Anyone would say that this is not the best time to breastfeed, but Bill McDermott does not give up on his intention that ServiceNow, the company he directs, triple its 2021 turnover in 2026 to go from 5,500 million dollars to 15,000. The forecast reveals much more than optimism: his conviction that software has taken over the IT markets and that the "platform of platforms" the company has built will continue to grow bigger and faster than any competitor. His forecast is based on a postulate that many in the sector share: in an inflationary context like the current one, software is a deflationary, stabilizing force.
One quarter after another, the results have accompanied that conviction of McDermott, who in 2019 unexpectedly left the position of CEO of the German company SAP to sign for a smaller company that, since then, has grown at a rate of 25 percent. %. This month, the American manager highlighted that his forecasts are justified and, even anticipating a weakening of the dollar, the increase in sales will more than compensate for the imbalances.
The consultants seem to agree with him. IDC and Gartner agree in diagnosing an upward curve in the budgets that shape the so-called digital transformation: this year, if nothing goes wrong, they would increase by 12% over the previous one. As far as ServiceNow is concerned, it has confirmed that it expects to invoice some 7,000 million this year (from January to March it was 1,720 million).
So how to explain that, after the announcement of 27% growth, the company's stock has fallen 35% from its all-time high in November? Quite simply, McDermott replies, the capital markets have cautiously lowered the price/earnings ratios of technology companies: “Ours, which used to show a P/E ratio of 20, has lowered it to 14, which has nothing to do with the progress of our operations. , only with the humor of the capital markets before the increase in interest rates. When the situation stabilizes, they will look again at companies that, like ServiceNow, are clearly profitable and have clear growth.”
At this point, Bill McDermott takes up the tagline about unstoppable digitization. “Let's say a company is unwilling or unable to pass on additional costs to its customers; the best thing you can do is increase your efficiency through software.” He says he expects a sustained demand, in a macroeconomic context that he considers favorable "due to the urgency to accelerate the digital conversion of organizations, something that for one reason or another is notorious in all sectors of activity." He points out that, between January and March, ServiceNow has completed 52 operations worth a million dollars or more and has renewed more than 99% of expired contracts.
The SaaS (software as a service) formula, in which the product is paid according to use or by subscription, has become widespread with unusual speed: in the case of ServiceNow, this business model already represents 94% of its income. McDermott comments that “this is the preferred software investment format for companies, because it gives them financial flexibility; furthermore, to the extent that it broadens the customer's freedom of choice, it introduces greater scrutiny into the relationship between the customer and the seller”. Therefore, by extending the model to adjacent segments (including hardware), the current rules of the game throughout the industry are being altered.
Since its origins (2003), ServiceNow had carved out its own space in the software industry: it has been considered a specialist in the ITSM ( IT service management ) category, which optimizes the management of departmental workflows: finance, sales, resources humans or marketing. That is still growing and represents a significant share of its turnover.
But the expansive logic for which McDermott was signed by virtue of his background has led to combine these flows and processes under a common platform, baptized Now. With its incorporation, the strategy evolved to overcome this layer of integration of functions and reorient itself towards sectoral (or vertical) modules of the platform, adding a plus of automation.
At this point is its most recent version, with two updates per year, in which analysts present at the event have believed they saw a latent rivalry between ServiceNow and SAP, the largest European software company, which, coincidentally, was the previous employer from McDermott.
According to this hypothesis, ServiceNow's vertical proposals lead it to compete in the ERP (enterprise resource planning) category, which in practice articulates the operation of most companies. It happens that SAP is the undisputed leader in that market. It would be enough to conquer a portion for ServiceNow to ensure the fulfillment of its ambitious objectives.
McDermott is careful when talking about the matter, but when he says that "consolidating the past is a waste of time" it is understood that the priority of companies before digitization is not to replace (or update) existing systems, but to incorporate solutions to its scope –implicitly, those of ServiceNow– that introduce a high automation component and are available at a lower cost.
