Looking on the bright side with ServiceNow CEO Bill McDermott

Profile picture for user slauchlan By Stuart Lauchlan October 28, 2021 Audio mode
Summary:
CEO Bill McDermott can even spot a silver lining in the supply chain crisis...

Image of Bill McDermott ServiceNow CEO

ServiceNow CEO Bill McDermott was in hugely confident mode as the commented on the firm’s Q3 numbers yesterday, talking up what he called “our clear path to 15 billion plus in revenue by 2026”.

The company reported  revenue of $1.512 billion, up 31% from a year ago and a net income of $63 million. Other stats of note from the earnings:

  • Subscription revenues hit $1.43 billion.
  • 1,266 customers are  paying $1 million in ACV.
  • The number of deals greater than a million dollars was 63 up 50% year-on-year.
  • All of the top 20 deals included 4 or more products..
  • ITSM was in 18 of the top 20 deals.
  • IT operations management, had 10 deals over $1 million.
  • CSM  was in 12 of the top 20 deals, with 8 deals over $1 million.
  • Creator Workflows were in 18 of the top 20 deals.

All of this leads McDermott to declare:

The reality is we've become a platform company. I came in a couple of years ago now and we've really seen the transformation of the company to a full-scale enterprise software company. We took the strength that we had in IT and we have made it really our hallmark, because it's very clear now in this world, as the world is dealing with digital transformation, everybody understands that the technology architecture is the business architecture.

That has given us enormous responsibility, but also permission to expand the perimeter into the employee experience, into Customer Service Management, including direct-to-consumer, Field Service Management. This creates a workflow business which is just an absolute sensation and ties together so many of these disjointed processes, systems and silos in enterprises today, and really puts together an enterprise software market-leading approach from ServiceNow. So think of us as an enterprise player on a platform that is unstoppable.

There’s a new era of software innovation underway, he added:

Technology teams want a fully integrated software cycle; planning, development, deployment, operations, and service. ServiceNow is leading this 20th to 21st Century migration for our customers. The Now platform, with its immense versatility and scalability, has become the control tower for digital transformation…Leaders today recognize their technology architecture is their business architecture. Over several decades, enterprises invested trillions in on-premise and first-generation SaaS applications. These applications satisfied the business process needs of the 20th century. Today, new business models require a fully connected value chain. Legacy environments are not adaptive enough to enable this change.

Market growth

The firm is seeing growth across of its industry categories, said McDermott:

It's amazing. Industries that were COVID-impacted - like transportation, logistics, business services, telecom, media, technology, financial services, government, education - every single one of them was unbelievable success story this quarter. And we have expanded dramatically in manufacturing, healthcare, life sciences, telecommunications, and banking, just to name a few.

The Federal Government sector has been a particular sweet spot, with 15 new deals worth over $1 million, while fourteen Federal agencies are now paying ServiceNow north of $10 million. McDermott said:

It's pretty amazing how the government is rethinking strategies in terms of communication and providing the services digitally to the citizens, which is incredible because as you know, that's all about the user experience and it's a workflow challenge. For example, look at how difficult it was for the government to get money out to small businesses during COVID.

There also were some big opportunities with new initiatives in the [US] administration including resiliency,  business continuity, outages, terrorism, COVID, cyber-security on top of many lists. The White House actually put out an executive order on improving the nation's cyber-security after recent ransom attacks. That's all workflow-related, leveraging existing systems that don't talk to each other very well. You certainly not going to rip and replace them, so that's where the Now platform comes in.

Then just think about vaccine management - it remains one of the greatest workflow challenges the government faces. And boosters now will likely need to be re-administered on a regular basis. This again is a workflow challenge to distribute, administer, and monitor vaccines. We're in the mix on all of that.

And what we're seeing is the connection of Federal, state, and cities. They're all implementing the Now platform to engage with citizens. They're using products like Customer Service Management to help digitize these workflows that can no longer be processed in person, because the offices are still closed during the pandemic.

McDermott’s upbeat tone even extends to the global  supply chain crisis:

This is actually an opportunity for us, because what's happening now is companies have to re-orient their business models. They have to think about their extended supply chain. They have to re-wire who their partners are actually going to be and who they're not going to be, how they're going to source things from different places in the world that they've never even worked with before.

This is all going to create the extended supply chain opportunity for the Now platform. You might have noticed, for example, we acquired Deep Brain, which is a small company in Denmark because we are in so many different ERP related conversations where we're helping our great ERP friends instead of doing mass customization through consultants that would take years and years. With the Now Platform, you can do it in days. So this is creating a ground swell of opportunity on the ERP level, on the supply chain level, on the finance level, on the procurement level, it's just unbelievable. I mean, I've never seen an opportunity like this in my entire career.

My take

A strong quarter from a company that’s rocket-powered on CEO enthusiasm.