While 3-1/2 years of impressive growth and strategic repositioning under CEO Bill McDermott have powered ServiceNow to its first $2-billion quarter, I get the sense from McDermott’s Q1 earnings-call commentary that we’ve only gotten a glimpse of what the future holds for the high-flying workflow-platform company.
Why am I making a frothy claim like that?
Well, I’ll give you several reasons, the first of which is McDermott telling an analyst during the April 26 earnings call that “we’re going to knock your socks off” with some product announcements in two weeks at ServiceNow’s big Knowledge ’23 event in Las Vegas May 16-18. While that sock-knocking-off comment was unquestionably aimed at new products and had nothing to do with quarter results, it’s generally just not the type of thing a CEO says to a room full of financial analysts.
Of course, these days, not many cloud CEOs are delivering the types of numbers that ServiceNow did for Q1:
- Subscription revenue up 27% in constant currency to $2.02 billion
- RPO up 24% in constant currency to $14 billion
- Current RPO up 25% in constant currency to $7 billion
- 66 deals with net-new ACV of more than $1 million, up 52%
- 18 of 20 top deals included five or more products
- The subscription-revenue outlook for the year was raised by $25 million to a range of $8.47 billion to $8.52 billion
- Q2 subscription revenue is expected to grow between 23.5% and 24% to about $2.04 billion
“Consolidation Is a Tailwind”
Driving that momentum, McDermott said, is the dawning realization among business leaders of every stripe that unless they eagerly embrace the need to hang together to effect an end-to-end digital transformation, they will surely hang separately.
“When you filter all that noise, it comes down to one simple reality, there is an app for everything, but nobody wants every app,” McDermott said on the call.
“That consolidation is a tailwind for ServiceNow as the intelligent platform for end-to-end digital transformation. In fact, we are now seeing conversations up-leveled to being about business transformation, and this is bringing CEOs directly into the process as principal executive sponsors.”
Gone, McDermott said, are the days of fragmented departmental-level tech buying with zero connection at the corporate level, a terribly limited approach that yields only temporary improvement.
“They aren’t interested in turf battles between departments — they want enterprise-level investments that truly drive business impact… This is all about CEOs engaging on a strategic level and insisting on the creation of a clean roster of technology partners to drive very specific business outcomes.”
As an example, the extraordinary promise of generative AI also carries with it the potential for more balkanization across providers of AI services, with the end result being too much complexity, too much fragmentation, too much cost, and too many weeks/months/quarters until the delivery of tangible business outcomes.
Built for Generative AI
“For example, when it comes to technology in the age of generative AI, for customers it’s a build, buy, and operate conversation,” McDermott said.
“They’re looking for a single platform that can orchestrate the entire technology value chain — and ServiceNow does exactly that.
To hear practitioner and platform insights on how solutions such as ChatGPT will impact the future of work, customer experience, data strategy, and cybersecurity, make sure to register for your on-demand pass to Acceleration Economy’s Generative AI Digital Summit.
“At the same time, every business is also working hard to transform their customer experiences. The AI opportunity here is integrating the front, middle, and back offices to better serve customers. And this is a ServiceNow core competency,” McDermott declared.
CEOs ‘Need to Shake Things Up’
My below-average brain always starts to pound like an off-balance clothes dryer when companies in the Cloud Wars Top 10 try to articulate the value of their platforms by listing deep-technology benefits that perhaps 5,000 people across the globe can truly understand or appreciate. So one of the other reasons I believe McDermott is sitting on a full house — or maybe even four 10’s — is that he’s stepped fully out of the platform-as-wonky-tech discussion and has kicked open the platform-as-business-accelerator conversation.
“On the internal side, it’s all about reducing the number of touchpoints that employees need to get their work done,” McDermott said.
“People can’t maximize their potential when they have to be juggling multiple systems with different user experiences. So our customers are using ServiceNow as their one-stop digital hub to create a consumer-grade experience at work.”
Again, this is not about swapping out technology and expecting to achieve business transformation — rather, it’s about first plotting out the strategic future of a business and then applying the technology best suited to drive the appropriate outcomes.
For McDermott, that means ServiceNow’s ambitious growth plans are intimately fused with the business imperatives and objectives of his customers.
“The C-level decision-makers — the CEO, the CFO, obviously the head of technology, along with the CHRO and the leaders of various other departments in the company — are aligning their business strategy on technology platforms that truly matter and can impact business results. At the same time, they’re moving away from the ‘app of the day’ and platforms that don’t matter. Plus, they’re also taking antiquated platforms and building our innovation on top of them,” McDermott said.
“So whether the customer’s focused on efficiency, productivity, cost take-out, or business-model innovation, ServiceNow has never been more relevant.
“And this is a message I’m hearing directly from CEOs who know they need to shake things up — and, they want our help to do it.”
Final Thought
McDermott’s always highly engaging, passionate, and customer-obsessed, and those themes came through clearly to me on the Q1 earnings call.
But I also sensed from McDermott something more than that and his handful of references to some very big things coming at Knowledge ’23. Plus, I got the impression that McDermott’s first 3-1/2 years at ServiceNow have been in part a build-up for what’s about to come, with people and culture at the core of some big new capabilities.
“And the good news — and I truly believe this — is that we’ve got a new dimension here where our culture is actually attracting people in the marketplace so that we’re hiring people who are truly best-in-class,” he said.
“I honestly believe we’ll look back at this moment and how we’ve been putting our people first as something that created a very special and highly differentiated company as it relates to the desire of people to work here.”
