Riding high on 44% fourth-quarter revenue growth driven by rapidly expanding deals with global corporations, ServiceNow has pushed its way into a tiny group of cloud-software vendors that customers feel are truly strategic partners, ServiceNow’s CEO John Donahoe has claimed.
“CIOs are saying to me, ‘Look, we’re embracing cloud—but as I drive this, I need a few trusted partners, a few trusted platforms that I depend upon,” Donahoe said on ServiceNow’s recent earnings call.
“And they’re making their choices down at the infrastructure level with AWS or Azure, maybe a Google or an IBM. And then they’re looking for a few key strategic software platforms.
“And increasingly,” Donahoe said, “we are one of those core strategic software platforms.
“And I hear that regularly.”
Since CEOs get paid to position their companies optimally, it’s no big surprise that Donahoe is striving for and claiming such status.
But Donahoe’s claims aside, the real issue is this: does ServiceNow objectively deserve to be included in that elite group of strategic cloud-software providers?
In my opinion, Donahoe’s claim is perfectly valid and ServiceNow has indeed become a strategic cloud player—and here’s why I believe that.
If you were to evaluate ServiceNow exclusively by its numbers, you would probably say something like, “Gotta admire their hypergrowth, but with only $1.93 billion in calendar-2017 revenue, they’re just not big enough to be strategic.”
Here’s why that argument is wrong: if ServiceNow had reached the $2-billion mark as a one-product company that was growing rapidly but was the #2 or #3 player behind a much-larger competitor in an established, then I’d agree that it’s not strategic.
But in fact, the ServiceNow story is the exact opposite: it has a fairly broad product lineup (ITSM, Customer Service, Security, Analytics) with each of those segments beating their goals for 2017, and it has in fact created an entirely new SaaS category broadly defined around “workflow” that I analyzed last year in Inside ServiceNow’s Surge: How It’s Become The Most-Innovative SaaS Vendor On The Planet.
On top of that, how “small” is a $2-billion SaaS company? Well, it’s about exactly half as big as Oracle’s very successful SaaS business: for the 12 months ending Nov. 30, 2017, Oracle reported SaaS revenue of $4.02 billion.
You also have to figure that ServiceNow’s probably within 10% of the FY18 revenue Workday will report on Feb. 27, with Workday expected to post yet another booming quarter to drive revenue for the 12 months ending Jan. 31 to more than $2.1 billion. And Workday has definitely hammered its way into the elite club of strategic cloud-software providers.
Beyond the comparative numbers, ServiceNow has earned the “strategic” mantle by virtue of the unique capabilities of its applications, which—unlike most SaaS apps—are designed to run horizontally across corporate departments, functions, processes and applications.
ServiceNow’s products are purpose-built to be end-to-end connectors of workflow and data, and it’s on the strength of delivering that capability to 840 of the Global 2000 that I believe the company has earned the right to be considered a strategic cloud platform.
Because in the emergent world of digital business, the linear and often-clunky processes of the past simply won’t hold up, whether that involves the onboarding of new employees or dealing with customers or locking down enterprisewide cybersecurity.
“This requires looking at the full end-to-end employee experience as an enterprise-wide initiative, which requires cross-functional collaboration and partnership and integrated digital solutions,” Donahoe said during his opening remarks on the earnings call.
“Increasingly, we see CIOs partnering with CHROs and other C-suite leaders to deliver this experience. It requires linking together multiple enterprise products and platforms into a seamless experience for their employees.
“This is what ServiceNow does.”
And at the heart of those changes lies digital transformation.
“In conversations with customers worldwide, I consistently hear how CIOs are being tasked with leading digital transformations across their companies and are looking to deliver great customer and employee experiences in the process,” said Donahoe.
And ServiceNow has been able to help deliver precisely those sorts of outcomes, he said, because of its unique ability to “be the connective tissue that streamlines and simplifies workflows across the enterprise, eliminating silos, and creating more seamless interactions.”
Before sharing Donahoe’s more-detailed comments on that from later in the call, here are some quick numbers to put in perspective ServiceNow’s achievements with customers:
- In Q4, closed 41 deals with average contract value of more than $1 million;
- 500 customers now doing more than $1 million in business with ServiceNow, an increase of 43% year-over-year;
- 50 customers doing more than $5 million per year, up more than 100%; and
- one customer topping $20 million in business for calendar 2017.
Donahoe doesn’t talk about suites, he doesn’t talk about best of breed, and he doesn’t talk about price—rather, he hammers home the differentiation ServiceNow has achieved via the enablement of cross-functional workflows and a maniacal focus on customer success, which I wrote about recently in Why Salesforce.com, Workday And ServiceNow Are Obsessing Over This New Cloud Metric.
While customer engagements still typically begin with an evaluation of ServiceNow’s flagship IT service-management (ITSM) app, “Increasingly, customers are looking at cross-functional workflows,” Donahoe said in the Q&A session of the call.
“And so as we think about ourselves as a strategic platform, what’s interesting is they’re pulling us into new applications—they’re asking, ‘What are your next out-of-the-box applications going to be?’ ”
To meet those expectations, Donahoe said, ServiceNow will be plowing significant investments into the following areas:
- Product and Platform: specifically on Machine Learning, mobile user experience and cloud-management capabilities;
- Customer Success: Customers are “asking for us to play a more proactive role, partnering with third-party ecosystem providers,” Donahoe said, which led to a restructuring of all customer-facing operations—customer success, professional services, training and certification—under the leadership of chief revenue officer Dave Schneider;
- Talent: Donahoe’s eager to bring aboard “new talents, new capabilities, and people who’ve had experience at the scale where we are and at the scale we’re going to”; and
- Company Brand: “Our product brands are very well known in the world of IT,” Donahoe said, “but our company brand? We’re the best-kept secret across industries.”
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