ServiceNow ramps up enterprise customers - and gets set to do more show than tell

Stuart Lauchlan Profile picture for user slauchlan July 26, 2017
ServiceNow CEO John Donahoe can point to some stellar growth numbers around enterprise customers. Now he wants to get them talking in order to increase his firm's brand awareness. Sound thinking!

John Donahoe, ServiceNow CEO
John Donahoe,

Larger enterprise deals fuelled a strong second quarter revenue growth for ServiceNow with the firm now boasting 403 customers with an annual contract value (ACV) topping $1 million - 32 added during the quarter - and the top two accounts now exceding $15 million. And the good news is that we might be hearing more about such customers soon.

Revenue for the quarter was $471.1 million, up 38% year-on-year, with a net loss of $56.5 million for the period. The company is now looking at hitting a $4 billion annual revenue rate by 2020.

As well as the increasing size of contracts, CEO John Donahoe points to the number of deals that now fall into the multi-product camp. Three quarters of all customers now have more than one ServiceNow product, while 17 of the top 20 deals in the second quarter included more than three products.

Donahoe is also encouraged by the increase in new ACV coming from outside the firm’s traditional IT Service Management (ITSM) base, up to 58% from 40% a year ago:

Our newest products helped drive our strong Q2 results and are being recognized as best-in-class. For example, our HR product addresses a key customer need, which is complementary to leading HCM vendors. This product drove the acquisition of a significant new customer in Q2, a leading airline with net new ACV of almost $3.5 million. Our HR product also resulted in net new ACV of almost $2.8 million with one of our largest existing customers.

The HR push is opening up ever more opportunities, says Donahoe:

Virtually every company and every CEO is making modernizing the employee experience a priority. Millennials are demanding that they get the same kind of experiences at work as they are getting at home. So almost every company is saying, ‘How can we provide a more compelling employee experience at work?’. That's the macro trend that's creating the macro demand.

Now, what's interesting, when you think about it as employee experience, employee experience is a lot more than just HR. It's their full end-to-end experience and that's where we excel. So take employee onboarding. Employee onboarding is a multi-departmental experience. You've got to get your badge from security, your desk from facilities, you've got to get your laptop from IT, you've got to deal with finance, you've got to deal with compliance, you have to deal with HR. So it's more than just an HR experience, it's the full end-to-end experience.

That's where our platform and our capabilities are really strong. Same thing with HR Case Management, same thing with Employee Portal, which is by definition a multifunctional portal. So our sweet spot is something that can help drive end-to-end good experiences, workflows, the way talk about it, to improve the employee experience.

It’s also not, he emphasises, a challenge to the likes of Workday or other HCM providers:

[It] is very complementary with what the HCM providers are providing. It's not in competition with them, but very complementary to provide the best end-to-end working together, we provide the best end-to-end employee experiences for our customers.

Customer service

Perhaps the same thing can’t be said about the most recent focus on Customer Service Management, which would appear to be firmly on collision course with Salesforce, for example. But Donahoe points to a recent $1 million ACV customer win with “a leading provider of healthcare technology” to illustrate the potential opportunity in this space:

Customer Service Management is a huge market and the area where our product has a real sweet spot is in situations where a customer is dealing with a large volume of inbound contacts and/or that they've got to deal with root causes to reduce the human interaction. So the kind of situations we're strong at is when you take those high inbound volumes, much like you get inbound incidents to an IT helpdesk or a HR case management. You've got high inbound volume and you want to automate how you respond, creating as much self-help as possible and the way you do that is to get to what the root cause of the inbound incidents are.

Our product is very well suited to that to help identify what the root cause is, so that you can then remediate without a lot of expensive human interaction. And so that's the kind of use case where our product plays well. And it's turning out to be an entry point in the commercial market for many customers and in this case, in the enterprise market.

Of course, despite the emphasis on new market opportunities, there is still a push around the ‘bread and butter’ of ITSM, still the area where the ServiceNow brand has the strongest profile. Donahoe notes:

Obviously within every IT department, ServiceNow is very well known. For those that are not yet customers, often they either have a renewal of their existing provider that's coming up, and I think we'll have an ‘at bat’, if you will, in almost every one of those cases, or they haven't yet gotten to using software to structure unstructured workflows, and the impetus is on us to demonstrate to them the business value and productivity value that they will get from using our ITSM and core IT products.

So, I think we continue to add new logos simply because where we do focus our energies and effort, we are successful at penetrating. The other observation I'd make is outside of IT and the C-suite, in some ways, ServiceNow is one of the best-kept secrets in world in that our brand awareness outside of IT is not what it, I think, it can be.

My take

I confess that I wince when technology vendors pitch themselves as “best-kept secrets”, my only reaction being to ask, ‘Whose fault’s that then?’. But Donahoe strikes an encouraging note with a commitment to focus more on use case examplars.

It’s a diginomica mantra that there is no better proof point than a use case, very much a case of ‘show, don’t tell’ when it comes to making bold marketing claims. There’s nothing worse than vendor events where a sanitised corporate video of a customer use case is shown, only to be followed up by a marketing rep from the vendor talking about it in the hall instead of letting the customer loose on stage. Donahoe says:

What we are going to do is put a little more focus on customer success, so that we're capturing and documenting and codifying the business value that gets created, which helps a CIO or an IT department within their organization demonstrate the value they are driving inside their company and frankly helps us on upsells, on price realization and on landing new accounts.

He adds:

It's one of those wonderful situations where the substance is ahead of the perception. So I think one of the things we're going to be doing is trying to bring the awareness and perception in line with the substance and I think when people understand what it is we do and what it is we can do and how it can drive business value for them, all it will do is enhance what is an already strong sales motion.

None of that is rocket science. But it’s a worldview that I wish we could see put into practice at a lot of other firms. If ServiceNow delivers on this strategy, it’s something that will give them a substiantial competitive advantage.

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