ServiceNow CEO Bill McDermott: AI, GenAI ‘On A Tear’

‘We are in a race to put AI to work for people. And that’s a race ServiceNow intends to win for our customers,’ says ServiceNow CEO Bill McDermott.

AI and generative AI continue to be key drivers of the success story that is ServiceNow.

Bill McDermott, CEO of the Santa Clara, Calif.-based digital workflow technology software developer, said in his opening remarks during the company’s first fiscal quarter 2024 financial analyst call Wednesday that ServiceNow prides itself on being the living embodiment of an AI-run company as the company’s internal AI deployments grow weekly. For instance, he said, the company’s software engineers now accept 48 percent of text-to-code generation.

“These are meaningful productivity improvements, and it’s only the beginning,” McDermott said. “That's why IDC estimates an $11 trillion impact from AI in the next three years. It’s also why businesses will spend more than a half a trillion on GenAI in 2027, according to IDC. So contrary to some opinions out there, we are witnessing the biggest enterprise software market opportunity in a generation. Business leaders are waking up to the fact that they have a fresh choice now. They can radically simplify the tech stack. We are entering a new frontier. We are in a race to put AI to work for people. And that’s a race ServiceNow intends to win for our customers.”

[Related: ServiceNow Washington, DC Release Goes Deep On AI, GenAI]

The net-new annual contract value for ServiceNow’s Pro Plus GenAI-capable versions of its applications is breaking records and are the fastest-selling offerings in the company’s history, McDermott said.

“GenAI adoption remained on a tear in Q1,” he said. “Companies are leaning into GenAI as a powerful deflationary force to drive productivity.”

Iconic brands are adopting ServiceNow Now Assist AI as the standard for their GenAI road maps, McDermott said. For instance, ServiceNow in the first quarter expanded its long-standing partnership with Microsoft to include new GenAI capabilities while also integrating Now Assist AI and Copilot into employee experiences, he said.

Other new strategic GenAI partnerships for ServiceNow include Equinix deploying Now Assist AI for HR Workflows to increase agent productivity, working with IBM to increase productivity on IBM Watson, and BNY Mellon working with ServiceNow’s AI and IT Service Management to unlock additional value for the bank and its clients, he said.

“ServiceNow’s philosophy is simple,” he said. “We focus on the things we can control, building great products, delivering great service for our customers, and forging a winning culture where people can do the best work of their careers. And that’s why we perform well when some others don’t.”

Turning to the demand environment for enterprise software, McDermott said AI is not simply a fast-maturing technology but is a catalyst for business transformation.

“When I speak to CEOs all over the world, they recognize this is a change moment,” he said. “Over the past 15 years, enterprises experienced the massive decentralization of technology governance. As every department became an IT buyer, the result was too many systems, too many apps, low data quality and high vulnerability to cybersecurity risk. And here’s the key. Those decisions have been made. So even as CEOs want to consolidate onto strategic platforms for the long term, they also don’t want to delay the potential of net-new innovation in the short term. They want to de-risk the past while getting immediate business value from AI.”

Process optimization is the biggest GenAI use case in the global economy today, McDermott said.

“This is why ServiceNow’s strategic relevance as the AI platform for business transformation has never been higher,” he said. “Every business workflow in every enterprise will be engineered with GenAI at its core. We are the single pane of glass that enables end-to-end digital transformation.”

ServiceNow is in a market-leading position, with product recognition from leading industry analysts, McDermott said.

Company culture reflects that, he said.

“It’s rooted in ServiceNow’s earliest days as a customer-obsessed company,” he said. “We are ever hungry, ever humble. So when I’m told that over a million people applied to join us last year, I’m not surprised. When you have a galvanizing ambition to become the defining enterprise software company in the 21st century, people want to be a part of that. They recognize this is about more than technology. This is about helping people to know more, care more and do more. We’ll continue on this mission.”

During the question-and-answer portion of the call, when a financial analyst asked about the primary draw in enterprises for AI, McDermott said process optimization is the single biggest GenAI use case in the enterprise.

“Any process that exists in the enterprise today will be re-engineered or engineered, depending on how messy the process is, with GenAI. So every workflow in every enterprise will be rethought,” he said.

For instance, McDermott cited such use cases as an enterprise’s sales process, the whole order-to-cash process, employee on-boarding and training, and productivity.

“Instead of swivel-chairing around or putting customers on hold, or [saying], ‘I’ll get back to you tomorrow,’ they’ll have real-time data,” he said. “Where most of the cases are deflected from virtual agents, if an agent is involved, they have choice A or B. ‘Which one’s more pleasing for the customer? OK, you like B, you got B,’ and the case is closed.”

McDermott said to also think about managing complex cases across an enterprise where multiple screens are open and data is being processed.

“Instead of having spreadsheets and workarounds and emails and texts, now you have everything done on one platform with full case information and case closure,” he said. “So literally, from running a business in every department to building software … with the breakthrough on natural language text turning into code, every single enterprise will run completely differently because of Gen AI.”

ServiceNow By The Numbers

For its first fiscal quarter 2024 ended March 31, ServiceNow reported total revenue of $2.60 billion, up 24 percent from the $2.10 billion the company reported for its first fiscal quarter 2023.

This included subscription revenue of $2.52 billion, up 25 percent, and professional services and other revenue of $80 million, up 11 percent.

The company also reported GAAP net income of $347 million, or $1.67 per share, nearly double last year’s net income of $150 million, or 73 cents per share. On a non-GAAP basis, ServiceNow reported net income of $707 million, or $3.41 per share, up from last year’s $483 million, or $2.37 per share.

Looking forward, ServiceNow expects second fiscal quarter 2024 subscription revenue of $2.52 billion to $2.53 billion.