Riding one of the hottest growth markets the tech business has ever seen, SaaS high-flyer ServiceNow says CEOs’ insatiable demand for digital transformation is not only driving upward revenue guidance for 2018 but also causing the company to begin planning what it must do to reach $10 billion in annual revenue.
For a company that’s likely to finish calendar 2018 with about $2.8 billion in annual revenue, that’s quite a stretch—but on the other hand, with Q2 revenue up 45% to $631 million, and with its expanded product portfolio showing strong initial uptake, now’s the perfect time for a highly disruptive company like ServiceNow to talk about shooting the moon.
Consider a few data points from the company’s recent Q2 earnings call:
- In the quarter, it closed 28 deals with annual contract values of more than $1 million, up 47% over the total for the year-earlier Q2;
- close to half of those million-dollar-plus customers are based outside the U.S.;
- it now has 575 customers doing more than $1 million in annual revenue;
- it has doubled the number of customers doing more than $5 million in annual revenue, with that total now at 58; and
- it has one customer doing $25 million in annual revenue.
CEO John Donahoe said it’s a matter of ServiceNow having the right approach to what business customers need as software and automation and new business models are turning traditional approaches as well as entire industries upside-down.
“Digital transformation is no longer just a business buzzword—it’s fast becoming an essential business priority for C-suite leaders worldwide,” Donahoe said in his opening remarks on the earnings call.
“I hear this in virtually every customer interaction I have. And ServiceNow is becoming a strategic partner of choice to help these customers enable their digital future.”
Donahoe returned to that theme during the Q&A session of the call when asked to elaborate on what’s driving the thinking behind those C-suite imperatives—and before you dismiss Donahoe’s reply as totally self-serving, bear in mind that this is a cloud company whose growth rates are risingeven as the company gets significantly larger. And the investors have rewarded ServiceNow’s performance as well as its potential by pushing its market-cap over $34 billion.
“As I said, the biggest effect is this digital transformation—and it’s just been stunning to me,” Donahoe said in reply.
“It’s now the primary theme in a multi-hundred customer meetings—that’s how consistently it’s coming up. And because every industry and every company is being disrupted by software, every company is embracing digital technology—and it’s now become a C-suite CEO issue.”
That, in essence, is the primary reason why the Cloud Wars have not only reshaped the tech industry from top to bottom—turning relatively small SaaS vendors like ServiceNow and Workday into high-flying stars while relegating some traditional software companies to also-ran status—but are also driving stunning levels of change and modernization across every industry and every region in the world.
And if Donahoe’s reading the situation correctly, ServiceNow is indeed in the right place at the right time.
“The effect that’s having on us is that it’s pulling up the awareness of ServiceNow’s platform in the enterprise to where CIOs increasingly are revising the question so that it’s no longer ‘do you use ServiceNow’ but instead is becoming ‘why are you not using ServiceNow?’ And ‘How broadly can you use ServiceNow to help drive your digital transformation?’ ”
Yes, of course, you can plug in the names of some other great cloud companies in that statement, but one of the unique things about ServiceNow is simply its rate of growth—45%–even as it approaches $3 billion in annual revenue.
That means that lots and lots of companies are finding real value in automating time-consuming and inefficient chores in IT, in HR, in customer service and in security—and not just automating them but making them smarter and simpler to deliver better experiences for customers and employees.
In many ways, that’s the very foundation for digital transformation.
It’s a position and an opportunity that’s not lost on Donahoe, who joined ServiceNow just over a year ago. And it’s worth noting that Forbes recently named ServiceNow as the #1 most-innovative company in the world, which is a personality trait I called out last year in a Forbes article called Inside ServiceNow’s Surge: How It’s Become The Most-Innovative SaaS Vendor On The Planet.
That hypergrowth opportunity is one Donahoe intends to capitalize on fully, a point he made a couple of times in the Q&A session with the analysts as he described how ServiceNow can begin to imagine life as a $10-billion operation without distracting core teams from the essential tasks at hand in the here and now.
“We’re kind of building out the team that you need to compete on not just the path to $4 billion, but the path from $4 billion to $10 billion,” Donahoe said.
“So for instance, user experience: you’ve heard me and other ServiceNow exec talk about the importance of user experience, the importance of mobile. Well, a year ago, we had 25, 30, maybe 40 user-experience people. Now we have 100, and we’ve hired really strong people. We took advantage of getting a group—we made an acquisition and a group of user-experience professionals who were available and we moved on it,” Donahoe said.
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“I mentioned earlier NowX, which went from being one guy at the beginning of the year to where it’s now 25 engineers, and they’re budgeted to go up to 50 engineers going forward. Again, that’s 50 engineers working on products in the future, not on this year’s roadmap,” he said, noting that ServiceNow’s also built out a “communications and brand” function that never existed before.
“But,” Donahoe emphasized, “we’re building out functions thoughtfully. And these are the functions that we’re going to need to grow into the future…. Our teams in Germany, our teams in Japan, our teams in markets that have huge upside. We want to make sure that we’re, again, capitalizing on the opportunity we have, and getting the right leaders and the right teams in place.”