commercial remaining performance obligation, the contracted revenue not yet recognized, reached $677 billion, up 73%. On the call, CEO Satya Nadella split the AI bill in two. According to PYMNTS, IT usually funds subscriptions for everyday AI, and business units fund agents. Nadella said consumption “opens up business-funded demand” with spending tied to what the agents deliver. The same evening, ServiceNow raised its 2026 AI annual contract value (ACV) target to $1.7 billion, the second raise of that target this year. It also said agentic AI consumption in production was up more than 13x year to date. Its shares then fell more than 18% after hours.

Read together, the two reports describe one motion, with agents sold on consumption to a budget IT doesn't own. The numbers investors grade count committed contracts, above all ServiceNow's current remaining performance obligation (cRPO), and consumption shows up in them late or not at all. Coverage of the selloff blames a slower contract number that AI growth didn't offset. None of it blames consumption pricing.

Microsoft priced everyday AI by the seat and agents by the meter

Both halves of Microsoft's model grew. Nadella said Copilot customers consuming credits through usage-based billing grew more than 75% in the quarter, and that Foundry revenue more than tripled. On the seat side, daily Copilot users rose nearly 50% from the prior quarter. Customers with more than 50,000 seats rose more than 8x year over year, per TradingKey's call transcript.

CFO Amy Hood described what the shift costs the sales org. Microsoft 365 results were partly offset by “weaker sales execution in our M365 E3 and standalone SKUs,” she said. Microsoft is changing its sales motions to balance per-seat rhythms with E7, M365 Copilot and usage-based offerings. Hood also said usage pricing will spread more slowly outside software development, because it needs changes in sales practice and customer education. The meter already works in coding, where GitHub agentic credit consumption more than doubled after usage billing began.

The shift has a margin cost as well. Microsoft guided Azure to 49% to 50% growth in constant currency next quarter, and it expects Microsoft Cloud gross margin to slip to about 65% on the mix shift toward Azure, per BigGo Finance's call summary. We tracked the pricing side of this when Microsoft, HubSpot and Zoom moved AI pricing from the seat to the spend limit, and again when Microsoft kept seats and moved the fight to the usage cap. This call adds the budget map, with the seat belonging to IT and the agent meter to a business unit. Microsoft's sales org now runs two motions for two buyers.

ServiceNow's AI number rose while the contract number investors watch slowed

ServiceNow's revenue held up. Subscription revenue was $3.988 billion, up 21%, per its 8-K exhibit. Total revenue was $4.11 billion, and adjusted EPS of $1.00 missed the $1.02 estimate, per TradingKey. Large deals were strong too. The company had 680 customers above $5 million in ACV, and 19 deals above $5 million in net new ACV, up 135%. The AI ACV target rose to $1.7 billion from a prior $1.5 billion.

The number that moved the stock was cRPO, the contracted revenue due in the next 12 months. It came in at $13.65 billion, up 20.5%, but the company guided Q4 to 18.5% in constant currency. On the call, CFO Gina Mastantuono said early renewals made up about half of the Q3 cRPO beat and pulled growth out of Q4, per The Motley Fool's transcript. TradingKey named the Q4 cRPO slowdown as the trigger for the after-hours drop, which reached 18.79%, to $121.92, by its press time. Rolling Out listed it alongside the EPS miss and worries about costs and AI. Bloomberg reported that the outlook revived AI fears, per 24/7 Wall St.

ServiceNow's sales motion had already left the seat. CEO Bill McDermott has said 50% of net new business is non-seat-based and that AI-native SKUs carry price increases of 20% to 30%, 24/7 Wall St. reported on October 24. “Customers aren't paying us for tokens. They're paying for resolutions,” he said. Investors still grade that business on a figure built for multiyear contracts.

Timing and Armis explain much of the drop, and the scorecard gap remains

Much of the selloff may have little to do with consumption. Analysts quoted by Seeking Alpha put most of the forecast weakness down to timing, accounting and a change in what cRPO covers. The early renewals borrowed from Q4. The EPS miss came from financing the Armis acquisition, and GAAP operating margin fell to 9.5% on amortization from Armis, Veza and Moveworks. Guggenheim kept its Buy rating and $175 target, Rolling Out reported, and estimated organic subscription growth at about 17% to 18%. And plenty of buyers still want seats. Cursor, Attio and Linear still charge per seat for AI products.

No source ties this week's drop to consumption, and the scorecard problem stays anyway. cRPO counts what customers commit to up front, and by Hood's account consumption outside coding arrives slowly and needs customer education first. ServiceNow raised its AI target twice this year and still sold off on a contract figure. Until a vendor gives investors another number to read, moving to the meter costs it on the ones they already read.

Every AI number above is company-stated and unaudited. Microsoft's usage-billing count comes only from the call, and AI ACV is ServiceNow's own metric with its own definition. Neither company splits revenue by billing model, so how much of either quarter is consumption can't be measured from outside.

What this means for CROs moving AI products to usage pricing

Map two buyers in every agent deal. The IT owner renews the seats. The business-unit leader whose team the agent works for funds the meter, the split Nadella described at Microsoft. If your account plan names only the IT owner, the consumption budget has no sponsor.

Treat Hood's warning as a project plan. Before you move a product outside developer tools to usage pricing, write new comp rules and keep a consumption forecast apart from the bookings forecast. Budget time for the customer education she says the shift requires. If your reps are paid only on committed bookings, a metered deal will read to them as lost quota, and they will steer buyers back to the seat.

Give your board a number the meter can move. ServiceNow's quarter shows that a committed-contract metric will grade a metered product on its slowest line. Before your next planning cycle, report consumption growth and AI net new ACV as their own lines next to bookings, each with a written definition of what it counts.

Watch whether ServiceNow's fourth-quarter report in January puts a consumption figure beside cRPO. If it does, every vendor moving agents to the meter gets a template for its own board slide.

Moving to the meter costs a vendor on the numbers investors read, until the vendor gives them another number to read.

This week, add consumption growth and AI net new ACV to your board report as separate lines next to bookings, and write down what each one counts.

By Business of GTM