ServiceNow earnings and first shots across the bows at ERP vendors

Bill - ServieNow

The latest ServiceNow earnings call followed a similar theme to previous quarters with some added spice for ERP vendors: revenues up by more than 20 percent; average contract value soaring with customers paying $10m+ up 60 percent; and more than 1,500 customer with ACV more than $1m. Across every metric, ServiceNow defies the macroeconomics and industry trends – as Bill McDermott, CEO, confidently stated: “we have a tireless appetite for growth”, and their customers seem hungry.

Commenting on the stellar financial performance, Gina Mastantuono, ServiceNow CFO said: “Q3’s outperformance is a testament to the mission-critical nature of our platform and the strong execution of the ServiceNow team. We continue to see a robust pipeline and are maintaining our investments in growth hires as the opportunity in front of us remains enormous. Our business is resilient, our teams are delivering, and we are as confident as ever about becoming the defining enterprise software company of the 21st century.”

My big call out from the Q1 earnings was centred on NOW’s ability to hire at a relentless pace even under the toughest of conditions. Not only did customers want to work with ServiceNow, but so did salespeople, architects, HR specialists and marketeers. It’s clear from the latest numbers that trend has not abated, in fact it’s accelerated. The establishment is losing top talent to ServiceNow across virtually every line of business and the company now boasts a global workforce of more than 20,000 people.

This ability to hire talent has provided the platform for ServiceNow to boldly push into new markets and has seen company revenues increase to $1.83bn on the quarter, of which $1.74bn came in the form of predictable subscription billing. However, recognizing that even with such an assertive recruitment strategy there simply aren’t enough resources to keep pace with their growth ambitions, ServiceNow also announced the launch of RiseUp – a new program designed to skill one million people on the NOW platform by 2024. This is an incredibly ambitious project but one that will lay the ground for the kind of ecosystem expansion required to hit the company’s aggressive growth targets.

On last night’s earnings call, McDermott repeated his message from previous quarters and zeroed-in on the company’s ability to move customers from twentieth-century business architectures to one that is designed for the digital age.

“Once again, ServiceNow beat both our top and bottom‑line goals,” said the CEO. “Businesses are leaning into the generational shift from architectures built in the last century to platforms engineered for this one. Through dramatically improved experiences for customers, employees, and creators, ServiceNow is becoming the strategic center of gravity for digital transformation. Our focus on value creation is unmatched.”

McDermott took a strong position when asked whether ServiceNow could continue its momentum against global headwinds, pointing out several times that customers were moving away from point solutions and taking a completely new approach to IT architecture – an approach that only ServiceNow is able to support according to McDermott.

“It’s important to reinforce that the 20th century architectures were heavily invested in by our customers,” he said. “And our desire is not to replace them. Our desire is to make them more relevant, so they deliver modern value and a highly agile and experience-oriented way for employees, customers and partners. So those underlying systems, some of them that are point solutions, and they never should have been there in the first place, they do disappear. The core large, well-known brand systems, they remain, but with the agility of the ServiceNow platform above them and our ability to automate the workflows and completely change the experience set, we’re now reinventing the way supply chains run for the biggest auto manufacturers in the world. We’re now taking procurement management to an entirely new level and finance organizations for the biggest retailers, manufacturers, freight companies around the world.”

Back in February when I interviewed McDermott for a cover story he was far less bullish on the ERP market and favoured a narrative that sounded more like co-existence rather than a full incursion into Oracle and SAP territory. However, the narrative has shifted of late and although the company still takes the view that ‘others don’t have to lose for us to win’, there is definitely a sharper focus on highlighting wins in the ERP space – and this is underpinned further by some of the strategic hires ServiceNow has made across sales and marketing in recent months.

McDermott said: “If you look at the ERP market, we see customers at various stages of their move to the cloud. Some of the world’s largest manufacturers, for example, are consolidating hundreds of old procurement processes into a modern workflow experience. This declutters the legacy environment, driving more than $1 billion in cost efficiencies for just one of our many ERP wins this quarter.”

ServiceNow isn’t yet saying that it is taking on the incumbent ERP vendors – but watch this space, I predict it won’t be long before the narrative turns from a whisper to outright assault.