ServiceNow CEO Bill McDermott on AI impact: It's been an amazing uptake in our business
Summary
TLDRServicenow reported strong fourth quarter subscription revenue growth and raised fiscal year guidance, fueled by demand for its AI capabilities. CEO Bill McDermott touted Servicenow's early mover advantage in bringing large language models to its platform, enabling companies like Visa, Siemens and EY to boost productivity through AI use cases. McDermott highlighted partnerships with AWS and Microsoft, as Servicenow becomes an enterprise standard. Despite some ongoing economic caution, McDermott expressed confidence in Servicenow's growth, with $18B in RPO, 99% renewal rates and outperformance versus peers.
Takeaways
- 😊 ServiceNow had very strong Q4 results, with subscription revenue growth and raised guidance
- 🚀 There is huge appetite and momentum for ServiceNow's generative AI capabilities
- 💰 ServiceNow's AI solutions are delivering 40-52% productivity gains for customers
- ⚡️ ServiceNow's platform is becoming the standard for enterprise digital transformation
- 👍 Strategic partnerships expanding with Microsoft, Amazon AWS and others
- 😎 ServiceNow landing deals with leading companies like Visa, Siemens, EY and Chipotle
- 💡 Use cases span HR, IT, customer service, risk management and more
- 📈 Exceptional financial performance - growing revenue at the Rule of 55
- 🔒 99% renewal rates show extremely sticky customer relationships
- 🤑 Activist investors approaching ServiceNow for advice before targeting companies
Q & A
What has been the customer appetite for ServiceNow's generative AI solutions?
-ServiceNow said there is a "strong appetite" for its generative AI solutions based on the momentum seen in the market and demand from customers.
How does ServiceNow's AI platform help companies like Visa and Siemens?
-ServiceNow's AI platform helps companies like Visa resolve payment disputes end-to-end and helps Siemens boost HR productivity by resolving cases automatically instead of tying up people on phone calls.
What percentage productivity boost does ServiceNow's AI platform provide?
-ServiceNow's CEO said their generative AI solutions on the ServiceNow platform provide anywhere between a 40-52% increase in productivity.
Why does ServiceNow's COO say the demand environment continues to be tough?
-He says there is a "new normal" where large deals at big corporations require multiple approval layers including the CEO, so cycle times for major deals are longer.
What major companies are now standardizing on ServiceNow?
-Microsoft, Amazon AWS, and many major banks and manufacturers are standardizing on ServiceNow as their digital transformation platform.
What is ServiceNow's current ACV, RPO growth rate and margins?
-ServiceNow has $10 billion in ACV, $18 billion in RPO growing over 50%, and expanding margins.
Why are activists approaching ServiceNow before targeting companies?
-Because they are blown away by ServiceNow's business model - 55% growth rate at scale, 99% renewal rates, and strong margins.
How does ServiceNow plan to keep up its high growth rate?
-By expanding within current customers as they see the value, and landing in new major corporations who want to standardize on their intelligent digital transformation platform.
What makes ServiceNow's AI solutions different from others?
-ServiceNow focuses on domain-specific AI use cases that boost productivity, versus generic AI. Their solutions are tied to specific examples and business outcomes.
What is the benefit of ServiceNow listing its products in the AWS Marketplace?
-It allows AWS customers to easily purchase and deploy ServiceNow's solutions alongside other cloud services, with the same performance as ServiceNow's own cloud.
Outlines
📈 ServiceNow's revenue growth and AI momentum
Paragraph 1 discusses ServiceNow's strong fourth quarter subscription revenue growth and raised fiscal year guidance. It highlights the company's momentum in generative AI, led by CEO Bill McDermott. There is great demand and analyst enthusiasm for ServiceNow's AI capabilities to drive digital transformation, with major customers like Visa, EY, and Chipotle.
😎 Longer sales cycles the new normal, ServiceNow still hot
Paragraph 2 covers how ServiceNow's COO indicates that despite ongoing platform relevance, the demand environment continues to involve longer approval cycles and CEO-level signoffs. Bill McDermott suggests this is the new normal but that strategic platforms like ServiceNow still see strong interest and expansion once adopted. He expresses confidence in ServiceNow's growth and 99% renewal rates.
Mindmap
Keywords
💡artificial intelligence
💡digital transformation
💡productivity
💡legacy systems
💡standardization
💡growth
💡renewal rates
💡CEO oversight
💡activist investors
💡Partnerships
Highlights
ServiceNow saw strong appetite for generative AI and momentum in the space
ServiceNow was first mover in bringing domain-specific LLMs to their platform
Generative AI product has outperformed every other product ServiceNow has launched
Companies want an intelligent platform for end-to-end digital transformation
Generative AI delivering 40-52% productivity gains on ServiceNow platform
ServiceNow performing at Rule of 55 between growth and cash flow
Customers can now choose ServiceNow in AWS Marketplace
Major enterprises have longer sales cycles requiring CEO approval
Strategic platforms chosen by major corporations will have several approval layers
Clear value drives sales in this environment rather than digital transformation hype
ServiceNow expanding with every major company they present to
Activist investors coming to ServiceNow for advice before targeting companies
ServiceNow has $10B ACV and $18B RPO growing at Rule of 55
ServiceNow has 99% renewal rate, highest in software industry
McDermott credits CNBC hosts with believing in ServiceNow's strong quarter
Transcripts
SERVICENOW SUBSCRIPTION REVENUE
CLIMBING FOR THE FOURTH QUARTER
AND THE COMPANY RAISING FISCAL
YEAR GUIDANCE, COMPANY
SAYING, "STRONG APPETITE FOR
GENERATIVE A.I. AND MOMENTUM IN
THE SPACE.
BILL McDERMOTT, SERVICENOW,
PERHAPS THE CONFERENCE CALL I'VE
NEVER SEEN MORE ANALYSTS LOVE.
CONGRATULATIONS.
WE'RE EFFUSIVE
IT'S JOINING US NOW.
BILL, THANK YOU FOR COMING ON
"SQUAWK ON THE STREET.
>> THANK YOU, JIM.
THANK YOU VERY MUCH FOR HAVING
ME
>> LET'S GET RIGHT TO IT
THERE ARE A LOT OF PRETENDERS
OUT THERE, BILL.
THERE ARE PRETENDERS WHO USE THE
TERM A.I
THEY THROW IT AROUND AS IF IT'S
SOMETHING THAT THEY NEED TO MOVE
THEIR STOCK.
I THINK YOU, IF I CAN TELL
RIGHT, THERE MAY BE A BILLION
DOLLARS IN REVENUE THAT CAME
FROM A.I. IN THIS QUARTER FOR
YOU.
YOU ARE NOT A PRETENDER.
TELL US HOW YOU'RE DOING IT.
>> WE'RE DEFINITELY NOT A
PRETENDER, JIM
WE WERE THE FIRST MOVER IN
ACTUALLY BRINGING
DOMAIN-SPECIFIC LLMs, LARGE
LANGUAGE MODELS, TO THE
SERVICENOW PLATFORM.
WE HAD THIS PRODUCT ON THE
MARKET FOR JUST A LITTLE OVER A
QUARTER, AND IT HAS OUTPERFORMED
EVERY OTHER PRODUCT THAT WE HAVE
EVER BROUGHT TO MARKET
AND YOU KNOW, WHAT'S HAPPENING
OUT THERE IS COMPANIES REALIZE
THAT THEY NEED AN INTELLIGENT
PLATFORM FOR END-TO-END DIGITAL
TRANSFORMATION
THIS PLATFORM IS DOING THE JOB
FOR GREAT COMPANIES LIKE VISA
WHERE THEY WANT A FIVE-YEAR
STRATEGIC ALLIANCE TO TRANSFORM
THEIR PAYMENT SERVICES USING GEN
A.I. SOLUTION FOR END-TO-END
DISPUTE RESOLUTION, AND I CAN GO
ON WITH EY AND MANY OTHER
COMPANIES LIKE CHIPOTLE AND
OTHERS
IT'S JUST BEEN AN AMAZING,
AMAZING UPTAKE IN OUR BUSINESS
>> BILL, A LOT OF TIMES, ALSO, I
HEAR PEOPLE SAYING, LOOK, IT
HELPS PRODUCTIVITY
YOU'VE GOT ACTUAL USE CASES.
I'M GOING TO GIVE YOU A CHOICE
HERE
YOU CAN TALK ABOUT THE GERMAN
APPLIANCE COMPANY, OR YOU CAN
GIVE ME VISA OR TELCO OR BANKS,
BUT YOU'RE TALKING ABOUT DISPUTE
RESOLUTIONS, CONCRETE THINGS
THAT A.I. IS DOING THAT FREE UP
OTHER PEOPLE TO BE MORE
PRODUCTIVE
I NEED SOME EXAMPLES
>> YEAH, EXACTLY
SO, IF YOU THINK ABOUT SIEMENS,
THEY'RE TRANSFORMING THEIR
EMPLOYEE EXPERIENCE USING GEN
A.I. TO BOOST PRODUCTIVITY SO
THAT CASES IN HR CAN BE RESOLVED
BY THE SYSTEM, NOT TIE PEOPLE UP
ON 800 LINES
IF YOU THINK ABOUT COMPANIES
LIKE EY, YOU KNOW, THEY HAVE
400,000 EMPLOYEES, AND THEY HAVE
TO MANAGE GOVERNANCE AND RISK.
THEY'RE USING SPECIFIC USE CASES
ON THE SERVICENOW PLATFORM TO DO
THAT
SO, EVERYTHING WE DO IS TIED TO
VERY SPECIFIC EXAMPLES
IF YOU LOOK AT BANKING, BANKING
RIGHT NOW, IF YOU THINK ABOUT
INTEGRATED RISK MANAGEMENT,
MANAGING AN MRA PROCESS, THESE
ARE VERY DETAILED, SPECIFIC GEN
A.I. USE CASES, YOU KNOW, AND
PEOPLE DO IT RIGHT, THEY GET
PROMOTED
PEOPLE DO IT WRONG, THEY GET
FIRED.
SO, THE WORK THAT WE'RE DOING
HAS A PROFOUND IMPACT ON THE
PERFORMANCE OF COMPANIES, AND I
ALWAYS SAID THAT THIS WOULD BE
JET FUEL INJECTED INTO AN
ALREADY HIGH-PERFORMING ENGINE
NO COMPANY IN OUR CLASS HAS
PERFORMED LIKE SERVICENOW, NOT
ONLY BEATING OUR GUIDANCE BUT
DOING SO AT THE HIGHEST FORM OF
THE HIGHEST CONSENSUS ON WALL
STREET, AND WE'RE PERFORMING AT
THE RULE OF 55, YOU KNOW,
BETWEEN REVENUE GROWTH AND FREE
CASH FLOW AND NO OTHER COMPANY
IN THE WORLD IS DOING THAT AT
OUR SCALE.
>> I WISH I COULD -- THAT'S THE
SUPERLATIVE THAT THE ANALYSTS
FOCUS ON, AND OF COURSE THAT'S
ABSOLUTELY RIGHT
27.5 RPO GROWTH.
$18 BILLION RUN RATE AT THE END.
THESE ARE NUMBERS -- YOU WERE
TALKING ABOUT WHEN IT STARTED.
I MEAN, I DON'T KNOW IF YOU HAD
$1.8 BILLION
BUT I DO -- WHAT I CONTINUE TO
DRAW DOWN, THERE ARE CUSTOMERS
THAT YOU WANT.
YOU WANT THE FEDERAL GOVERNMENT.
IT SEEMS LIKE YOU ALMOST OWN THE
FEDERAL GOVERNMENT
YOU WANT DEFENSE
THAT'S YOU
YOU WANT TELCO
THAT'S YOU
YOU HAD 23 OUT OF 24 BANKS
COMING IN.
I WAS VERY DISAPPOINTED THAT YOU
DIDN'T HAVE THE 24th BANK.
YOU GOT THAT
YOU GOT VISA
THE MOST IMPORTANT ONE THAT YOU
JUST DROPPED IN THERE OUT OF
NOWHERE WAS AWS.
WILL YOU PLEASE FLESH THAT OUT
FOR US
>> YOU KNOW, IT'S AMAZING, JIM
GREAT COMPANIES LIKE AMAZON/AWS
ARE REALIZING THE IMPORTANCE OF
SERVICENOW, AND THEIR CUSTOMERS
ARE ASKING THEM TO HAVE
SERVICENOW IN THE AWS
MARKETPLACE, AND AS OF THIS
MONTH, CUSTOMERS ARE ABLE TO
CHOOSE SERVICENOW IN THE AWS
MARKETPLACE AND DO SO WITH THE
SAME PERFORMANCE AS YOU WOULD
GET OUT OF SERVICENOW'S CLOUD.
SO, WE REALLY HAVE GREAT
PARTNERSHIPS WITH WONDERFUL
COMPANIES LIKE MICROSOFT,
AMAZON, AND MANY OTHERS, AND I
THINK WHAT'S HAPPENING IS IT'S
TRULY BECOMING A STANDARD.
SERVICENOW IS A PLATFORM THAT IS
BECOMING A STANDARD BECAUSE
THESE ENTERPRISES ARE SO MESSED
UP WITH LEGACY TECHNOLOGY, AND
THESE CEOs DON'T HAVE TIME TO
THINK IT OVER AGAIN AND RIP AND
REPLACE THINGS, SO WE JUST
RESIDE ABOVE THE CHAOS, AND WE
GIVE PEOPLE AN UNBELIEVABLE
EXPERIENCE, BECAUSE THEY UPLOAD
THEIR DATA INTO THE SERVICENOW
PLATFORM, THEY OPTIMIZE THEIR
PROCESSES AND THEIR EXECUTION,
AND THEN WE APPLY GENERATIVE
A.I. ON THE USE CASES THAT
REALLY MATTER, AND RIGHT NOW,
WE'RE GETTING ANYWHERE BETWEEN A
40 AND A 52% INCREASE IN
PRODUCTIVITY ON GENERATIVE A.I.
ON THE SERVICENOW PLATFORM,
WHICH IS LIGHTS-OUT FANTASTIC.
>> HEY, BILL, JUST ON WANT TO
WRAP UP HERE TO COME BACK TO THE
CALL ITSELF AND THE DEMAND
ENVIRONMENT, YOU KNOW, I THINK
YOUR C.O.O. SAID IN SORT OF
DISCUSSING THE DEMAND
ENVIRONMENT, "IT CONTINUES TO
STILL BE TOUGH
WE'RE NOT READY TO SAY THAT
THINGS HAVE IMPROVED
SIGNIFICANTLY.
OBVIOUSLY, ALSO SAYING HOW
RELEVANT YOUR PLATFORM IS.
BUT, SO, GIVE ME A LITTLE MORE
FEEL AS TO WHY YOUR C.O.O. SAID
THAT
>> WELL, I THINK WHAT HE WAS
REALLY REFERRING TO IS IN THE
ENVIRONMENT TODAY -- AND I JUST
CONSIDER IT A NEW NORM
I DON'T THINK IT'S ANYTHING
ESPECIALLY GOOD OR OTHERWISE
IT'S REALLY A NEW NORMAL WHERE
STRATEGIC PLATFORMS THAT ARE
CHOSEN IN MAJOR CORPORATIONS
AROUND THE WORLD WILL HAVE
SEVERAL DIFFERENT APPROVAL
PROCESSES, AND THAT WILL VERY
OFTEN INCLUDE THE CEO.
SO, THE CYCLE TIME FOR
SIGNIFICANT TRANSACTIONS IS
LONGER THAN IT USED TO BE.
BUT THAT IS REALLY THE NEW NORM,
AND I DON'T THINK THAT'S EVER
GOING BACK TO, YOU KNOW, FAST
TRANSACTIONS JUST BECAUSE
DIGITAL TRANSFORMATION IS HOT.
THIS IS A WORLD THAT NOW NEEDS
CLEAR VALUE, AND IF THE VALUE'S
THERE, THEY BUY.
>> REALLY INTERESTING.
>> WHAT WE GET FROM PALO ALTO,
WE GET THAT FROM SALESFORCE.
THIS IS THE NEW NORMAL, AND I
THINK YOU NEED TO TALK ABOUT
THAT, BECAUSE OTHER PEOPLE KEEP
EXPECTING THINGS TO RURP
RETURN
>> EXACTLY
AND YOU KNOW, JIM, I SIT DOWN
WITH MAJOR, YOU KNOW, JUST
COMING OFF OF DAVOS, SITTING
DOWN WITH MAJOR MANUFACTURERS OF
VERY LARGE COMPANIES, AND I TELL
THEM THE SERVICENOW STORY, AND
IN SOME CASES, THEY REALLY DON'T
KNOW ANYTHING ABOUT IT, BUT WHEN
THEY HEAR IT, THEY IMMEDIATELY
INVITE ME IN TO MEET THEM AND
THEIR MANAGEMENT TEAM TO GO
THROUGH THE POSSIBILITIES.
SO ANY PLACE WE LAND, WE
ABSOLUTELY EXPAND, AND WE'RE A
GROWTH COMPANY, AND WE'VE NEVER
BEEN HOTTER THAN WE ARE RIGHT
NOW, AND I'M REAL CONFIDENT.
>> SO, BILL, WE DO HAVE TO GO,
BUT I WANT TO DO SOMETHING FOR
DAVID FABER IF YOU CAN CONFIRM
THIS
I UNDERSTAND THERE ARE ACTIVISTS
WHO ARE COMING TO YOU BEFORE
THEY TARGET A COMPANY, SAYING,
WHAT SHOULD THE COMPANY LOOK
LIKE
>> THAT'S TRUE
>> IT IS TRUE?
>> LOTS OF -- IT IS TRUE
LOTS OF PEOPLE ARE COMING TO US
BECAUSE THEY ARE ABSOLUTELY
BLOWN AWAY BY THE BUSINESS
MODEL.
YOU'RE LOOKING AT A COMPANY WITH
10 BILLION ACV NOW AS YOU
RIGHTFULLY SAID, JIM
$18 BILLION RPO, GROWING AT THE
RULE OF 55, AND PEOPLE ARE LIKE,
HOW ARE YOU DOING IT
YOU'RE GROWING, YOU'RE EXPANDING
YOUR MARGINS, YOU HAVE 99%
RENEWAL RATE, WHICH IS THE
HIGHEST IN THE WORLD
HOW ARE YOU GUYS DOING IT?
BY THE WAY, JIM, I WANT TO THANK
YOU BECAUSE I DID HEAR YOU SAY
YOU BELIEVED IN SERVICENOW, AND
YOU BELIEVE SERVICENOW IS GOING
TO DELIVER A GREAT QUARTER
SO, YOU, DAVID, AND CARL KNOW
SERVICENOW WELL, AND I THANK YOU
GUYS FOR THE COMPLIMENT.
>> THAT'S VERY KIND.
THANK YOU, BILL.
I'M ALL IN
IT WAS AN AMAZING CONFERENCE
CALL AND AN AMAZING QUARTER.
BILL, TH
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