Specialist
Former VP at ServiceNow Inc
Agenda
- ServiceNow (NYSE: NOW) and its offerings, addressing its strategy focused on multiple areas and products, as well as expansion into new areas
- Competition in core ITSM (IT service management) segment with players such as BMC Software and Ivanti, as well as other key categories, highlighting some newer areas focusing on workflows for customers, employees and creators
- Corporate governance considerations, focusing on what CEO Bill McDermott brought to ServiceNow in late 2019
- 1-3-year outlook, noting growth opportunities and execution risks
Questions
1.
ServiceNow has evolved and grown quite a bit. It was an ITSM [IT service management] point solution and it’s become a platform for all kinds of workflows, which is how it now positions its solutions. IT is approaching about 50% of net-new ACV [annual contract value] coming from non-IT workflows. I think in Q4 2021 it was 43%, so that number has been steadily trending higher. How would you describe the company and the primary businesses at this point?
2.
You highlighted one of the primary reasons the Now Platform is so important to ServiceNow and its differentiation in the marketplace, particularly compared with legacy players. How has its one-platform approach been consistent and evolved since you started working at ServiceNow? Obviously, it’s a lot easier to maintain that approach to a singular pristine platform when you have one primary solution, but when you’re building out multiple solutions across multiple areas, presumably sticking to that approach becomes more challenging.
3.
You mentioned ServiceNow has been active on the M&A front in acquisitions and investments, particularly over 2021, but these have definitely been smaller. It seems they’ve been used to enhance the company’s offerings and capabilities rather as a TAM grab, where companies buy others because they want to pursue wholly new markets and there’s a lot of integration that needs to be done. I would imagine smaller deals also reduces execution risk. Do you expect any challenges in ServiceNow’s ability to transition the technologies and integrate them into the platform as it becomes larger? Can it remain singularly focused on the Now Platform or could it make some allowances depending on the nature of M&A opportunities?
4.
How was ServiceNow able to take substantial ITSM market share and become the category leader in a relatively short time? Is this just its approach of focusing on one platform? I know there’s a strong focus on the end user, which probably appeals to customers in this area. Why has the company been so successful in ITSM over time?
5.
What percentage of ServiceNow’s revenues would you estimate is generated by the ITSM business? Notwithstanding the tremendous strides the company has made over the last decade, ITSM seems to still be by far the leading generator of revenues in specific categories. Do you think it’s one-half of revenue, more or less? How would you characterise that?
6.
How would you say ServiceNow is continuing to innovate in and around ITSM? Other players are increasingly considering or participating in this area. There are a lot of benefits to being a market leader and having pioneered this approach, as well as to offering all these other IT workflow solutions across ITOM [IT operations management], ITBM [IT business management], ITAM [IT asset management], DevOps, security and GRC [governance, risk and compliance], but what about specifically in ITSM? Would you highlight any areas where the company has continued to innovate and put more distance between itself and the competition? You alluded to automation, and AI has been a large focus in investing and deploying that.
7.
Are there any IT workflow areas or products where you think ServiceNow has a lot more potential than people might understand or appreciate? In a previous Interview [see Client Update – Cybersecurity Trends, Priorities, Partnerships & Spending – 30 June 2021], a former security leader at Zoom highlighted ServiceNow as one of the company’s top three vendor relationships, and said the company was starting to explore different opportunities in the security category.
8.
Increasingly, a lot of ServiceNow’s new business comes from areas outside of IT workflows. The company talks about customer, employee and creator workflows. Where would you highlight the strongest potential? There are entrenched, cloud-first, cloud-only players that have been focusing on the customer employee or creator areas, including some of the world’s largest software companies such as Salesforce, Workday or Adobe. Where does ServiceNow have an opportunity in these very big areas, but arguably ones where there’s a lot of work to be done and an uphill battle to fight?
9.
ServiceNow is starting to pursue more emerging areas, such as IT observability and RPA [robotic process automation]. I think both of those dovetail well with what it has been doing in IT workflows, automation and AI. How do you think about those and what the company is doing across vertical offerings? Vertical and verticalisation have been a major theme across the software category for the last couple of years, and some big M&A transactions were announced over 2021, such as Microsoft acquiring Nuance Communications and Oracle acquiring Cerner. It’s not lost on me that ServiceNow was launching vertical modules two years ago, and now it is seeking six in 2022. Could you discuss these newer areas and vertical opportunities and how you assess the possibilities there?
10.
I would imagine it’s great that ServiceNow has a singular platform and can easily innovate and deploy updates, but I think that becomes a little more challenging as it fragments the solution and segments it based on verticals, creating one solution for telecom, one for healthcare and so on. To what extent do you think that approach could be antithetical to the power of one that the company has benefited from?
11.
ServiceNow has talked about USD 175bn TAM within the next two years, up from a USD 114bn just two years ago. That implies slightly more than 10% growth, and the company has obviously been growing a lot faster than its TAM. How is it pursuing newer opportunities in light of competition?
A lot of people are willing to give ServiceNow the benefit of the doubt in terms of ITSM, even though you could argue BMC is getting better, Ivanti acquired Cherwell in 2021 and Atlassian is a player. What competition would you highlight in ITSM? How can ServiceNow make major inroads into areas such as customer, employee and creator workflows, given the huge and strong companies it’s competing with? How do you expect competition in ITSM and some of ServiceNow’s other areas to play out over the next 1-3 years?
12.
I have heard ServiceNow has premium pricing in the category. Perhaps innovators come in with a lower-priced, lower-cost solution. Would you highlight any competitors in that more emerging category?
13.
How do you address the ceiling of ServiceNow’s potential as it’s competing with Salesforce, Workday and Adobe? Do you think it has a chance at generating significant market share and related momentum, or is it just picking up the proverbial crumbs where other companies can’t do everything for everyone and so this is a way for it to pick off some smaller opportunities?
14.
Would you highlight ServiceNow doing anything different or particular that enables it to gain business and market share and be successful? It seemed you were pointing to the customer area as being potentially the most appealing, and the company seems to showcase a little more in the context of its website. Would you point to anything else giving it a leg-up in newer areas that we’re not aware of or thinking about?
15.
You highlighted the power of ServiceNow’s platform and integrations. It might already be in some of these organisations so a cross-sell opportunity or proof of concept would seem a lot more readily available, but historically, it has been talking to the IT teams about purchases, not sales, HR, or marketing. I think that’s also part of the uphill battle it might encounter in trying to build businesses comparable to what it’s done in IT workflows. You can’t argue with the result and the success, but I think there are some structural impediments that may make this more challenging than is fully appreciated. Would you agree?
16.
Bill McDermott has been CEO of ServiceNow for slightly over two years. He generated a lot of initial excitement and a lot of progress, as you mentioned. I think this notion of refocusing, almost doubling-down on the enterprise, and these very significant partnerships, such as with Zoom, and I think they have a relationship that enables the broader partnership to take hold and be mutually beneficial. What do you think Bill McDermott brought to the company?
17.
Bill McDermott undertook some M&A activity at SAP that was very different to the company’s previous approach. I think people do think there’s an analogue with ServiceNow, given the company historically hasn’t been particularly active around larger deals. Bill McDermott has been with ServiceNow for two years, so he’s built the track record of doing a lot of deals, but they have been smaller. Is there any risk that he could push for larger transactions that might be counter to what the company has done before?
18.
What’s your 1-3-year outlook for ServiceNow and the greatest risk for the company?
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