• Daniel Beyh

ServiceNow Unveils 2019 Q4 Earnings and Strategy for 2020

Updated: Sep 3, 2020

ServiceNow released their Q4 earnings, which highlighted a 36% increase in subscription revenue, beating Wall Street estimates. Recently installed CEO Bill McDermott highlighted a 2020 go-forward strategy including plans for acquisitions, industry verticals, and a deepening of implementation partnerships with Accenture and Deloitte.

Signs of a ramp up in M&A are already surfacing as the cloud giant made two new acquisitions in the past week:

1. Loom Systems

  • AIOps provider whose software helps predict problems in IT infrastructure

  • Expected to enhance ServiceNow’s Predictive Intelligence module within the Professional editions of various products

2. Passage AI

  • Conversational AI provider

  • Likely to improve the Now Platform by expanding chatbot features to languages beyond English

While running SAP, Bill McDermott made large acquisitions to fuel growth in specific industries. It is expected that he will ramp-up acquisitions at ServiceNow to fill platform gaps and help accelerate into other vertical markets. ServiceNow previously had achieved growth organically, with an emphasis on small tuck-ins to improve and enhance existing products.

In addition, ServiceNow plans to leverage their relationships with Accenture and Deloitte to bolster out their professional services related to industry verticals: Accenture for telecommunications and Deloitte for banking. This highlights ServiceNow’s interest in developing industry specific products for their customers this year.

What does all this mean for customers?

We believe the industry vertical strategy may be like that of other SaaS vendors: vendors repackage (and re-price) existing products and add industry-specific analytics, user interface, and features (e.g., ITSM for Financial Services, ITSM for Telecom, or ITSM for Healthcare). We expect these solutions to be rolled out and heavily promoted later this year. Customers can use ServiceNow’s FYE (and its need to prove to Wall Street that their industry-specific strategy is working) to achieve better pricing on a deal. We also anticipate product changes throughout the year, accompanied by price hikes; the vendor will justify the increases with new enhancements that come from the acquisitions.

Banking and telecom customers that need professional services for support or implementation can expect ServiceNow to push Deloitte and Accenture, which will probably mean higher resource rates, justified by the specific industry expertise the resources provide. This also means less flexibility to choose implementation partners, further limiting your ability to create viable alternatives.

What else should ServiceNow customers do?

Customers can prepare themselves for changes at ServiceNow by inspecting their existing environment for usage -- on a per module basis, if possible. It’s important to get ahead of a renewal with ServiceNow and know which products are being used and which are under-utilized. To accompany usage reports, look at quantities of products you may wish to increase immediately, and what might be needed further down the road. Customers can leverage growth in demand to achieve better bottom line costs, better contractual terms, and lower unit rates on their existing environment.

Customers are also advised to get ready for upcoming ServiceNow releases, such as “Orlando”, expected in March. The vendor uses these frequent upgrades to promote new product features and pricing. You need to have a solid understanding of which products and features are needed in your environment to better navigate these proposals. In some instances, it’s advantageous to pull a renewal forward to incentivize your ServiceNow sales rep.

Dan Beyh is a senior analyst at ClearEdge Partners.