As inflationary pressures and recessionary fears are pushing some business leaders to hunker down and hope something good might happen, ServiceNow CEO Bill McDermott says the business environment is ideal for a cloud provider that can help customers move faster, build powerful new apps in weeks, and identify new revenue opportunities.
And in a recent Zoom conversation I had with McDermott for our CEO Outlook 2023 series, and also throughout his company’s Jan. 25 earnings call, McDermott’s upbeat views on customer priorities, the changing nature of software development, and the rise of the end-to-end platform for digital business made the case that ServiceNow has become precisely that type of cloud vendor.
So first, I’ll offer a few thoughts from McDermott from our recent 1:1 chat in which he lays out the challenges and opportunities businesses are facing today. Then, from that Jan. 25 earnings call —during which ServiceNow announced that Q4 subscription revenue was up 22% (27.5% in constant currency) to $1.86 billion — I’ll share McDermott’s perspectives on why his company is so bullish on 2023 for ServiceNow and particularly for its customers.
‘Our Customers Are in a Difficult Macro Right Now‘
“They have to increase their automation, their speed, and their productivity per every asset that they have in the company because they have to do more with less. The second thing is they have to also keep an eye on digital transformation and invest for growth, because if they don’t invest in the short term, they’ll slip back in the mid-term, and they may not be around in the long term. So the platform for end-to-end digital transformation means just say yes, because with ServiceNow you can have it both ways: both cost out and growth in.” (Check out the full article from which this excerpt is taken: “ServiceNow CEO Bill McDermott: Driving ‘Revolution in Business Software.’“)
Those End-to-End Challenges
“We started in IT and how you service IT and manage your business assets, and then moved on to helping with your operations to keep everything secure. Then we moved to the employee experience, because in a work-from-anywhere world, you have to accommodate that and you have to recruit people, hire people, onboard them, train them, and provide all the services to your employees on their mobile devices so they don’t have any friction when they go to work. On the contrary, they’re becoming more productive than ever!
“And then the big thing around servicing the customer. We’ve built a great engagement with the United States Army, who just went with ServiceNow for over a million of their constituents. They want to service their business to make sure that the United States Army has the highest level of productivity and transformation of any fighting force in the world. And that’s customer-service management [CRM], and this new paradigm of ServiceNow really breaking through in the CRM category is quite exciting.
“And finally, real people like you and me are building applications on the ServiceNow platform. So you don’t have to be an exemplar engineer — it’s so simple that real people can build apps on it. And that’s happening at a record clip.”
Businesses Must Become Creators of Their Own Applications!
“So this new wave of applications are being built by our customers for their own use. And they can do it in a way that is lightning fast and extraordinarily low cost, and it integrates with all the big departmental needs. So you might want to build something, for example, in the HR department, along the lines of a reward program for all of your employees, and maybe somebody who’s a business analyst for the CHRO [chief human resources officers] does that. But once that’s done, you want that to fully integrate into all the other employee-experience items. So that’s where the common platform is so powerful.
“There’ll be 750 million net new applications built in the next two years on low-code platforms like ServiceNow. And to put that in context, that’s more application development that has taken place in the last half-century. So this is really a revolution in business software…. And everything is immediate time to value. And that’s changing enterprise computing pretty quickly.”
The Case for Being Bullish
So, against that backdrop of the wildly disruptive environments customers are in and the very different types of technology foundations and solutions required to overcome that disruption, McDermott believes ServiceNow can continue to grow at a rapid pace throughout 2023 because it is delivering the new capabilities customers want and need.
From the Jan. 25 earnings call, here’s McDermott making the case:
“We had 126 deals greater than $1 million in Q4, including our largest deals ever worldwide in EMEA and in Latin America.”
“Our 98% renewal rate remains the industry benchmark.”
“With 25.5% constant currency cRPO growth, we actually had better-than-expected new business in Q4 with less reliance on early renewals.”
“Based on this new business surge, we are giving a very strong guidance for 2023. Our guidance reflects a disciplined forecast that appropriately balances our well-founded optimism for ServiceNow’s business. We’ll work hard to go beyond it.”
“The secular tailwinds of digital transformation aren’t going anywhere. IDC research makes it clear that technology budgets are growing: They forecast IT spend will grow 5% in 2023, with software spend at 8% and software-as-a-service at 15%. So as businesses increase their spending, the only question then is where will all that investment go?”
‘The Great Reprioritization‘
“And this answer has everything to do with the great reprioritization…. It all begins with a fragmented enterprise. C-level buyers don’t want long-term roadmaps to clean up a siloed mess of point solutions. They want integration, speed, automation, great experiences, and business impact.
A CEO told me, ‘We can’t afford 1,000 point solutions — we need a cohesive plan with a trusted platform.’ “
‘The Platform Economy’
“So this is now without any doubt, a platform economy. And only a few platforms will be relevant in this shift, and none are as well positioned as ServiceNow…. ServiceNow with born in the cloud, established itself in IT, and expanded from that core. It accelerates with the realities of the multi-cloud world…. We are the control tower for any architecture: public, hybrid, or multi-cloud.”
Coming into ServiceNow’s Q4 earnings call, I was concerned that the company had fallen a bit behind in differentiating itself clearly and in customer-centric terms. McDermott’s Q4 commentary delivered an unambiguous sense of what the company is, where it’s headed, and why that direction will make ServiceNow uniquely qualified to help business customers address the dizzying array of challenges and opportunities in front of them.
And in these shaky times, I believe that if a Cloud Wars Top 10 CEO is willing to stand up and say, “Based on this new business surge, we are giving a very strong guidance for 2023” as Bill McDermott did, then that company deserves — and will receive — a lot of customer attention in the year ahead.
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