ServiceNow CEO Bill McDermott On ‘Bold’ Expansion Plans, Innovations, New Chairman Role
“ServiceNow is the only software company in the world operating at the ‘rule of 60.’ So if you look at our bottom-line profitability and our top-line revenue growth, combined we‘re right around the rule of 60. And there’s no other company in the world, none, not a single one, including the hyperscalers, that are operating at the rule of 60,” says ServiceNow CEO and newly crowned Chairman Bill McDermott.
Wednesday was a busy day for ServiceNow, the Santa Clara, Calif.-based workflow platform provider. It started out with the introduction of RiseUp with ServiceNow, a new program the company introduced to train and certify one million new ServiceNow experts who by 2024 will take their skills to the company, its partners, and its customers.
ServiceNow Wednesday also named CEO Bill McDermott the company’s new chairman, with former chairman and company founder Fred Luddy becoming a member of the board.
The company also reported a very healthy third fiscal quarter 2022 in which GAAP subscription revenue rose year-over-year by 28.5 percent to $1.74 billion, total revenue rose 27.5 percent to $1.83 billion, the number of customer paying over $10 million in actual cash value in the quarter grew 60 percent, and the renewal rate reached 98 percent. And to top it off, the company raised its year-over-year constant currency growth outlook to 28.5 percent, excluding what it termed a 550-basis point headwind due to foreign exchange.
ServiceNow’s stock surged 12 percent in after-hours trading Wednesday to $410.75.
McDermott, in an exclusive meeting with CRN, said he is excited to see ServiceNow beat both its top-line and bottom-line goals in the quarter, as well as follow-through on new innovations expected for the rest of 2022 and into 2023.
”[With our Tokyo release], we’re now making a bold move into security. Digital trust is a big thing. And think about encryption, data anonymization, security control, and all these things to protect business critical applications, think of that vault on one platform, integrating with all the other solutions, but giving one version of the truth so managers can quickly automate and take action on threats and remediate them before they become serious.
There’s a lot going on at ServiceNow. Click through our slideshow to read the CRN interview.
Talk about ServiceNow’s third-quarter financial results. What’s the big takeaway?
I am super excited. We beat both our top and bottom line goals. And that seems to be a fairly rare thing to do these days in the market. So I’m super proud of the team. And you can see that businesses really are leaning into this generational shift from architectures that were built in the last century to platforms engineered to this century. They’re going for improved experiences. They need that for their customers, employees, and creators. And we‘re becoming the center of gravity for digital transformation in every industry and geography around the world. And I think it’s because our focus on value creation is literally unmatched in the industry in the marketplace today.
What part of ServiceNow’s revenue goes through indirect sales channels?
If you were to look at the overall revenue of the company, it’s a relatively small piece of the overall pie. But it’s one that‘s growing fast, and one that we’re looking to expand quickly. In fact, one of the things that we‘re doing today is announcing RiseUp with ServiceNow. RiseUp with ServiceNow emphasizes faster and more equitable career paths. And we’re looking to engage and skill one million people on ServiceNow’s platform by 2024. And we believe, according to the World Economic Forum, that this is an $11 trillion global GDP opportunity by 2028. And I think I’m under-calling it with a million. Sometimes people try to calm me down a little bit. But we’ll skill at least a million people. Now keep in mind, some of those people will work for ServiceNow. But most of those people will work for our customers and our partners as they expand their franchises on the ServiceNow platform.
Channel trends today
What else is ServiceNow doing to try to bring more partners into its platform and ecosystem?
We just finished a board meeting, which was fantastic, for the last couple of days, talking about our footprint in the global economy. We’re making a bold move in Japan, which is going to be a huge ecosystem play for ServiceNow. We’re making a bold move in India and Korea. We’re expanding big time in Europe. Obviously, the United States continues. And those geographies in particular are going to get in some cases new structured reporting relationships to the top of the house at ServiceNow to amplify just how important those businesses are to us, and how important those partners are to us.
The other thing we’re doing is something I call co-creation. We’re building business solutions with our top partners. Those business solutions will include all the elements of pre-sale value stimulation, but they‘ll also include extensibility on the ServiceNow platform, where our partners can build code and new business models on the platform to accommodate not only industries but sub-industries and micro-vertical opportunities to expand the ServiceNow footprint on a global basis. That’s something that is really taking off for us. And we have an example with Samsung, where they did a mobile-first strategy with ServiceNow. And they have expanded worldwide on ServiceNow with their mobile-first strategy, and we have over 100 other partners that have jumped on board with the Samsung partnership with ServiceNow. It’s a fascinating story.
As of Wednesday, you are now chairman of the board for ServiceNow in addition to your role as CEO. How does that impact the company and what you do going forward?
Well, I think first of all, I would really like to acknowledge [ServiceNow founder and former Chairman] Fred Luddy, who built a platform that would make the world better for everyone and literally has inspired millions of people around the world. And I tell you, and it is really serious, he is one of the greatest innovators of all time. He really is an unparalleled leader of class, character, and success. He cares deeply about other people. And I‘m especially grateful for his ongoing, life-lasting partnership with me on the board. So Fred will remain on the board. Fred will remain what I consider to be the inspiration and the soul of ServiceNow because his love for our company and our customers knows no bounds. So the good news is, Fred stays on the board. He’s made a long-term commitment to the board. And I’m super excited, because we love Fred.
And so you get the best of both worlds: you still have Fred, and you got Bill. And my goal is to obviously take our board to the next level. We have a great board already. And now we have such expansive thoughts around what we could do in international markets, what we can do in certain industries, and what we can do with serving CEOs and even technical leaders that have a great interest in our platform. So we‘ll have a chance to expand the capabilities of our board, we’ll have a chance to build out over multiple years the next generation of leaders within our company. And I think all in all ServiceNow gets a big win here, because I think we’ve really made a commitment to make this a defining enterprise software company of the 21st century. And that commitment just got more solid today.
Looking just ahead to next year, what are what are some strategic initiatives ServiceNow is looking do?
We continue to expand the platform on so many different dimensions. We went into some of that with the new capabilities built into our Tokyo release, for example, procurement management services, supply chain optimization, and many other aspects of what was known as the ERP environment of the 20th century quickly moved to ServiceNow. Customers really want to innovate and move really quickly. Not because those transactional systems don‘t matter. They do matter. And actually, we’re excited to make them matter even more, because we bring new life to them because their transactional sophistication never changed. But their ability to reorient, rewire, deal with the agility in workflow automation necessary for this era, this generation, needs to be optimized on ServiceNow. So if you look at what we did with Tokyo, we’re now making a bold move into security. Digital trust is a big thing. And think about encryption, data anonymization, security control, and all these things to protect business critical applications, think of that vault on one platform, integrating with all the other solutions, but giving one version of the truth so managers can quickly automate and take action on threats and remediate them before they become serious.
We have unbelievable experienced managers where we‘re guiding them through a leadership journey on employee experience. And now they have one destination to develop the careers of the people that count on them so they can be trained and optimized for productivity. Because a lot of companies out there are either laying off or they’re cutting back, and they‘re going to have to do more with less [by] automating on the ServiceNow platform, and our partners are front and center of this. For example, in the operational blueprints of the future, we’ve got supplier lifecycle management, ESG (environmental, social, and governance) management, procurement service management, all of these things are taking off. And we have multiple wins in the quarter. And example, in the ERP wins that we had in the quarter—we’re not replacing ERP companies, let me be clear, we‘re making them better--we had one company in particular in the manufacturing space that saved $1 billion with our procurement management services solution. And we get a tiny little fraction of that, and we got them going in 30 days. And most ERP innovations take place in less than 90 days. We’re talking about speed. We’re talking about immediate business results, and that‘s what this environment calls for.
We‘ve gotten so accustomed to this. A lot of people don’t understand platforms. Let me explain. A platform is horizontally, tech enabled thing. And as you build technology into the platform, whether it‘s RPA (robotic process automation) or AI, all the capabilities around security, all these workflow automation innovations I’m explaining to you, they scale horizontally. So that means that when we released San Diego in March, or we released Tokyo in September, all the customers that run on the ServiceNow platform had immediate access to all that net new innovation. And they can enable it at their choice without any complication of taking the new code or the new experience forward. Nor do they have any complications in any customizations they built into it. Because we solve those issues on the platform for them so they never have any tech debt with ServiceNow. The CRM market has a well-known brand out there that when they introduce a new platform, they burn the bridges. And they basically say this is the new platform, you‘re going to have to shut things down and reorient your task to the new platform, because that debt is on you to get straight. We do it for the customer. We’re like the Tesla of the enterprise software industry.
Anything else we need to know?
We didn’t talk about it, but I do think it‘s worth mentioning that ServiceNow is the only software company in the world operating at the ‘rule of 60.’ So if you look at our bottom-line profitability and our top-line revenue growth, combined we’re right around the rule of 60. And there’s no other company in the world, none, not a single one, including the hyperscalers, that are operating at the rule of 60. I just want to mention that because a lot of people don’t understand that. Many say when you’re operating in the ‘rule of 40,’ you’re world-class. And we’re operating at the rule of 60.