Looking to radically distance his company from the enterprise-apps sector, ServiceNow CEO Bill McDermott said last week that AI is eating “features and functions” companies as ServiceNow steps in to displace them by connecting customers’ modernized workflows with their data.
As the SaaS sector is being savaged by Wall St. in its fervid but misguided belief that Agentic AI will render apps obsolete, McDermott appeared on Jim Cramer’s Mad Money show to make a few key points:
- AI devouring low-value software companies: AI will obliterate software vendors that are doing busywork rather than driving AI-powered capabilities and insights.
- We’re not SaaS!: ServiceNow is not and never has been a SaaS company, and is being erroneously “lumped in” with the SaaS category.
- Agentic AI will connect workflows and data: ServiceNow bypasses the old apps-centric model and can help enterprises move more rapidly and effectively into the AI Economy.
While it’s certainly possible that McDermott is overstating the case about the imminent extinction of the traditional enterprise-apps business — he described them as “features and functions companies” — there is no question that ServiceNow continues to grow and expand at an impressive rate. Here are a few key Q4 numbers for the company McDermott joined in 2019 after a decade as CEO at SAP:
- subscription revenue up 21% to $3.47 billion;
- current RPO up 25% to $12.85 billion;
- remaining RPO up 26.5% to $28.2 billion; and
- exceeded guidance for all topline growth and profitability metrics.
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In addition, McDermott called out a couple of other key results during his discussion with Cramer: “We’re actually increasing monthly active users in ServiceNow by 25% year over year, and there’s still 1.3 billion seats in our target market. So we’ve barely scratched the surface,” McDermott said.
But it quickly became clear that while McDermott was intent on showcasing his company’s excellent Q4 performance, he was equally focused on trying to distance ServiceNow from the SaaS sector, which has seen market caps slashed by 50% to 100% over the past several weeks. ServiceNow’s market cap has taken a huge hit as well — down by about 50% — and McDermott emphasized that ServiceNow offers a totally different set of capabilities, experiences, and outcomes to customers than SaaS does.
“I see feature companies and perhaps some functional companies actually being eaten by AI because we’re becoming the great consolidator, meaning that these features and function companies are actually being consolidated into ServiceNow as we connect all of the workflow and the data fabric of these great companies so they can improve their return on invested capital,” McDermott told Cramer.
A minute later, McDermott added this additional degree of separation: “And I want to make a point to the shareholders, because you’re absolutely right: we got lumped in with a cadre of companies that have been sort of functional or feature companies, and that has re-rated the multiple.”
If we go back a couple of weeks to ServiceNow’s Q4 earnings call, we can see that McDermott went to great lengths to make the case for why the interconnection of workflows plus Agentic AI plus data will be the new enterprise operating model for the AI Economy.
“The speculation is that AI will eat software companies,” McDermott said in his opening remarks on the Q4 call. “Here are the facts:
“Enterprise AI will be the largest driver of return on the multi-trillion-dollar supercycle of investment in AI infrastructure. The real payoff comes when trillions of tokens move beyond pilots, to be embedded directly into the workflows where business decisions are made. ServiceNow is the gateway to this shift, serving as the semantic layer that makes AI ubiquitous in the enterprise.”
And it is precisely that new AI-powered capability McDermott believes will convince many enterprises to move beyond traditional enterprise apps in part because of the new level of promise offered by ServiceNow.
“We are ‘The Great Consolidator’ of hundreds of feature- and function-specific software solutions into end-to-end business processes with our AI Control Tower for Business Reinvention,” McDermott said on the call.
“You need AI plus workflows because AI is probabilistic, which by definition means we can’t be certain about the results. But workflow orchestration is deterministic — predictable, no randomness — which is required given the sophistication and governance of running global enterprises.
“So AI doesn’t replace enterprise orchestration — it depends on it. It depends on governance. It depends on scale.”
And then McDermott used the Q4 earnings call to hammer home not only what ServiceNow is, but also what it is not.
What ServiceNow is: “We are a platform company executing a long-term platform strategy where AI agents and workflows are harmonious and synonymous creating sustained advantage, not short-term wins. This makes ServiceNow’s AI Platform more strategically relevant today than ever.”
And what ServiceNow is not: “Many people ask why our valuation has not kept pace with our results. The short answer is that we have been viewed as a feature-oriented SaaS company.
“We are not in a SaaS neighborhood.”
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