Government innovation in cloud drives another strong quarter for ServiceNow

Profile picture for user slauchlan By Stuart Lauchlan April 24, 2019
Summary:
Public sector adoption drives ServiceNow through a quarter that saw subscription billings grow 26% year-on-year.
John Donahoe, CEO ServiceNow
John Donahoe, CEO ServiceNow

Increased adoption in the public sector helped ServiceNow to turn in another strong set of quarterly numbers as total revenues shot up 34% year-on-year to hit $788 million.

For Q1 2019, net loss was $1.5 million, but it was subscription revenue of $810 million, up 26% year-on-year and comfortably ahead of expectations of $795 million that caught the eye.

Some stats of note from the quarter:

  • 25 new deals with annual value north of $1 million.
  • Total number of customers doing $1 million of business is 717 up a third year-on-year.
  • 6 federal customers doing more than $10 million of business.
  • 28 Customer Service Management customers on deals of more than $1 million.
  • One $3 million deal with a federal agency, the largest CSM win to date.
  • 600 new features in the recently released Madrid platform upgrade.

For CEO John Donahoe, it’s a quarter that affirms the corporate strategy:

Our focus on the Now Platform and three core workflows, IT, employee and customer are being well received by our customers. And it's empowering our product teams to focus on delivering even more integrated digital workflow solutions that drive great experiences and unlock productivity across the enterprise.

A few weeks ago, we held our first CIO Advisory Board meeting spending two days with roughly a dozen of the top CIO's in the world. We had a rich discussion, reaffirming that we are on the right path with our strategies, our product vision, and our focus on customer success.

The federal government wins are particularly significant. Donahoe notes:

Three of our top 10 largest net new ACV deals were with several agencies, and we now had six Federal customers doing more than $10 million in ACV with us. These results show how the public sector is embracing cloud-based solutions and it demonstrates our role as one of the core strategic partners to these government agencies helping them digitally transform how they operate serving their employees and citizens and delivering services.

He explains:

Included in the public sector will be federal, state, regional and local governments. In the first quarter, I think in my global travel I met with all flavors of that. Simply put those institutions are under more pressure than ever to deliver better experiences for their employees and their citizens and to drive real productivity at a time of economic challenge. And the key thing is that they are now realizing the cloud is a great way to do this. And by and large they largely overcome their security concerns around the cloud. So whether it's the US Federal Government, other federal government, state, regional, local, we see a pretty aggressive appetite to both understand and embrace cloud.

Innovation

And those public sector organizations aren’t just being pragmatic in their cloud adoption, he notes:

Interestingly these government public sector organizations are often some of the most innovative user of our platform. What’s interesting is these federal agencies - and many state regional in Australia, UK and other markets - think ‘platform first’ and they see the power of our platform to adopt their ability to give better experiences.

The Veterans Affairs US agency has adopting a ServiceNow-first philosophy ,both for their employees and for their customers who are veterans. So for instance, they've got a global service desk for over 550,000 Veterans Affairs employees, powered by ServiceNow, and they're using ServiceNow to allow their customers, that is the veterans, to help schedule some of their procedures in their respective hospitals.

So because our assets are in the Veterans Affairs CMDB, if a veteran has to schedule an MRI, ServiceNow’s platform can help figure out which hospitals have which openings, with which equipment and actually schedule their appointment. So I find it very energizing to spend time with…federal agencies because they are some of the creative and innovative users of our platform.

The public sector adoption is also paying off on the bottom line, particularly in the US, he adds:

We over the last several years have built a dedicated US federal team. So we've been focused on both orienting and packaging and ensuring that our platform and our products conform to the requirements of the US federal agencies. In 2018 that was roughly 10% of our ACV; in Q1 this year was roughly 15%…overall public sector - when you add not just the US federal government, but other federal government state and local - could be up to 20% of our business over time.

Verticalization

The success of the expanding government footprint begs the question of whether further verticalized sales pushes are on the cards. This is underway, confirms Donahoe:

It's an area that we're leading into. Federal was sort of the first area where we really focused on it and that is both a go-to-market motion, where you have dedicated people who speak the language, but also tailoring the product to making sure we're meeting the federal security and other requirements.

We have a dedicated [what] we call Meds Life team, but a dedicated team around some of the healthcare market. Again [this is] both to meet the go-to-market expectations of those customers that we understand their deep needs and to ensure that our product complies with the regulatory compliance requirements.

The third area where we have [what]I would call a quasi formal vertical [is] financial services. The large portion of the financial services world is either in New York or London. And so if you were to look at our New York and London teams, you see a lot of dedicated resources toward the financial services sector. Obviously within that you've got banking, you've got insurance, you have other sub-sectors.

With those three furthest along, attention will turn next to the telecoms vertical, he adds:

That's an area where again the needs are very common globally, whether you're Telstra in Australia or AT&T or Verizon in the US or Softbank in Japan. So that's an area I would say is next on our stage to building out a global vertical focus.

My take

The idea that government is being innovative in the cloud is one that warms the cockles of my heart after so many tales of conservatism and lack of progress over the decades. ServiceNow has carved itself a strong niche here. If it can replicate the success in other vertical markets - and on current evidence there seems no reason why not - then it can boast a winning formula.

It’ll be interesting to see how much this verticalization angle is pitched at the firm’s Knowledge user conference in a couple of weeks time. Derek du Preez and Jessica Twentyman will be taking the lead in our coverage from there. For now, Donahoe and his mangement team can head off for the event with a spring in their steps.