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The $6BN Gorilla

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One of my personal indicators gauging the success of an enterprise software vendor in a market is the ‘grumble factor’.

This is an anecdotal measure that says – you can usually tell who is doing well in a market by the volume of other vendors grumbling about them. Successful vendors in the ascendancy are often accused of being ‘aggressive’, ‘discounting all over the place’ and ‘killing the market’ etc.

This is certainly the case for ServiceNow. One close competitor named them ‘The Gorilla in the market’.

On a recent analyst call with Frank Slootman, President and CEO of ServiceNow, we learned that the Gorilla is now weighing in at healthy $6BN market cap on the NYSE scales. Mummy Gorilla is very proud.

Summary

  • Last quarter revenue $102.2 million, 80% increase compared to the second quarter of 2012, and an increase of 19% from the first quarter of 2013.
  • Added 138 new customers in the second quarter, 1,778 total, customer renewal rate of 94.2%
  • ServiceNow were not in the black for the quarter. All resources are said to be feeding the machine.

(Source)

ServiceNow have slowly doubled their original entry price of $18 [See image below].

ServiceNow Stock price since IPO, June 29th 2012 (NYSE: NOW) Dowsing Rods say go long.

ServiceNow Stock price since IPO, June 29th 2012 (NYSE: NOW) Dowsing Rods say go long.

Realistic Cap?

$6BN? Really? The scope of the market says $6BN, but do ServiceNow have sufficient competitive differentiation to warrant $6BN? It’s not like their offering is totally unique, despite what Frank might be telling investors:

“Our customers are actually frustrated because it’s tough to negotiate with a vendor who doesn’t have much competition, you know,”

Hmm.

Slootman has been keen to dress down any ‘dotcom’ hysteria over their market capitalization in recent interviews. ServiceNow are clearly not shooting for any ‘best place to work’ gongs anytime soon:

“We don’t do all the lattes and back rubs and all that. My favorite perk is high-equity value,”

The ServiceNow public listing was said to restore credibility to the technology IPO process after Facebook’s listing [See image below]. Note the recent Facebook jolt in price when it was revealed mobile ads were working.

Facebook [NASDAQ:FB] IPO MAY '12 vs. ServiceNow [NYSE:NOW] IPO JUNE '12

Facebook [NASDAQ:FB] IPO MAY ’12 vs. ServiceNow [NYSE:NOW] IPO JUNE ’12

My final hobbyist chart tracks ServiceNow versus older enterprise software industry stalwarts. Most striking is the flat green line. Medic?

ServiceNow vs Industry Stalwarts (HP, IBM, CA, BMC)

ServiceNow vs Industry Stalwarts (HP, IBM, CA, BMC)

ONNAMA (Oh no not another marketing acronym)

Frank made it clear, via their “SRM” vision that the Gorilla is done shaking the ITSM tree for now and is going to beat it’s chest in other verticals such as HR, Finance and Facilities etc. Let’s apply what we’ve learnt and use our ITSM logic in these other disciplines. I like the sentiment but I’m not convinced by the market definition. I’m not sure ServiceNow are either. Thank goodness.

“So is Service Relationship Management a new software “category” No. Or at least we think not. It’s just a term that ServiceNow is using to help customers think beyond ITSM”

Maybe we could just call it… err, IT? Have we not always done that? Let the good stuff permeate the enterprise based on solid reputation and successful execution against business outcomes, not silly definitions.

The Next Salesforce.com?

Business Insider touted ServiceNow as the next Salesforce.com. If Salesforce.com is aiming to own the mindshare of the CMO, ServiceNow has the opportunity to own the IT service delivery plumbing and mindshare of the CIO (or perhaps even COO if Bill gets his promotion). But they have plenty of competitors on their heels vying for this space.

For this journey ServiceNow will need to be a lot more ‘App’ and a lot less ‘Toolkit’. Market trends say Mr HR director wants to build and deploy his own solutions. Not get bored waiting for IT to deliver it. IT can own the plumbing, governance and can help automate but ultimately departments will want the freedom to do their own thing, building and fiddling themselves. Salesforce.com got there through the use of ‘Editions’ and converting their platform to a marketplace for niche apps to plug into.

Missing ITAM Savvy

As an ITAM specialist I was disappointed to see little mention in the roadmap around ITAM features, building on the first elements in Berlin. I look forward to looking at this in more depth. This is a significant hole in the ServiceNow portfolio.

The strategic partnership with BDNA can only be considered a short term band-aid unless it is truly embedded in the platform. BDNA have good content to offer but it’s not exactly aligned to the ‘Cloud IT Company’ rhetoric. The last time I looked at BDNA it required the install of an Oracle database and whole rack of kit to run it.

Salesforce.com swallowed up a small army of tech firms to bolster their current $26BN valuation and market dominance, I expect ServiceNow to do the same. Watch this space.

Images from Google Finance




4 Responses to " The $6BN Gorilla "

  1. mattberan says:

    Great read Martin, well analyzed, fun read.

    Of note: they have free lattes in their offices.

  2. SoftwareAssetManager says:

    This was a good analysis