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A Perspective of ServiceNow's Future

A Perspective of ServiceNow's Future March 16, 2017

servicenow logoA couple weeks ago, Frank Slootman, CEO and Chairman of ServiceNow, announced he’s leaving his post as Chief Executive Officer, yet remains as Chairman of the board.  To replace Slootman, the Company is bringing in John J. Donahoe as their new CEO, probably for his Silicon Valley type experience and new ideas to help achieve ServiceNow’s lofty growth goals.

I’ve spent many years in the ITSM consulting trenches, working with CIOs on ITSM and service desk strategies and implementations. It has been quite interesting to watch the ServiceNow footprint grow and hear from a C-Level perspective the reasoning why ServiceNow has displaced so many products from major players like BMC, HP, and IBM. I thought it might be worth sharing our real-world perspective of where we see things heading, not only for the ServiceNow firm, but also in the Service Management industry.

ServiceNow has set for themselves some significant growth goals for 2017.  They seek to quadruple the $1 Billion in revenues they earned in 2016, to approximately $4 Billion in year 2020.  That’s a pretty impressive number for a software company dedicated to ITSM.

The company’s growth over the past decade has been mostly from displacing products such as BMC’s Remedy, HP’s Service Manager, and the like.  There is only so much market share left for ServiceNow to convert which is why they have been expanding to support implementing Service Management type capabilities into other areas such as Human Resources and Customer Service. In given time, we will probably see a little more finesse around its strong ITSM messaging with focus on business change as a result of implementing service management capabilities across the enterprise.

Alongside the aggressive growth announcement, came the rumblings of a ServiceNow acquisition by someone like Salesforce.  Many of you recall that Salesforce’s partnership with BMC offered the Remedy Service Management software in the cloud called RemedyForce.  About a year ago, Salesforce broke off this partnership and is no longer reselling RemedyForce. However, the product and offering is still available in the Salesforce appexchange and is fully supported and being enhanced by BMC.  It makes you wonder; Why did Salesforce abandon the partnership? Is this a space they are not interested in pursuing?  Was there not enough demand? Or did they think they could do better by partnering with a different firm or building something themselves?

The ServiceNow offering ate BMC Remedy’s lunch primarily due to the platform being a 100% cloud based SaaS solution built from the ground up using the ITIL principles.  It was quicker and easier to configure an initial installation and the CMDB, where Remedy Atrium and HP’s uCMDB had been the dominant players was faster and easier to setup (or at least perceived that way – I’ll talk about the reality of CMDBs some other day).  This cloud-based company and offering is more in-line with Salesforce’s portfolio of companies that it has acquired.  Salesforce has purchased 20 companies in the past 4 years, $5Billion alone in 2016.  It has been expected that Salesforce will continue to acquire companies in 2017, but maybe not at the rate it did in 2016.

That being said, I do not believe ServiceNow will be acquired in 2017 and even if it was, I do not believe the acquisition would be by Salesforce.  Here is my reasoning:

  • ServiceNow’s valuation would be significant. I am figuring the valuation to be in the range of $10B or more. This would be larger than other Salesforce acquisitions. (although their attempted purchase of LinkedIn would have been at least $25Billion)
  • ServiceNow needs to focus on their 2016 acquisitions. A large acquisition would not be a good idea right now.
  • I do not think ServiceNow brought Donahoe in to be a transitional CEO. Frank Slootman would just have stayed in place during the transition
  • ServiceNow is gearing up for significant growth and the acquisition may not provide the opportunity many think it would.
  • The acquisitions would instantly create angst with buyers who have had issues with a salesforce implementation, creating limits to the market ServiceNow doesn’t currently have.
  • ServiceNow would probably have to move their backend infrastructure onto the force.com platform. This creates extra work without much positive.
  • It puts Remedy, Samanage, and ServiceNow on the same platform, which really isn’t an advantage for ServiceNow.

John Donahoe was hired on a 5-year contract, so there is significant forward thinking for him.  I could see ServiceNow start to acquire smaller companies to help increase the top-line and expand their portfolio some (as long as it is in line with their service management portfolio).  Donahoe lead EBay through several acquisitions and some of this experience may be exactly what Slootman and the ServiceNow board have been looking for.

Although capable, ServiceNow will need to work hard to make their lofty revenue goals.  They had an impressive 4th quarter in 2016 and seem to have great momentum.  However, after the low hanging fruit opportunities have been taken, it will become more difficult to supplant their competitors.  Their growth and leadership in the Enterprise Service Management space is smart and will be a key driver in their revenue expansion.  As long as they don’t forget about their core “IT”-centric business they should continue to grow.  Otherwise, ServiceNow could be susceptible to losing business to challengers like Cherwell or small up-and-comers like Samanage.