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ServiceNow CEO says process optimization is the “single biggest generative AI use case in the world today”

Derek du Preez Profile picture for user ddpreez April 25, 2024
Summary:
Upon releasing the company’s Q1 2024 earnings, ServiceNow CEO Bill McDermott outlined why the digital workflow vendor sees huge opportunity with generative AI.

An image of ServiceNow CEO Bill McDermott on stage at the Knowledge event in The Hague
(Image sourced via ServiceNow)

Digital workflow vendor ServiceNow has released its First Quarter 2024 earnings report, with numbers that exceed previous guidance and push the company closer to achieving its short-term goal of $10 billion ARR this year. ServiceNow’s subscription revenue grew by 24.5% year-over-year and it secured four deals worth over $10 million in the quarter, which is a 300% increase year-over-year. 

CEO Bill McDermott told analysts during this week’s earnings call that the company’s generative AI products are the fastest selling in the vendor’s history, with Now Assist seeing the biggest net new ACV contribution to date. 

Last year ServiceNow announced its partnership with AI chip giant NVIDIA, where the workflow vendor said it was looking to go beyond general purpose AI and use industry and company specific data to help its customers accelerate their competitive advantage. Since then ServiceNow has made a number of AI product announcements, including the launch of Now Assist, which uses generative AI to deliver “direct, relevant and conversational responses to questions”. 

Key figures for Q1 2024 include: 

  • Subscription revenues of $2.523 billion in Q1 2024, representing 25% year-over-year growth, 24.5% in constant currency
  • Total revenues of $2.603 billion in Q1 2024, representing 24% year-over-year growth, 24% in constant currency
  • Current remaining performance obligations of $8.45 billion as of Q1 2024, representing 21% year-over-year growth, 21% in constant currency
  • Eight transactions over $5 million in net new ACV in Q1 2024, up 100% year-over-year
  • 15 of the top 20 deals included seven or more products
  • ServiceNow now has 1,933 customers paying over $1 million in ACV

CFO Gina Mastantuono said that for Q2 2024, ServiceNow is expecting revenues between $2.525 billion and $2.530 billion, representing between 21.5% and 22% year-over-year growth. For Full Year 2024 guidance, ServiceNow expects subscription revenue to reach between $10.560 billion and $10.575 billion. The market reacted coolly to the guidance, with the company’s share price dipping in after hours trading, but ServiceNow has a habit of managing expectations very carefully.

Generative AI opportunity

ServiceNow’s recent history has seen it act as a process simplifier for enterprises to better manage their work and experiences. The pitch for many years now has been that the Now platform integrates with existing systems of record, minimizing the need to rip and replace other platforms, whilst providing a new digital engagement layer for buyers and their organizations. This is important in the context of generative AI adoption, as one of the key propositions for the technology is providing new ways to engage with processes. For example, instead of understanding and digging into a workflow when dealing with a customer complaint, an agent could (hypothetically) ask the platform: ‘provide me with a summary of this customer’s complaint and some possible solutions’. 

This is likely why McDermott is bullish on ServiceNow’s future opportunity within the context of generative AI demand from buyers - it falls right into the vendor’s wheelhouse and customers are likely going to see the Now platform as its first point of contact with generative AI. McDermott said: 

Process optimization is the single biggest generative AI use case in the enterprise. Any process that exists in the enterprise today will be reengineered, or engineered, depending on how messy the process is with generative AI. So every workflow in every enterprise will be rethought.

So just think about the sales process, for example, and the whole order to cash process. Or think about employees, onboarding, training and providing all the services to them. 

Think about agent productivity, which is something that we're obviously moving very quickly on, where you can bypass the systems that don't integrate very well. And instead of swivel sharing around, or putting customers on hold, they have choice A or B, which one is more pleasing to the customer? Okay, you like B, you go with B. And the case is closed.

Think about managing complex cases across an enterprise where all those screens are open and data is being processed. Instead of having spreadsheets and workarounds and e-mails and text, now you have everything done on one platform with full case information and case closure. 

Every single enterprise will run completely differently because of generative AI and because of our clean sheet platform.

McDermott highlighted a number of customers that are already taking advantage of the company's generative AI features, including Hitachi Energy for case summarization, Equinix for HR workflows, BNY Mellon for service management, and Novartis across a number of use cases. 

Commenting on the demand environment, McDermott said that CEOs all over the world are recognizing that generative AI is a ‘change moment’ and catalyst for ‘business transformation. He added: 

Over the past 15 years, enterprise has experienced a massive decentralization of technology governance. As every department became an IT buyer, the result was too many systems, too many apps, low data quality, and high vulnerability to cybersecurity risk.

And here's the key. Those decisions have been made. So, even as CEOs want to consolidate on to strategic platforms for the long-term, they also don't want to delay the potential of net new innovation in the short-term. They want to de-risk the past while getting immediate business value from AI.

Process optimization is the number one generative AI use case in the global economy today. This is why ServiceNow's strategic relevance as the AI platform for business transformation has never been higher. Every business workflow in every enterprise will be engineered with Gen AI at its core. We are the single pane of glass that enables end-to-end digital transformation.

My take

ServiceNow’s annual user conference, Knowledge, is just around the corner and diginomica will be there on the ground getting user stories and updates from ServiceNow’s leadership. What I’m keen to understand, looking ahead to the event, is how ServiceNow anticipates buyers will use generative AI beyond build in features and functionality to existing platforms - and to get a better understanding of how this new technology will fundamentally change how businesses operate. We will report back. 

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