ServiceNow CEO - our approach to service management is different to the CRM vendors

Profile picture for user slauchlan By Stuart Lauchlan April 20, 2016
Salesforce and Oracle have made moves on the service management space, but they're coming at it from a different direction, insists ServiceNow CEO Frank Slootman.

Frank Slootman

We've seen Salesforce and Oracle make moves on the service management market, but the growing importance of the sector might be gauged on Wall Street’s response to ServiceNow’s latest quarterly numbers yesterday.

While the firm turned in GAAP net losses of $333.3 million against a year ago comparison of a loss of $58.1 million, revenue soared 44% to hit $305.9 million.  Non-GAAP net income was $14.5 million, compared to a non-GAAP net income of $2.5 million a year ago. Billings were $376.7 million, an increase of 41% year-over-year.

Wall Street is taking a long term view here though and the firm’s share price was up 8% in after hours trading. No panic here.

One reason for that may well be a 48% increase in the number of enterprise customers now paying more than a $1 million in annualized contract value, with 249 examples of this in practice, while the average Global 2000 customer is now spending $906,000, up 21% year-on-year. The firm also delivered a 97% renewal rate with existing customers.

CEO Frank Slootman is quick to point to strong upsells as well as new business, including Bank of Ireland and Tata Steel in the past quarter. The firm landed 13 upsells with annualised contract value of more than $1 million:

An existing Global 2000 customer signed a $20 million up-sell over five years increasing its commitment by approximately 380%. The up-sell was driven by significant product expansion including service-watch, platform and project portfolio suite. Another existing Global 2000 customer signed a $10 million up-sell over five years doubling its initial 2015 contract value.

This kind of upsell is being driven by a number of things, attests Slootman:

What’s really going on is that in our customer base, people are really gaining the confidence to have longer relationships and bigger relationships with us. They are stepping up in a much more strategic sense. The notion of ‘I am just going through to replace some legacy apps, do some modernization’, that's sort in a rearview mirror. They are moving with much stronger strategic intent on ServiceNow as a key platform in their overall technology portfolio and that's really what’s driving it. Big upsells really reflect strategic intent on the part of our customers.

New offerings

Earlier this month, ServiceNow acquired cloud management start-up ITapp, with the intention of surfacing its capabilities on the ServiceNow platform next year. Slootman expects this to be a compelling proposition:

As more enterprise workloads move to public and hybrid clouds, we’re in a strong position to provide customer with visibility and control of the cloud application services. ITapp represents the reinvention of operations management for cloud-hosted applications world.

He adds:

The whole notion of cloud management has been on our radar for years and we have had our own internal development in this area as well and a bunch of our customers are using our provisioning capabilities for AWS and Azure and things like that.

We are going to fully re-platform, meaning that this is not going to be integrated> We don't do an integration, we do re-implementation. That means it's going to run on our clouds, on our platform, in our UI framework, there really will be no seams, no separation between these services and the ones we have built previously.

That's going to be completed sometime during the first half of 2017. This is not trivial technology it takes time to mature because there is just a ton of variables that this kind of software needs to take into account it's not a simple application at all.

But the effort will be worth it, insists Slootman:

We think this is a marketplace or segment of the marketplace that is in its infancy and it's going to take considerable amount of time for people to learn and understand how to deploy this. It’s a complete re-invention of how operations management and system management really works in a cloud-hosted environment. So we need to own this. It is strategic to us.

The reason is that it is a key resource that gets requested and provisioned through our platform, so the ability to provide that is very, very important. We cannot not be in this marketplace. We got a very strong response from our large Global 2000 customers saying ‘This is exactly the right thing for you to be doing’.

The firm also sees the public sector as a lucrative pipeline opportunity:

We achieved FedRAMP certification in February significant milestone for our federal business. This multi-year effort to meet the government's most rigorous technical standard for cloud computing will have a material impact on our ability to sell into the federal market for years to come. ServiceNow operates the only enterprise service management cloud platform granted this highest level of FedRAMP certification.

Not like CRM

The firm is also seeing good traction in the customer service space. Possibly with an eye to Salesforce’s recent announcement that it is pushing into the service management market, Slootman says:

Customers are choosing us over CRM-based products because of the holistic service management approach, which includes incident, problem and change management disciplines. This provides a better closed-loop solution not only to improve the quality of the service but also of the core product.

He adds:

Our positioning, relative to customer service, is different from the traditional CRM approach that you might get from Oracle and Salesforce. We are going out with the service model as it has been defined and pioneered and matured on the IT side. It's a holistic model because it doesn't just care about the engagement model with the customer. It also cares about root cause analysis, which is the engineering vector, and it cares about operations.

You know, like how do I change the product or service to make sure that it's higher quality and these people do not keep calling me with the same set of issues and requests? The IT customer understands this almost innately and intuitively. That’s what we take advantage of. We really deal with people that have an intuitive understanding of why this service model makes sense and the more the service model looks like what they deal with in an IT organization, the more people will come to the realization that this is the way to do it.

When you look at the service model, it's a very different offering. So, we are not showing up with a ‘me too’ offering. We have a very different approach to coming into this marketplace.

The interest of the likes of Salesforce and Oracle in the service management business does reflect the shift in how end user organizations regard the importance of service as a key agenda item. This in turn will lead to shifts in how ServiceNow’s business breaks down, with wider service management on the rise alongside the firm’s traditional IT service management. Slootman predicts:

We think that by 2020 service management will end up being about half our business. We may be underestimating or overestimating that, but that's sort of an end state where we are envisioning at that.

My take

A solid performance with a lot of potential in a market sector that’s set to see a lot of action in the coming years. It will be interesting to get a deeper insight into  the company’s new product initiatives at its Knowledge user conference in Las Vegas next month.