It’s been a long time coming; I’ve been having conversations around ServiceNow’s IPO or their acquisition by another vendor for as long as I have been an IT analyst (and that’s late 2008). Last night its initial public offering price was set at $18 (above the previously expected $15-17 range – yes, even after what happened to Facebook) and I assume trading will have commenced by the time you are reading this blog.
But I’m not a market analyst, I’m an IT industry analyst … so bar there being a major hiccup with the valuation post-trading the real meat for me is what it all means for ServiceNow, its customers, and the IT service management tool market. And let’s not forget other software markets that it no doubt has its eyes set on. Build a platform and then exploit it – why not?
So let’s get you up to speed with ServiceNow
ServiceNow was started by Fred Luddy, the ex-CTO of Peregrine Sytems, in 2004 with the intention of making a better IT service management (ITSM) tool: "The IT industry deserves a tool that just works. We're going to give it to them." So much has happened since then: rapid growth in customer numbers and revenues (and market share), in employee numbers, and in the solution’s capabilities. In capability terms, today’s offering is a radically different beast to the initial offering – SaaS (or more specifically its PaaS) has allowed ServiceNow to grow the offering at a spectacular pace.
Where is ServiceNow now? Some quick facts and opinions
Without boring you with a ten page overview of the current ITSM tool market and ServiceNow’s capabilities, ServiceNow sits with the two previous heavyweights of the ITSM tool space (BMC and HP). BUT ServiceNow is more than just a SaaS ITSM tool:
- While once differentiated by SaaS, it no longer is. One could argue that ITSM tool buyers might look at ServiceNow and value its “SaaS credentials” in the larger ITSM tool marketplace, but it is not selling on SaaS. ServiceNow is selling on capability and on meeting customer needs for modern enterprise technology.
- ServiceNow delivers against the core enterprise-level ITSM requirements and beyond but, importantly, it is a Platform-as-a-Service, and large financial institutions in particular have been quick to see the potential for using it to also “host” home-grown applications or services.
ServiceNow hit and then quickly exceeded 1000 customers at the start of 2012; of which enterprise-level customers include the likes of GE, Deutsche Bank, Johnson & Johnson, Home Depot, Boots, BNP Paribas, Intel, Google, Coca-Cola, Centrica, UBS, and Morgan Stanley.
Finally, ServiceNow has a somewhat fanatical user base – customers love the company and its ethos, they love the tool, and they love using the tool. In many ways ServiceNow has taken the usability of the software we use in our personal lives such as FaceBook, iTunes, and Amazon and brought it into the workplace. Consequently, ServiceNow’s customers have been a secondary sales force.
So let’s look forward … OK, we might need to take stock of the last twelve months first …
The prelude to IPO and associated risks
The above section might seem a little too much like a “puff-piece” so let me balance it with the risks I normally communicate to Forrester clients (after all I am an analyst and need to see the good, the bad, and ugly):
- The road to IPO has been supported by massive changes to ServiceNow’s senior management team. While I appreciate that this might have been necessary (how few know how to successfully take a company through IPO?) I have concerns about how this will affect the ethos and culture of ServiceNow – remember this is part of what existing customer love about ServiceNow.
- There has been a massive sales person recruitment drive. Has ServiceNow been overly focused on selling to achieve maximum IPO valuation? I feel it has. The ITSM tool market has a sad legacy of tools being bought without the anticipated benefits being realized – often due to a disconnect between requirements, sales, implementation, and use. I truly hope that ServiceNow has ensured that they haven’t “joined the club?” Failure to do so will adversely affect both reputation and customer satisfaction. Also, as with any organization experiencing rapid growth (sales and employees) there are risks related to corporate sustainability and growth-related implosion.
- However, previous concerns flagged to both ServiceNow and Forrester clients re the use of third parties for implementation professional services (a byproduct of ServiceNow’s rapid growth and a focus on subscription sales) have started to be addressed – with ServiceNow managing enterprise implementations internally again.
So what does this all mean?
What it means (WIM): for ServiceNow, ServiceNow partners and other ITSM tool vendors
For ServiceNow, of course there is the money to further invest in growth, whether organic or by acquisition (though I’m sure they still have venture capital money in the bank):
- Will the better professional service partners be acquired or will they cherry pick people (where partner contractual arrangements don’t inhibit this) to bolster their internal capabilities? Where will this leave existing partners? Or will they just take on many new partners?
- How quickly will they return to building on their late-2000s vision of “ERP for IT” and extend beyond this (see the final WIM section below)?
But to me what being public really means is that ServiceNow is now more “reputable,” for want of a better word. Not being public will most likely have lost them big deals in the past, for example due to risks related to them being a “going concern.” Personally, I’ve always found ServiceNow interesting as a private company in that they have never been slow to offer up information around revenues and customer numbers when others have (hiding behind the “as a private company we do not disclose such information” mantra).
The money side of things will also impact their people. I have no idea which ServiceNow employees have shares, what they are worth, and what the tie-in is. How many of these possible millionaires will want to deal with the confines of a much larger public company? How many will just want to do their own thing now they have the funds? ServiceNow acquired a “who’s who” of IT talent over the last few years, how much will stay and how much can be replaced if they don’t?
Finally, there is the necessary and potentially bountiful push into new territories (not that there still aren’t many opportunities in existing territories). There are still many parts of Europe where ServiceNow needs to raise its profile and presence. Then there are emerging markets such as the Middle East, which has matured rapidly, and the BRIC countries. There are so many ITSM opportunities for ServiceNow but they are also there for its competitors, with BMC in particular having been “revitalized” on the back of its SaaS offerings and partner network. Looking out to 2014, how ServiceNow deals with the risks I outline above (along with the final WIM below) will make a massive difference between significant growth and “domination.”
WIM: for customers
I do worry for existing ServiceNow customers. They bought into Fred’s vision. They bought into Fred’s product. They bought into Fred’s people. Post-IPO, how many of these things will remain?
In some ways, Fred’s vision escaped the confines of ServiceNow and can now be seen at other vendors (and I don’t just mean they have a SaaS tool). If you look at Hornbill for instance, they are currently sweating customer-centricity. In many respects, but not all, ServiceNow has helped to make the ITSM tool market place a far better place for customers; everyone has raised their game and improved the focus on business outcomes rather than the ITSM software or technology itself. Whether ServiceNow can continue down the path Fred started it on, I really don’t know. I have concerns as do customers I am sure.
What I am certain of is that that the product will continue to hit the spot for many customers, just don’t try to customize things that shouldn't be customized. I’m also sure that many of the key people will no longer be there. They can afford not to be and life is too short. Hopefully those that do stay and those that join post-IPO can continue to hold true to Fred’s ideals in the context of being in a large public organization.
I’d be very interested to hear how customers feel.
WIM: for other tool vendors
As a throw away WIM, I’m certain ServiceNow has big plans post-IPO. They are a platform not a SaaS-delivered ITSM tool. I fully expect them to offer a wealth of new and improved capabilities that not only help IT organizations operate but also help organizations operate. Why wouldn’t they consider creating a CRM solution, a HR solution, or a financial solution? So while competitors such as the Big 4 currently look across at ServiceNow, I wonder if Oracle, SAP, and Salesforce are doing the same? I would.
Finally, I need to finish …
I’m sure there is more but this is only a blog (that is now way too long). What do you agree or disagree with? What did I miss? Please let me know.
If you enjoyed this, please read my latest blog: http://blogs.forrester.com/stephen_mann