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ServiceNow (NYSE:NOW)

May 13, 2013 2:00 pm ET

Executives

Langley Eide

Frank Slootman - Chief Executive Officer, President and Director

Frederic B. Luddy - Chief Product Officer and Director

Rob Phillips

Matt Schvimmer

David L. Schneider - Senior Vice President of Worldwide Sales and Services

Beth L. White - Vice President of Marketing

Arne Josefsberg - Chief Technology Officer

Michael P. Scarpelli - Chief Financial Officer and Principal Accounting Officer

Analysts

Brent Thill - UBS Investment Bank, Research Division

Langley Eide

Hi, and welcome, everybody, to the Inaugural ServiceNow Analyst Day. I'm Langley Eide, VP of Finance and Strategy, and I want to say thank you so much for making it out here to join us in Las Vegas. For those of you in the audience that are existing shareholders, we want to say thank you. We are so grateful for your support. And for those of you that are still in evaluation mode, we hope that today's sessions provide the right background and education on our business to help you in that process.

To that end, we have 3 main objectives today. First, is the ServiceNow 101, provide a general overview on the business for people still getting up to speed on our company; second, is introduce you to our management bench so that Wall Street and the financial community has a deeper understanding of the leadership team that powers ServiceNow; and last is we wanted to address some of the specific questions that come up among investors and among the financial community when we're out talking to you. First and foremost is, where can I find the Safe Harbor statement? Okay, I'll take -- I'm not going to read it, but I'll take a moment to allow everyone to absorb that.

In all seriousness, the questions that do come up are, for example, how does ServiceNow think about its market opportunity? And our CEO, Frank Slootman, will address this in his remarks. Next is, we get a lot of requests to get more tangible feel for the product. What does the product do? Can you see a demo? And how do you think about your investment priorities? We have our Founder and Chief Product Officer, Fred Luddy, who's going to speak to that. He'll be joined by Rob Phillips to provide a live demo, and Matt Schvimmer, VP of Product Management, to talk a little bit about the product roadmap and how we think about investments. We'll break for lunch and then Dave Schneider, our SVP of Worldwide Sales and Services, will speak about another question we hear all the time, which is, how do you manage the rapid investment in sales growth that you're making as a business? He'll be joined by KPMG and Ernst & Young, 2 of our partners in the SI channel that are part of that process.

Another question we get frequently is, how the customers actually use ServiceNow? And so our Chief Marketing Officer, Beth White, will host a panel with 4 ServiceNow customers, the NYSE, VeriSign, MetroPCS and Sephora, to explore those issues. And then Arne Josefsberg, our CTO, will speak about some of the specific choices we've made in defining ServiceNow's cloud infrastructure because that's another topic that comes up. And last, Mike Scarpelli will speak to financial metrics, which you guys ask for frequently, as well as typical customer progression, which is data that's been requested, and our long-term operating model.

So with that, just a few housekeeping items. One, lunch. We only have 20 minutes budgeted, so we're going to ask everybody to, when we take a break, go grab a plate, come back, eat in here. We're going to get the next panel off at 12:30 sharp. Second, Q&A. Time permitting, speakers will take questions immediately following their presentation. However, we expect that the bulk of Q&A will be at the end of the formal remarks after 2:00 p.m. So if I ask you to hold your questions until then, much appreciated. And then last, webcast. Today's event is being webcast live. For those of you joining us by webcast, the live demo, we'll -- you'll be able to hear the audio overlay, but the video portion will not be visible via webcast. If you want to pursue that further, please log on to our IR website later this week. We will have the full ITIL via demo as it's being presented here at the Knowledge13 User Conference, posted to our IR website then.

So with that, I'll turn this over to Frank Slootman, our President and CEO.

Frank Slootman

Good morning, everybody. We need to get some energy in this room here today because we're in Vegas or what? I -- Safe Harbor one more time? Let's go through this. Oh, I'm going backwards, that's why. Duh. In preparing for this day, one thing that I didn't want to do is my part of the presentation is drawn you through another one of those standard investor decks because we have a wide variety of familiarity with the story. And we also have limited time, so I thought let's talk about a few topics that we think are most important for you to perhaps get a better insight and a better grasp on them.

In order to do that, I'm going to take you back in time a little bit when about 3 years and 3 months ago, I first started talking to Frank Luddy sitting on the front row here. He's the founder of the company at the time, the CEO. And I was trying to, like many of you, get my arms around what ServiceNow was and what it did and what the opportunity was.

Just like you, it's pretty apparent to me that the breakout growth of the company -- the growth of the company had exhibited over that period of time was extraordinary, and obviously, the company have achieved a lot of escape breakout velocity. But there were a bunch of other questions. The first one was, what's this help desk management thing all about, right? Because essentially, that's really -- that was the terminology of the day and I was not super excited at the time about the whole motion of managing help desks, right? You can imagine, it's interesting. We have a follow-on version of this kind of technology, but how exciting really is that markup place. So we really wanted to understand what is the evolution of that space, what does that look like, right, in order for things to become exciting. And I got to tell you, I started to actually -- sort of a pal introduced me to the relevant analysts at Gartner Group and I wanted the learn from them, what's the space all about and I got a really jaded view from them. They were like, "Well, this is the last battle and, you know, people every 3 to 5 years, they replace their help desk and then they do it again 3 years later." And -- in other words, very much of the view that then really set me on fire in terms of the opportunity of working for ServiceNow.

So I'm like, okay, I got this good view on the space. I got this incredible growth of the company. What else is going on? So when I met with Fred, we talked about the opportunity in IT and he started to tell me, "Our customers are doing all this interesting stuff." I think those were the words you used, Fred, interesting stuff, with our software. Why don't you tell me more? So I started to articulate various customers, pursuing different kind of structuring, defining, automating of service relationships that were really well without the realm of IT.

That really peaked my attention and my interest. I spent more than half of my life in application development technologies, building tools for application development. The whole motion of platform has always been sort of near and dear to where I live. I've been bloodied by platform players like Microsoft and people like that, and I've seen what they can do, both to the positive and the negative, to the people that have that kind of power in the marketplace.

So that was interesting, but I'm still trying to reconcile the view on IT management versus what the opportunities were beyond IT. But what really put me over the edge, and this is really, really important, the customer experience. Sequoia Capital, who had invested maybe 6 months before I joined the company, had literally canvassed every single customer that ServiceNow had at the time and transcribed that conversation into a document. And they sent me that document and it was just a mind blowing read. I mean, I've never read anything like it before or since. It was the most incredible testimonial that you can -- that you'll ever see. And certainly, in the world of tech, it was just amazing how strongly these customers felt. I'm like, okay, I'm starting to get it, okay, because you have this breakout growth.

At the end of the day, the strength of any franchise, any business, is really in how strongly your customers feel about what you do. And it's not quantified when the spreadsheets are below their aspects or customer experience that are quantifiable. But that's the true power, right? And this is why it's so important that you're here today. I spent all years asking people to come to Knowledge once this Knowledge is over -- I'll start again on Knowledge14. Because if you want to get to know who we are, forget talking to Gartner Group or whoever's opinion is out there. This is the place where you can get to know ServiceNow and what this community is all about. So very, very glad that you're here because you've taken the time to be here and this week, you will get to know the full measure of what our business is all about and you'll be better able to make decisions on what you have to do next.

Now I want to talk about all of these three. So the evolution of IT management. This is really, really important. Tomorrow, on my keynote, I'm going to sort of wax a little bit broader on this topic. There's no doubt that we have our origins and our roots in managing help desk. But managing help desk is sort of a mid-1990s Windows 95 era concept. Fred refers to it as the Soviet era of software, right? It's a very, very crude, not very sophisticated way of doing things.

Now the help desk was staffed by help desk people, and the people that were licensed on help desk software were the people that were on the help desk itself. So that's a relatively small and confined market because, after all, how many people can you actually have physically on a help desk that are taking phone calls and responding to emails? Now a lot of our legacy competition, they have their roots in this era, either the 1980s or 1990s. And ServiceNow actually has its roots in the 2000s, right? It really came after it. ITSM was really the follow-on to the help desk. It was an expanded view of what that notion of management was all about, very much under the influence of IT or in the IT infrastructure library. ITSM has been very, very important to the IT community because it started to define nomenclature and processes as to what IT is and what it does, right? We got the precise definitions around what events in this, what the problem is, what changes, right, what the task is, what the request is. We really started to get our arms around the currency of our business, what we do for a living. This really expanded the business beyond the help desk, right, because we now had broader set of processes that were governing the work on a day-to-day basis of what IT organizations really do.

Why is this important? It really expanded the user population that got license on ITSM products from what it was before on the help desk. A lot of our investors sort of looked at, how come you guys are licensing 5 to 10x as many people on ServiceNow than people historically have on the help desk? This is why. IT service management is a much expanded view of where people work in the 1990s. And it's a very good thing. But still, ITSM is still a very precise, very narrow set of applications and definitions where we have taken the market, too, and this is a very much our daily view on mission, and our whole go-to-market cadence is to take this market to something that we refer to as the ERP for IT. I'll talk about the ERP for IT a great deal more tomorrow. It's not an official term. While ITSM is a true category, a lot of people realize ERP for IT is not. That term actually came out of the CI office of General Motors back in the late '90s. Ralph Szygenda was the CIO at the time, and Fred and I had seen an opportunity when we were in Detroit a while back to talk to people who actually worked for Ralph and we're able to collaborate, in fact, that, that term actually did come about that way so a little bit of historical research thrown in the mix there. But the CIO of General Motors had said, "Look, what IT really needs is an ERP." Now IT people really understand what ERP means. A lot of us here in this room may have jaded views of the ERP moniker because it conjures up people like Accenture with hundreds of people on site for 5 years and overruns and slow and so on. But the notion -- and by the way, I think people understand ERP very well because they often spend their lives putting in ERP system. These are really work management systems. These are single system of records. This is the single source of truth, right?

IT organizations historically have not had this, right? One of the very hard parts about IT organizations is that even though it's the most technology savvy, because it's very, very process-oriented in what it does on a day-to-day basis, you look at the systems that they use for their own management, they are the most sort of crude and primitive of all the enterprise disciplines, right? Financial organizations, of course, have the most sophisticated system because forever they have been able to report company results. But even sales organizations that used to be a spreadsheet business now has become quite sophisticated through the onslaught of sales force automation, customer relationship and management and so on. HR used to be spreadsheets and payroll. HR now has real systems of record. Marketing organizations have real sophisticated systems. You get back to IT, they have project management tools that have spreadsheets. They have outlook. They have personal databases. And it's completely fragmented. It's gigantic sprawl of stuff. So this is not a good situation. So IT organizations know that in order to really get to a level of control where they're actually trying to drive as opposed to being driven by events, they've got to get to this notion.

Now what's the difference between ITSM and ERP for IT? The difference is when you get to the ERP for IT, everybody in IT is licensed on the system. Everybody is an actor and a participant in the workflow, right, and we really view that as our opportunity. ITSM is already, for us, a 2000's decade concept, right, where we're driving people towards ease the notion of ERP for IT. Now a little bit more specifically, there are specific applications that we really identify as being part of these definitions, right? Help desk, closest call of I what doubt we have for help desk really is the incident management process, right? I mean, something is broken. Some people refer to it as a thickening system, a service interruption, a service degradation, idiosyncrasies, whatever, something that needs attention in the environment. And that, of course, is also part of the bigger definitions of IT management.

Now ITSM, under the influence of the ITIL framework, has a very specific set of applications, instrument problem, change of config and request, typically, are considered the hard core of the ITIL framework. And it is true that most of our customers, not all, but most of our customers, get started with us and the reimplementation coming from the help desk environment to one that fully embraces the ITIL framework, enhance the expansion in the user counts going from help desk to ITSM. But ERP for IT goes further, right? There's a lot of other applications that make up the ERP. It's actually -- we think of the ERP as all the work of IT flowing through. And we've had conversations with the CIO of General Electric. They are our largest customer, and they will literally say that. They said all the work of IT at General Electric flows through the ServiceNow system, right, and that is the way we like to think about our business.

But there's something more important than this and this is really what our customers see in us. And that is the notion of platform, right, because in every single scenario that we encounter, we know we bring a bunch of standard applications into the environment and people use those to varying degrees. But invariably, they're adding other applications that are specific to their organization, their workflows, things that they do, whether it relates to procurements or vendor management or licensing. The fact that they can do that and bring all that into a single pane of glass, single data model, fully integrated with everything else is going on, that really gives IT organizations the power to really bring about their particular brand and flavor of ERP for IT because they're all different, and two organizations are simply not alike.

ITSM is highly standardizable, right, in terms of what these apps are. ERP for IT, it becomes very, very domain-specific to different organizations. So this is the evolution that we're driving. We have our legacy. We have sort of the set of definitions that everybody in IT service management knows in sort of how they shop when they go online, type in ITSM. But our game is to move it to the point where everybody in IT is licensing. I saw the CIO of Intel a few weeks ago, Kim Stevenson, and she said, "Look, I got 6,500 people in IT. Every last one of them is on ServiceNow." And that's -- and then, by the way, we'll hear tomorrow from Intel in our keynote presentation as well, and it had gone very far in terms of totally consolidating everything in IT of Intel on a platform. They actually call it 1 IT [ph], that's actually the name of their portal.

So this is how we pursue the IT side of our business. Now the notion of platform -- by the way, this is sort of our rendering of what the ERP for IT looks like. The power of what's going on in terms of the apps is in the platform, right? Fred has spent an enormous amount of time on the platform because the apps derive their power from the platform, having a collection of hard-core applications. That's what people used to do in the '90s. They were buying from different vendors. They throw them together on a PowerPoint slide. That was the ERP. What makes it the ERP is the fact that all these apps are on a single platform. One code base, one database and users get defined to the system one time, right?

So this is how it works and then, of course, we get to add to it to our heart's content and to really make it the system that we needed to be for our particular environment.

Now we often get asked, what are people using of the different applications in your customer base? So we actually have pretty good data through our operating environment of exactly what's going on. No surprise. We replaced help desk all of over creation, massive consolidation of help desk. Most of our customers have implemented this to the management to one degree or another.

Problem, change and request. Change, very high percentage as well. Change management is a super important discipline in IT organizations, very tightly related to incident.

Now going further, right, there's a bunch of other apps that also have very high utilization. For example, the CMDB, configuration management database. CMDB is a repository of all your hardware and software assets. The configurations and the relationships that they have to applications, to user groups and so on. It's really important that configuration management databases are accurate, right, because when we have a problem, it typically relates to a specific service asset. We need to be able to see exactly what has happened with that asset over a period of time because that's where the answers will be as to what we have to do next. So that's why CMDB is typically -- and by the way, that percentage of 80%, that relates to CMDB use of at least 1,000 servers as is defined in the database. The actual number is actually in the low to mid-90s. So CMDB is very, very important. It's often thought of as the single source of truth for IT organization. It's foundational to the way IT manages itself, very, very important. And the fact that this is all in one environment, one platform, really important. I mean, we sometimes get into conversations with customers that have adapted ServiceNow for an incident problem and change and then they're looking at another vendor for CMDB, right? And that -- those are the things that just absolutely make no sense to us at all, but they're starting to perpetuate all the problems that we historically have had in terms of fragmentation of technologies in this area. So CMDB is really big.

Now as you can see, our platform is high, right, and we've said that repeatedly. There is an extraordinarily high amount of use of building custom applications in our customer relation. Now why does this relates to IT? A lot of it doesn't relate to IT. It's in the line of business. It's in other service domains and so on. Now we saw an extraordinary amount of room up in driving up the penetration of these applications, and I view that all as good news because we can increase the user counts in our customer base. We have typically said that we believe we're less than half saturated in the accounts where we have any form of penetration and that's probably a high number. And this relates to the IT opportunity and I'm not even talking about what other opportunities we might have in other service domains or the line of business itself.

So a little bit of color and flavor here on what applications are deployed and what utilization they have. Now the interesting thing about the business of IT service management is that key organizations have recognized, because they're very process-oriented type of people just by general mentality and how they view the world, that these processes are applicable to other service relationships, right? IT has service relationships, right, because they get requests and issues and what have you and they have to respond to that. So there is this relationship, request response going on in these kind of processes. We call them service relationships, right, and service relationships are extraordinarily prevalent throughout the enterprise. Because, think about it, everything you do and that we do, we know we are always in a request response type of service relationship. Every email that you send is either you're responding to a request or you're initiating a request, right? There's always an implied service relationship in everything that we do. Now historically, we used to do that in person by conversation, physical mail. Of course, in modern times, email has really overtaken the service relationship contents, right?

Now going forward, we see enormous opportunity for IT organizations to really drive the world from a net-centric point of view to one that is system-centric. And you've got to ask yourself a question, "Am I going to send an email or am I going to create a request in the system?" That's a fundamentally different approach to the world. Now because we're humans, right, we have a tendency to be message-oriented because it's communications. But increasingly, we are moving to system-oriented environments to deal with a lot of processes. If processes are definable and structurable and repeatable, they are also automatable. In other words, I can do them exactly the same way each and every time. They can execute at the speed of light. I can disintermediate them. I'm going to have metrics. I'm going to have service levels. I have the ability to govern and audit these kind of processes, which, increasingly, they're a really big issue, right?

So what we do at ServiceNow, if you take to its generic form, sort of peel away the ITIL framework, every single process that we manage, every service relationship that we touch has this kind of flavor to it, right? Structure request. I'm asking for a product, I'm asking for a service, I have a problem, I have an issue. We had a case with one of our large retail customers recently. I think I talked about this during the last earnings call where the supply chain office went to the IT organization and said, "Hey, we need help. What do you guys recommend?" They recommend ServiceNow. But what the supply chain does all day at this particular retailer is respond to 5,000 to 6,000 issues a week. A store needs something. A distribution center doesn't have it. They got to go to suppliers and the supply chain office is sort of the central clearinghouse for all these requests. And all of these requests are time sensitive. It's all about getting the right product in the right place at the right time. That's really what makes retail go. That's the essence of managing a large retail environment. But previously, they were all doing this, again, wouldn't you believe it, with the email and then with Excel and everybody was maintaining -- by the way, all day long, the supply chain office was responding to requests for updates, what's the status, what the status, am I getting it in time and so on, right? So they had no oversight in terms of what the volume is or this is whether they were responding in a timely fashion, and they could not really structurally attack the issues in their supply chain because this simply cannot aggregate the data and have a good analytical view of what the work is that's coming at them, right?

So a typical example where we've moved an organization from a message-centric world to one that was completely systematized, and here's the interesting thing. We, at ServiceNow, didn't even know it was going on because the supply chain office who's obviously an organization we normally would not have any contact with, went to IT and said, "What should we do?" And the IT organization, because of the advocacy role that they have relative to ServiceNow recognizes. And that is our typical go-to-market posture. This is how we end up in other parts of the enterprise. It's not because we're knocking on doors in sales and finance and production manufacturing, it's always because IT organizations have the efficacy and the sponsorship in really driving ServiceNow into other places.

So workflow is really important, right, because workflow is relatively simple concept in the world, but it's really important, right? We have the ability to acknowledge. We barely use that from using all kinds of the retail website, the ability to sign, the ability to prove. I mean, we can't disintermediate a process, right, but authorization is important because if I was an employee and I'm asking for somebody, something -- somebody has to say, yes, that's okay because it's going to cost money, right? So there has to be controls. There has to be adaptability. So very, very important. Escalation, right? When something takes longer than it should, then it's determined in the workflow. It's got to go flow up, go to a higher level because the workflow can't stop just because somebody is on a vacation or is just looking somewhere else. We heard so many interesting examples of people who have had application development release processes where essentially there's a bunch of developers. They got to check in bug fixes and feature request and so on. And because they knew that if they were late, escalations were created and dashboards and emails would pop up a manager desk because they knew it was so tightly monitored. People start out working harder and harder and harder. It's almost like a hamster on a treadmill, right? The process starts to run itself after all. It's very powerful stuff.

But the important thing about a lot of workflow activity is just the notion of updates. People are always constantly looking for updates, what is the status of my request, where is it. Vendor management, purchase orders are being paid, right? And purchasing departments take these calls all day long for people, where does it sit, has it been paid yet, I'm getting pinged by the vendor and so on. These are very, very simple things. But today, it operates on email, phone and so on. It just sucks the life out of organizations in terms of productivity.

Now the service provider. I typically refer to that as service domains. Almost everything and everybody is a service domain, right? I mean, I act in the service capacity as do you all day long, whether we are in sales, whether we are in education, whether we're in finance. The legal people, they got tons of requests, the HR people get tons of requests. So these service relationships structuring, defining, automating and managing them. That's really the category of what ServiceNow does. And it gets very important to sort of get a mental concept around that because that's really how we see our business evolve in years to come.

Here's the interesting part. When you look at -- this is sort of an interesting dichotomy. We have internal service domains and then all the departments there we just talked about, the HR, facilities and so on. But increasingly, we're seeing people using ServiceNow to manage outsourced relationships. We have one of our larger pharma customers on stage tomorrow. They've got everything outsourced. They don't do anything inside, right, and ServiceNow is really the way that they manage these outsourced relationships. They can't use email for that, right, because they have contracts. They have service level agreements, right? They got to report on the levels of activity. Are they responding in a correct manner because when it comes time for server crisis or renewal of contracts, we got to have real data as to how well that service relationship is functioning, right? So it's absolutely not acceptable to manage these things in the spreadsheet or through email. So that's a very big one.

Now these structure workflows, they're pretty visible. I mean, today, they may be managed through Lotus Notes or SharePoint or any collection of web tools, right? And what is so interesting is that there so much unstructured activity enterprise that simply isn't visible today because it's in the realm of personal productivity and personal communications. This is where the entire Microsoft Windows Personal Productivity business is, all the Office applications and Outlook and so on. This is an area where we increasingly see the enterprise moving from a message-oriented approach to work, which is activities on a one-off basis to one where we're actually defining structuring and automating service relationships. Huge opportunity. This is really what we're super excited about because we're seeing more and more of that happening.

As you're here at ServiceNow, you're wandering around and you're visiting a lot of our customers' sessions, you will see that they have built applications to do exactly these. These are processes that have never been automated before, actually their activities, a process really implies some form of structure definition and repeatability.

Now we get asked about this all the time because our investors are super interested in the traction on what we've referred to in the past as the platform. It is true that the platform is one of the highest used applications, if you will, that we have on the platform, right? This number of 64%, these are all the productions that we have where we have identified applications, application objects that are unrelated to our core application set. So it can still be IT applications, but typically they're also outside the realm of IT. That number actually has moved quite aggressively because we did the same set of numbers last summer and it was more in the 50% range. So as our customer base spends more time implementing the applications, gets more mature on the platform, that's when you see the custom application activity and effort picking up. Of course, we're adding a lot of new customers every single quarter. Those customers typically don't get started with custom apps, they start with the standard set, the core ITIL, ITSM set and then they move on from there as they really move towards their ERP for IT vision.

So as that number of customer applications built today by customers using the platform, between 3 and 4, not that many, but that number is going to move up, you will find many customers here at Knowledge that have really gone to town in terms of the number of apps. So these apps are very small. It could be a single form and some apps are more involved. On-boarding applications and HR, they're pretty sophisticated, right, because they have many different types of background integrations, but some things are very simple, right? Security is one such an example, right? People lose their security badge, what do you do? Right now, you just run around, try to find somebody that has a clue. How do you get a new badge, right? But they should be able to log on to a portal, search on security badge, find a link, find the application, pops up a form. It collects the information, who are you, what's your employee number, where are you. We'll deactivate your old badge at once because that's now a compliance issue, and we will get you a new badge whatever the service level is that is established for this process. These are simple applications, right, but they are very valuable because it just takes away all this one-off activity that is sort of rampant in enterprises for so many things.

Now the final topic. As I said earlier, the true measure of value in a franchise or an enterprise is how strongly customers feel about the company, the products and the people. I went to Knowledge11 back in May of 2011. It was my first Knowledge event, and it was just, for me, a mind blowing experience. I think we had 800 customers there at the time and we were obviously a much smaller company at the time as well, and just a pure sense of energy and excitement was just palatable and that was just enormous, this observation, and I'm very, very thrilled that you're here to get a sense of that because it's very hard to communicate in words and you have to be here to sort of get a feel for it.

This conference has been run since 2007, I think the first conference. How many people did we have, Fred, about 70?

Frederic B. Luddy

85.

Frank Slootman

85. Okay. So very small conference, right? Today, we're -- I think we are around 3,800 attendees at the conference. It's a more than double from last year. For a company that has, whatever, 1,300 employees, to have a conference of this size at this scale and this growth is extraordinary, and again, a great measure of the strength of the community and the customer base. People, we have 90% or so of the content here being delivered by customers themselves. We get more submissions for presentations than we can actually accommodate. I sometimes see customers are personally disappointed that we didn't take their submission. That's how proud they are to be able to come here and show the stuff that we've done. We have an Innovation of the Year award. This is really around what people have done on the platform. True innovation where they've done things that nobody has ever thought about and they actually are competing for an award in this area and Fred, on Wednesday, is actually going to go through all the submissions and actually put the award on. So it's actually a very fun part of our business and people win that award every year. They're super, super proud of their efforts and accomplishments.

Now you know that we report on renewal rates and upsells every quarter. We're not just doing this because it's an important statistics. It is a true measure of how well we're doing with our customers, right? When we have higher renewal activity and we have continued growth in our customer base, that is the best numeric indicator that we can provide about how strongly -- how strong the business really is. We ourselves manage the business this way, right, and we've often said the 3 growth engines of our business are new logos, renewals and these upsells. I think we're one of the few SaaS vendors out there that actually breaks out renewals from upsells. I think most companies out there are combining renewal and upsells in a single metric. We don't do that because we really want to break out the growth that we have as separate from this renewal and the dollar value of the contract.

These numbers are high. I think that, in part, that is because we're aiming for very large enterprise, right? We don't have an SMB marketplace, but typically the turnover is higher because in SMB world, companies got a business, companies get acquired. Obviously, you don't have that much of that happening in a large enterprise business. But still, our large enterprise focus has really helped these very high renewal rates and high upsells.

Now one thing that we also do as a company is we run on a quarterly basis a certain methodology that is known as the Net Promoter Score. And I think many of you know what Net Promoter Scores are, but just for the sake of clarity here it's a sort of methodology that asks one super important question of the respondents. And that is, would you recommend ServiceNow to a friend or a colleague? And you have to rate your answer on a scale from 1 to 10. If your rate us 9 or 10, you're considered a promoter. If you rate at 6 or less, you're considered as a detractor. In between, you are passive. So we add up the number of people that are answering the question as if they are a promoter, you detract the detractor and then you have your Net Promoter Score.

It gives you one number on a quarter-to-quarter basis that you can look at and go like, "Well, how strongly are people feeling about this if they want to recommend us to a friend or a colleague?" We get a lot of other narrative. With these kind of surveys, it's quite valuable. It's sort of the customer base holding a mirror in front of you and saying, here's what you look like. But our number came out in the most recent quarter, which was the March quarter, at 52%. That's extraordinarily high in the world of Net Promoter Scores. There's lots of companies and enterprises out there who actually are running negative Net Promoter Scores, actually have more detractors than they have promoters. So these are numbers that are really in the upper echelons of the enterprise tech business. I believe that the average rating for enterprise tech is around 9% or 10%. So I've done this before in other businesses. This is a very, very high number and it's something that, I think, is a real numeric measure of what's going on in our world.

So what I want to leave you with is sort of the full measure of what our opportunity is. We talked about help desk. We talked about the expansion of the help desk population by 5 to 10x to ITSM and broadening that marketplace to everybody in IT who really becomes a licensed user on our platform. But the excitement really in our business is not just because we can bleed into this space that we are sort of tentatively referring to as service relationship management. We believe that the future of IT, IT organizations and enterprise is to manage service relationships for the enterprise. IT organizations have historically been infrastructure operators, right, because that's what they did. Keep the lights on. And it was hard because the demands grew in leaps and bounds that technology kept changing every couple of years. But guess what, with the onslaught of cloud computing, infrastructure is going to increasingly move behind the curtain. In other words, it's not their problem anymore. It's the problem of the cloud hosting provider, right? So IT organization enterprise are going to be farther and farther removed from the infrastructure. They'll still be procuring it, contracting it, service level management and other outsourcing relationship. But they're going to spend the bulk of the time, energy and resource that they have on really helping the enterprise structure define, manage, automate service relationships, right? A lot of those are service relationships that we're already familiar with in the service domains like IT and HR and facilities and so on. But increasingly, we're going to go after service relationships that are -- that have never been automated and where an enormous opportunity exists for speeding things up, lightening processes and just making the enterprise that much more efficient than it's ever been. We see this as the future of IT. ServiceNow is the company that is going to enable that evolution of IT into that role. And that's really the big thing you got to take away from today's presentation.

So thank you for that. We're now going to move on to the next segment of our presentation. I'd like to bring up Fred Luddy, our Founder, Chief Product Officer, all-around great guy, handling the controls. Thanks, Fred.

Frederic B. Luddy

Very good. So I am the founder. I'm also a programmer. I'm wearing a jacket because I didn't want you to know that I hadn't ironed my shirt. I'm a real programmer. And I have to admit that I have a lot in common with Vice President Joe Biden. I'm really not sure whatever going to come out of my mouth. So for that, they've only afforded me one slide and I will try to get through without violating any Safe Harbor statements.

Now I love technology, but then I also hate technology. I hate technology when it makes me feel stupid or when I see somebody using it and it makes them feel stupid. And so toward the end of 1999, 2000, I thought, can we create something? Can something be created that would allow regular people, ordinary people to build meaningful business applications? People that didn't know what this alphabet soup of technologies of SQL, HTML, Java, JavaScript, et cetera, were. Could we create something that would empower them to feel, wow, I really have control. And that, from day 1, has been the objective of ServiceNow, is to create simple technologies that are approachable by regular people, people with good degrees of business acumen that can create something meaningful.

And so surveying the landscape at the time, I noticed a lot of things happening in the consumer space that were extremely interesting. When My Yahoo! came out, 88,000 people customized their homepage on day 1. No training, no documentation, no help desk, nobody to call. Enterprise class offered to do something like that where it's generally taken weeks of training, weeks of meetings and weeks of implementation to do something as simple as that. You saw -- take a look about what was going on with Gmail. People started loving Gmail and flocking to it. And you had to wonder why because Outlook had so much more power and so much more functionality. But Gmail was just there and you could just use it. And it was very, very much unlike AOL at the time or Hotmail and its implementation. We saw things coming out that wasn't Facebook at the time, but things like Salesforce.com and things like MySpace that let regular people become -- in essence, they became editors of their own web space, and this was phenomenal.

And at the same time, I noticed that 2 horrible things really happening in business because of technology. Number one, the most popular database on the planet was Excel. Every day, hundreds of millions of people were opening up Excel and they were creating, unbeknownst to them, a database table with rows and columns of structured data. And then the other, which is almost the bane of my existence right now, is that email has become the de facto workflow engine for many parts of many organizations. And I'm here to tell you it's a horrible way to manage workflow for many, many, many reasons. And I'm sure any of you know that use email, hopefully, will agree with me. So we decided that we're going to go ahead and build this platform that would be something simple, something straightforward and purpose built. So the purpose-built nature of the platform was that it would do what I characterize as performance-based workflow. That is a set of structured data and a set of unstructured data that is created to accomplish a task. So think about a travel requisition or a purchase order or a -- or even a doctor's prescription, all of that is performance-based workflow where something is written down, is taken into some place, some work is done and something is delivered. And the performance-based workflow happens over and over again.

Now before email, I'm this old, I remember this, before email, you used to go into this place called the copy room. And in the copy room, there were bins. First of all, you had your mail bins, but secondly, there are bins and bins of different forms that you would fill out to get stuff done. Well, that kind of eroded away and became this email-based workflow. And I thought these forms that were created by these bins were largely done by clerical people with a little bit of oversight from their leadership, so why does it have to be that hard to create that stuff in a modern environment? So we decided to build this platform to what, in 2011, Gartner would finally characterize as a citizen developer. And the issue with the platform was that, well, it could pretty much do anything you want and that was the problem. When I try to go out and sell this thing to -- even selling the concept, people say, "Well, what can it do?" and I'll say anything you want and they said, "Well, tell me one thing it does." I'd say, "Well, tell me one thing you wanted to do," and then figured like that was the end of the conversation.

So we decided we better build an application that, a, demonstrates the power of functionality of the platform and, b, solves a real business problem. Now I was the Chief Technology Officer of a company called Peregrine Systems for 13 years and I was also the Chief Technology Officer of Remedy. And when I left those organizations in October of 2003, I said -- I swore to myself I would never ever, ever go back into that market space. So my definition of never is 9 months because it was very clear to me that one of those companies are selling technology from 1983 and other was selling technology from 1992. They kept trying to refresh it and update it. Gartner has a wonderful saying about people that try to pull this off with technology. They were talking about, in specific, they were talking about putting a web front end on the client/server app. Gartner says it's like a bad to pay in that it fools exactly one person.

So we knew that we had a market opportunity there where we could go ahead and build something that was truly meeting consumer expectations of the day. And so we started to put together this set of platform apps, and luckily, as Frank mentioned earlier, Ralph Szygenda had called for this ERP for IT. If you think about some of our very large customers, they have -- are fully -- our low-end customers have IT budgets in the hundreds of millions of dollars. We have customers that have IT budgets in the $5 billion to $7 billion range. So this is a massive undertaking that is managed across many different geographies with lots of outsourced vendors. And it has its own set of processes, rules, regulations, et cetera that it has to adhere to. So the notion of an ERP for IT, that is a single system of record that keeps track of everything from the time I have an idea until the time it's funded, until the time it's built and put into production, until the time it's retired, is a very meaningful notion. And something had to happen. Luckily, we didn't have to think that much about how we were going to build it because, as Frank had mentioned, ITIL was coming on strong worldwide. It's becoming a de facto standard. It's kind of like GAAP, it's something which are generally accepted accounting principles, which are being adopted to fit your business, right? So ITIL has -- is going through a very similar life cycle. It started really back in the early 1990s, but the adoption worldwide hasn't been accelerating over the decades.

So building this single system of record was something that we had aimed to do. Now we -- I'd like to tell you that we had a brilliant business plan. My last name is Luddy, but sometimes I think I ought to just change it to Lucky because a lot of things just happened that worked out well for us. First of all, we wanted to go after the mid-market and what we found was the mid-market going down to this okay. But it was a tough sale. And then we kept getting calls from higher and higher end customers. And we noticed that we landed customers like UBS, the trading floor in London, like Qualcomm, like TIAA-CREF, like University of Oklahoma. And we found that these sales were roughly the same amount of effort. But the check had an extra comma in it and this is very appealing to us. So we decided to take make the company a company that really went after that high-end market space and that's where we have been focused for probably the last 3 to 5 years. Our customers, I think, pick us up because, number one, we have, I think, a good vision into the future. Number two, we are a very, very relevant technology for today. We really do, I think, meet or exceed customer expectations or very simple. And I think our customers perceive us as being, at least in order of magnitude, different than what they're currently using. And it's my belief that people don't switch technologies unless they do perceive, at least in order of magnitude, difference. I mean, BlackBerry owned the market and I believe that most people think that their iPhone is, in order of magnitude, different than they -- when they replaced their BlackBerry.

So for me, this has been an extremely exciting 8 or 9 years. But I think -- again, I've been a programmer for 40 years now. I should've been a government employee because this will be my second retirement. But having watched this business over the last 40 years, I honestly believe that what's going to happen over the next 3 to 5 is going to be far more impactful than what happened over those last 40 combined. And I believe that ServiceNow is in a phenomenal position, a, to help IT do the things that they need to do best to differentiate their business and to streamline their processes, and b, help them really accelerate innovation and business differentiation for their corporations. So I'm looking forward far more to the next 5 years than I did and want to wax nostalgic on the last 8, and I just think we have a great opportunity.

So I'd like to welcome my good friend, Rob Phillips, who is Employee 9 at ServiceNow, and he will go through a demo. Thank you for your time.

His demo is so good, he's not even using a computer.

Rob Phillips

All right. Excellent. Thank you, Fred. And I'd like to walk you through a bit of a demonstration here of the technology. It's always challenging to do this in a short period of time, and the scope of this presentation is impossible to do in the amount of time that I've been provided today. We have this notion of ITopia, IT in a state of euphoria, and the illustration really here is that ServiceNow touches virtually everyone inside of an enterprise organization. In the keynote session on Thursday, we'll have 15 actors, 15 participants onstage, playing each of these roles and showing an example of the tool set. In the brief time I have today, I'm going to try to zoom us through 7 of these, from the data center to the CIO. So it's a bit of a whirlwind tour. But hopefully, you'll take something away from these scenarios.

So let's jump into the technology. And first, I thought I'd focus a bit at the low level with data center management. As Frank explained, configuration management really allows you to track all of the assets and CIs, configuration items, in an organization. And more and more, we are seeing hybrid environments, where we have virtualization taking place inside the enterprise. And here I have a nice cloud dashboard that gives me visibility into all of my virtual environments. And some of these may be private environments, private cloud with VMware or Hyper-V. Some of these further down the list may be public cloud environments hosted with providers like Amazon EC2. I can see all of the environments, though, in a consolidated view. And I can actually interact with these systems directly from ServiceNow. No longer do I have to bring a technician in to a vCenter interface to go and interact with that virtual environment. Right from my dashboard, I can actually manage these VMs, turn them on, turn them off from ServiceNow. So it's really an illustration of our orchestration engine reaching out on the back end and talking to these virtual tools.

I also have the aggregation of all of these environments into a single dashboard. So I can start to see chargeback and cost allocation. Amazon's pretty cheap at whatever it is, $0.07 an hour. But over time and global reach, that money really adds up. So I see a departmental breakdown of chargeback cost. And I also can -- I can drill into any of these environments. So here's just a virtual computer, but I can see its relationship to other entities in the organization. So this is a look at our business service map, and it shows me that, that single virtual machine actually does support applications, business services, give me visibility into the -- since this is private cloud, I can actually see this, what infrastructure it's running on. And this, again, is an example of ServiceNow's Discovery technology that when a new instance is provisioned, the Discovery will go find that and draw this map for you. So really valuable for impact analysis and problem resolution.

I also -- still looking at the -- give me my tab back. No, let's get out of that.

So looking at the data center point of view. I also can provision these virtual resources right through ServiceNow as well. So this notion of a service catalog that employees were entitled to do so can come and interact with one system for all their IT needs. If I'm perhaps a developer and I need a new Windows 2008 virtual machine to do some testing or potentially even use in production, I can simply choose this Amazon link here, configure any needs that I might have around the duration of this virtual environment and order this. So it's -- it is literally like using Amazon. I have one click order, right?

And now this takes me to my personal virtual asset page. And I can see all the environments that I'm currently using in my job. And in fact here, you see that the state of this VM is now starting up in the Amazon cloud.

I actually think this event right now this week is one of the best examples of cloud management in the world. ServiceNow is going to run 16,000 instances of our software this week for all of our customers, who are here to participate in our labs. And all of that spending up and spending down of virtual environments happens using ServiceNow's orchestration. It's completely automated this week.

So I'm going to change hats now, and let's look at a little more of a physical asset-oriented view of the procurement manager. So procurement or an asset manager perspective really allows you to see any kind of outstanding sourcing orders, as well as understand stock that we may have in location. So as we receive requests, I know whether I can pull it from inventory or I need to generate purchase orders to procure new goods. I actually think one of the key aspects of ServiceNow's reporting in analytics flexibility is the fact that I could look at a chart like this, I look -- can look historically and say, "Geez, we did a lot of asset procurement in 2011." Any good graph is going to make me ask more questions about where that data came from. Now rather than having to -- traditionally, we've had a higher report designers, who are technical, to go use an external point solution to build me a report. Anyone of us, any citizen developer, if you will, anyone of us can just drill into a report, and in a few clicks, explore this data in different perspectives.

Maybe instead I'd like to view, really, a monthly breakdown and I want to see this by department. Oh, and then I think I want to make this a little bit bigger, so you all can see at the back of the room.

Okay, so this is a little more interesting now. I can see over that time span of 2011, where those -- the vast amount of purchasing was that a big bulk of that was this orange band. I can just hover over this, I'll see that, that was ordered on behalf of the customer support department. Right now, this makes sense to me because during that period of time, we are rolling out new tech support centers across the country. Another click actually shows me exactly what was ordered. So we ordered a bunch of laptops for these new technicians to do their work.

So just an example of how analytics -- they're just very flexible and embedded into the very fabric of ServiceNow. Any data that you have in the system, including custom application development, will have the ability to build charts and graphs of this nature.

So let's change hats one more time. Talking about kind of hiring these service desk technicians. Let's take a little bit about the interface of ServiceNow for service manager and the service desk. And Frank talked about, obviously, the core attributes of our operating an incident, problem and change management. Certainly, that's still relevant.

Perhaps, what I think is more interesting, though, is now the movement away from sort of the legacy, I pick up the phone and I call the help desk for support notion. Is anyone in this room actually ever called Apple for support on the iPad?

I pretty much can guarantee the answer is going to be no, right? It's not the way we want to receive service. So in fact, we want to shift this to self-service kind of interface. I want to help myself. I'll just go Google the answer. And this is just an example of a template that we ship with our product, and it allows you to have all employees in an organization come to a single location. A lot of my customers call this the IT storefront. And if I need anything from IT, I come here and I can just search for resolution myself through things like the Knowledge base. I can in real-time chat with someone, if I really do want to have a conversation with a technician, a little better than picking up the phone. Technicians can certainly manage more than one of these at the same time, make them more productive. I can submit a request from here.

I also really like this notion of a social behavior that all of us as employees can collaboratively support one another. You'll be amazed just how putting a question into a public forum like this and asking for a response will generate information.

So here's just a brief example. Someone has had an issue with e-mail, others chime in and say, "Yes, I'm having the same issue." And we actually experienced this ourselves. For a period of time, we had outsourced our e-mail, and we no longer do that because we had a lot of scenarios like this. And sure enough, it worked in real -- in fact, it's just like this. And an IT very soon would see the behavior. They would jump in and create, as you see higher up the screen there, an incident record. So they would create a structured process.

And it's pretty cool. I can just come here and follow this incident. If I care about the resolution of this issue, I follow this just like I follow someone on Twitter. And every update and resolution has been pushed directly to me in my feed. So this collaborative aspect is something that we see getting more and more traction and use throughout the entire platform, and is it reusable component that can be utilized in custom apps or in other areas of our offering?

To drive this home, I wanted to show you a couple of examples of what ServiceNow looks like in the real world at customers. So this is what NetJets offers to their employees. That looks nothing like the ServiceNow screens that I've just showed to you, right? This is using our content management system, which allows you to -- through basic web design skills, nothing proprietary, re-architect the look and feel to make this relevant to your organization's brand. And quite honestly, these are a lot of organizations who are desperately seeking to change the perception of IT, right? IT sort of still feels like waiting in line at the DMV, right? And so we want to change this to a more Amazon consumer-like experience. You need to make this a sexy experience with IT, right? That's going to draw people in. It's very, very usable.

Another one of my favorites. This is at Nike. It's a kind of a Windows 8 tile kind of style here, very simple and approachable.

This is at Netflix. I thought this was pretty cute, right? Core business persona here. If I need IT help, that's cool, I can click on the Beatles. If I want some enhancement to a corporate app, I can talk to Leo DiCaprio here in the Inception movie.

It's also a good example though of how we're really reaching beyond IT and into a single portal for employees, full stop. If I need something from facilities, it's too hot in my office. Who the heck do I call? I have no idea. And now I just click on Bob the Builder, and I can submit that request.

Another area in shared services that we're seeing a lot of traction inside of our customers is in the human resources area. Again, if I need to request for paid time off or I want the latest copy of our benefits policy, I can access that here through the portal. Also for the human resources employees themselves, I think Frank mentioned, on-boarding employees. It's highly complex. And it's one of the first things we often automate with our workflow.

I'd like to show you a quick example of that. So as a human resources individual, I might come in here, and perhaps I have a new employee who's joining the company next week. And realistically, we probably would source -- steal that idea from Wall Street on the last slide. Realistically, we'd probably would source this data from an integration to a true HR hiring database. But just for the sake of demonstration, I'm going to go ahead and initiate a new employee hire and I'm going to give a department, a title and also some additional service options here. Based on all of those pieces of data, we're going to have a bundle automatically created for this new employee. And this might be populated with telephony items, facility items, setting up their room, their cube. I can add options to the selection process here. It really is a shopping cart experience. And all of the items will then be allocated with implications from a cost standpoint. So those can be charged back departmentally. And then eventually, order this bundle of goods.

And from a status perspective, we -- it's a little bit off the side of my low-res screen here, but we were inspired by UPS or FedEx here. Instead of picking up the phone to check status on any kind of request, I just come back to my order screen, right? And I can see as the workflow progresses, where this request is in its fulfillment. So that's on-boarding.

Perhaps more importantly, the off-boarding process has almost no structure in many organizations that I walk into. And so if instead I was looking here at a list of the employees that we have in the organization -- I want to show you the power of some automation with ServiceNow. If Alan Schwant [ph] here was no longer a part of the company, I could, with one click, set him to inactive. And now let's see what does that to his access. It -- I just took a closer look at his user record, it locked him out of the ServiceNow system, so that's mildly interesting. But it also has now triggered an automated workflow.

So this is a look at our graphical workflow engine. This is very flexible. You can drag and drop the behaviors around here, just like you would in a Visio flowchart. And what's going to happen here in this example is that a manager is, in fact, going to validate that yes, he is no longer with the company. And as soon as that occurs, we're going to reach outside of ServiceNow into the corporate environment and disable his active directory account or disable his single sign-on account. This means he'll no longer have any access to any corporate asset. We might also do things like recoup his software licenses, terminate any virtual assets that are assigned to him and schedule someone to recover his badge and his phone.

So workflow is an incredibly powerful aspect of the platform, not only for HR but really any application. And perhaps, a good segue into another persona of an application developer or a development manager. I wanted to give you a very brief look at the app creator in ServiceNow.

I'm going to go into this in more depth during our keynote in Wednesday. But just very quickly, so you can see development occurs with no coding skills, I've got some various applications that people have created on the ServiceNow platform. These are not apps that ServiceNow has written but a use of the platform itself. And I can simply declare with the app creator that I'm going to build something brand new.

So let's say that the business has now come to IT and said, "We really need a -- we need a better solution for managing conference rooms." People are just sort of standing in line and snagging the rooms and not being generally kind to one another. So let's put some process around this. I'm going to build a new conference room app. And simply by declaring this, the system is going to start building for me a navigation menu. It's going to start creating security roles, so that we can control who has access to this new app. And then it's going to allow me to start creating the data objects, the tables that we're going to use to track this new application and its data.

So I'm going to create a new table. And I'm going to call this, I'm just going to call this rooms, and then down here below beside what I want to track. So okay, obviously, I want to track which conference room that I'm reserving. And I could type in some stuff out of the blue. But I actually already have a bunch of data in the system about our locations, about our buildings and the room locations. And in fact, this is one of the most compelling aspects of building on top of ServiceNow. IT already has this implemented and has a tremendous amount of core data about the organization app already, and all that can be leveraged. I want to know who this room is going to be reserved for.

Again, in reference data that already exists in the system, like users. And then maybe lastly, I want to know what time my meeting starts and what time my meeting ends. I mean, that almost is like typing columns into an Excel spreadsheet, right? That's really straightforward. And now I could just go ahead and submit this. I'm going to open up the full menu here on the left, so you can see all of this stuff happen. So here's all the different apps that we offer. And in fact, now I have a new conference room app that just appeared with my rooms, table, and then I can click new here and start typing in my information about kind of who this is requested for.

All of the capabilities that I've shown already like the workflow, such as the employee portal, where all employees can come and log in, use the tool, those are immediately available. They're all free. They just come with the platform. Social aspects, if I wanted to allow people to reserve socially on the Facebook style wall, that's available as well.

So just a quick look at the app creator. Hopefully, you'll have a chance to see that in more depth this week. I have 2 quick personas left, and I'm running short on time. And then that is just for broader projects both application development projects with SDLC or just general IT projects, data center, consolidation, et cetera. We have a very deep project management capability.

And so in this overview page here, a project manager could run the their whole world. They see pending projects, active projects, a nice bar chart here of all of the personal resources, all the humans out there that are working and the projects that they're working on. This is all tracked by timecards or timesheets for those project users.

Over here for my projects, I get a quick glimpse of how we're doing on the progress. Are we meeting our timed deadlines or not? And if I drill in to one of these projects, like our Green IT project -- I just want to give you a quick look at the depth of functionality here for project managers. There is a really flexible and interactive Gantt charting capability to run the project, as well as resource time lines, where you can assign resources dynamically, visually. This is not a Microsoft power -- or a Microsoft project vial sitting on someone's desktop. This is a collaborative system. Everyone can access from the cloud and helps us to proactively manage the progress of the project by sending alerts, by escalating if things are not happening on time.

And finally, I'd like to look at the world from the vantage point of a CIO. I've got my iPad up here. It's a little squooshed on my screen, but we do have a tablet-specific interface for ServiceNow.

So the CIO can come in on a tablet. Notice that the menu on the left here, this is all role-driven. But all of the applications are available from the mobile device as well, including that conference room app we just created, right? And here I have a nice homepage that brings all of this together. In fact, actually, wrong homepage. I'm looking at the cloud menu. Let's look at my favorites here and view an executive dashboard. And really for the first time, that single system of record gives the CIO a holistic view they've never had within their organization before. They can see the services that are provided for the business and in a nice traffic light, green, yellow, red view, the performance of those services, meeting the commitments and SLAs that we've given to the business. They're able to see a project portfolio view, a critical progress on IT projects. And all of the activities that I've displayed can generate expenses or financial costs, which can be aggregated up to IT budget. So that the CIO really understands where the bulk of their funding is going. Hopefully, can then drive down costs through automation and then recoup much of those cost for innovation moving forward.

So thank you very much. I'm out of time, but I appreciate you watching the demo. And I'm going to invite up Matt Schvimmer, our VP of Product Management.

Matt Schvimmer

Thanks, Rob. Ironically, I was practicing going a little slower and talking at a much more measured pace. But luckily, we're running late. So I get to talk in my normal fast cadence. I'm the only one between you and lunch. So what I want to do in the next couple of minutes is take you through how the company strategy that Frank and Fred described, how that translates into product investment priorities.

When we talk about our investments, they're really about 3 distinct yet interlinked levels: The cloud infrastructure, which is our data center and operations, which runs our service; the software application platform that our application portfolio was built upon, as well as the applications from our customers and our partners, the platform where they reside as well; and then finally, our application portfolio, which is our prescriptive set of ERP for IT applications that we build for enterprises. So we're going to take them one by one.

The first one is our cloud operations, and it all starts with our data centers. We're investing geographically to address the needs of enterprises in key new markets. We have our first Brazilian data centers coming online this year and additional data centers in Asia-Pacific coming beginning of next year.

When we invest in a new data center, it's important to note that we invest in the same level of enterprise quality that we -- that customers have come to expect from us from all of our other data centers. That means investing in things like high availability, failover, security and automation. And automation is a particular investment area of ours that I'd like to highlight. Our data centers are fully automated. We -- and this is really an important point when you think about us and the amount of customers and the number of customer instances we manage. We don't manage customers individually. We don't manage each person one at -- each company one at a time. We manage in holistic blocks. This gives our operations a much greater level of scale and efficiency that you would commonly find in a data center operation scale like ours.

You're going to hear a lot more this afternoon from our CTO, Arne Josefsberg, who's going to talk about our infrastructure operations and why we believe -- why we talk about them as the enterprise IT cloud, enterprise grade.

On top of the platform is our software -- on top of our cloud infrastructure is our software platform. We call it the service automation platform. And there are 4 areas I want to highlight here. The first is application performance, and our customers have grown -- if you saw Frank's chart, that growing up that maturity path. When we started there were tens, then hundreds, then thousands, now there's hundreds of thousands of users on our system for each of these customers everyday. And we need to stay multiples steps ahead in terms of performance, so that the performance they had when they had 10 people is the same performance they have when they have 500,000 people.

So from that end, we've started investing in noSQL databases like MongoDB to be able to handle the explosion of unstructured data, things like streaming conversations that you saw Rob showed there, live feed real briefly and the reports and lists. These are things that relational data stores just weren't designed to handle very well.

That said, we're also investing our relational data model. We use MySQL and -- where we believe we can optimize by at least a factor of 2 this year alone.

On top of performance comes security. And security is paramount for a company like ours. We invest a significant amount of time and effort fighting and preventing denial of service attacks, making sure our firewalls are always updated, the latest and greatest capabilities, as well as making sure our application security adheres to ISO 27001 best practices.

We have nice things that we have going in our favor that we operate in a very much a DevOps model. That means we look at infrastructure and applications holistically as one thing. This gives us, again, efficiency, scale and really a holistic look at security that most companies don't look.

Once you get above performance and security, you really hit the user interface itself. And our customers -- we were just in a product advisory council in the other part in the ARIA [ph]. And they were talking about what they're looking at, what their big priorities are. And the 2 things that come up again and again are mobile and consumerization. And this is exactly what you just saw when you saw Rob demonstrate our new tablet UI. This is really the first fruits of our -- of the return on investment we've been making in this space. So that new tablet UI is now going to go and you're going to see it when Fred comes on stage in 2 days and shows how we're going forward now into our smartphone. And then we're going to go back and hit our classic web user interface as well, so that we have a single consumerized intuitive user experience on any form factor on any device.

And lastly, on the software platform, we're investing on the platform itself to make it more approachable for IT and people outside IT to be able to build compelling applications on this platform.

You're going to hear from a few customers on the panel, and they're going to talk about some of the cool applications and amazing valuable things they've done on our platform. They didn't have the benefit of what Rob showed you there a few minutes ago, the application creator, which is something that we just announced today. It's really a way to get much more explicit with our customers on what are the steps we need to do to create an application. And hopefully, you noticed by -- in Rob's demonstration that if you can use Excel, you're not a developer. You can use Excel, you can build on this platform.

The other thing that I thought was important to note, if you didn't notice, was that it immediately showed up on the mobile interface, right? There was no incremental investment he made. There was no incremental infrastructure administrators. It just plain works. That a very important differentiating feature of what we deliver.

You're going to see additional investments coming beyond the app creator, as we continue to make this more compelling and easier to use, not just for individuals but for teams of individuals geographically distributed around the world.

Last point on this, if you want to see the application creator in action, we actually have a hackathon going on this week. I believe it's tomorrow, where -- it's tomorrow, yes. Thank you, Alan [ph]. It's -- tomorrow, and you're going to see our customers form teams. And over the course of a couple hours, see the compelling applications they're able to build. It's going to be a really cool event.

So lastly, on top of that is our application portfolio stack. And this is really our ERP for IT set of applications. And there are 3 areas I'd want to highlight here. First is we invest -- we continuously invest in driving differentiation and breadth into the applications that we deliver today. One of the things that we're announcing while we're at the show this week is a concept called CMDB data certificate. I don't know if you guys noticed in finance, but we live in a fairly regulated world, right? There's a lot of need to be able to provide documented attestations that we have control. We adhere to compliance standards. IT is no different. This data certification capability is a way for IT, and Frank defined the CMDB for you as the single system of record for IT. This is a way for IT to provide documented attestable control over who has access to the infrastructure, how is it configured, what is it running on, all that information that's critical they have provide to their auditors, we provide -- we're the only company in this market that can provide this capability.

Over the next subsequent releases, you're going to see more capabilities like this coming out. We're investing in new features in all across the portfolio. You're going to see things -- and it's in the management that address, as Frank showed in his slide, highly penetrating our market, but it goes directly to customer satisfaction and maintaining high retention rates, as well as driving into new features and things like project management, software development, life cycle and governance risk and compliance, which are very early -- earlier in the adoption face relatively. So you're going to see that coming from us.

So not only do we go for breadth but we also go for depth, and we're going to continue to add new applications across this ERP for IT portfolio.

One that's new that just came out with our current release, it's called work management. Work management is creatively named. It's how you assign work to people. It's typically aimed at people like field services technicians that are out in remote locations. When you come and make a request IT and they send someone to your office to fix your printer or if a data center network switch goes down halfway around the world, you need to deploy someone out there, or even not an IT, say, it could be a school district in Oregon and a bus breaks down on the highway, how can I go and based on location-based services understand who is the most appropriate technician -- the closest technician to deploy there? That's what work management does.

And lastly, orchestration. You've heard automation a few times today, and we really believe if it can be automated, you should automate it. And we've had on top of our -- as part of our product, you've seen Rob showed you the workflow engine. An extension of our workflow engine is a product we have we call orchestration. We've historically offered this orchestration capability as kind of a toolbox, if you will. A customer can come and take this toolbox and automate whatever processes they like.

Feedback we've gotten from our customers is that they want us to be much more prescriptive, provide defined use cases that solve their immediate pains.

The first pain that we've addressed in that realm is cloud provisioning. This is the ability to provision virtual and cloud-based resources. And while that doesn't sound that big unto itself, okay, we've heard about provisioning of cloud-based resources in the past. What really makes it powerful for our customers is that it's on the same platform with all this other information resides. There you have the single storefront. You saw the service catalog. We will provide those virtual cloud-based resources with all the other things they need to request, tying in to the CMDB, so new assets dynamically appear, understanding the relationship, managing how long that asset should reside, understanding how much it costs, making sure it goes through a change process. That's the value we provide. That's the power of the platform.

You're going to continue to see in subsequent releases other focused orchestration-based solutions like these.

And so that's the 3 layers. I promised to be very fast so you could have your lunch. And with that, I'm going to turn it back over to Langley.

Langley Eide

So with that, I'd like to invite everybody to step out into the registration area to grab some lunch, and then if I could ask you to return here as soon as possible. We'll get started with Dave Schneider right after the break. Thank you.

[Break]

David L. Schneider

Great. Thank you very much. So let's talk about how we take all these great ideas and make market. My job is actually kind of the fun one in the company. I'm not a creator necessarily of product but our job is to go create customer experiences, land, expand, entertain our customers.

So it's really simple. Land, get new logos; retain, make them happy; and expand, thrill them [ph] with the new products, make sure they're fully utilizing what we could do and look for platform opportunities to grow the business.

So new logo acquisition. Everyone of our sales people has a job to do. We have divided our sales structure into new account hunters, who also have some part of the job to maintain and grow the existing accounts they have. We have then segmented out our top accounts, customers that approach us typically over 18 months ago, and we have dedicated personnel, sales engineering, salespeople to these accounts to maximize our footprint inside of those.

So account expansion. What does that look like? When we go to sell into a customer. There is not somebody there that says, "I'm buying ERP for IT." Right? They come at us or had an issue, specific ideas that they need to be solved. We have to cast the message that's broader and make it compelling for them to buy something beyond traditional point solutions. We've done that fairly well.

As we get in, typically what happens is post-acquisition, there's a process of going live. At about 10 months, the accounts typically expand and then expand and expand and expand, as with the community [ph] to please them.

Now our route to market, there's a set of partners that's out there talking to IT organizations about what they need to do to be competitive in this decade in this world. And as Frank talked about, IT is changing its structure. No longer are they managing and developing systems themselves, they're managing relationships with outside parties. And so being able to leverage partners like E&Y, KPMG and others to help us get to those customers who are trying to innovate on how IT is going to be managed is very important.

And then operating in new markets. So today, we just opened up in Brazil and Latin America at the end of last year. Sales traction there is actually very interesting that we've been doing so with our partners and resellers in market. You're seeing us expand in the Southeast Asia. We opened offices in Singapore. We're surrounding our Japanese partner in Hitachi with sales reps there by the end of June. And we'll open up new offices to meet the market opportunity around the world.

And then as we do that, the question is why? We have 1,640 customers today. We believe the market opportunity for us is over 12,000. We're significantly under-penetrated against those -- that opportunity base.

And then inside the customers, as Frank pointed out in an earlier slide, most of the customers aren't using all of our modules. So if we cross-sell the modules into our base, our revenue opportunity from that base is significant. Currently, you see it as greater than 30% a quarter. I believe there's upside on the that number.

And then as we add to our portfolio, we talked about automation and tools that may have provisioned something in the web as a virtual idea or activity. We're working with our IT customers, looking where the hard costs are. Things as simple as resetting a password cost the average IT organization $35 every time someone resets a password. Why is that not an automated process around the world for every one of our customers?

So going after new customers and going big in our base requires people. And you heard about our expansion plans on the Q1 call. This is a significant investment of resources. We currently have 452 global sales and marketing people. Our message is directed both at the functional doer, the person responsible for the activity, but more and more of our messages are focused on the CIO level and the level right underneath. Because they are the buyers for ERP for IT, and those are the folks that we need to get to.

It should be said that our first and top salespeople are other CIOs. And so the ability for CIOs to talk to CIOs about their experience with ServiceNow is simply we continue to push into the marketplace.

So I'm going to be very quick because I'm trying to catch up on time a little bit. But imagine a world where ServiceNow is much beyond what you'd traditionally seen us or thought of us as in a help desk or ITSM product. We talked about the application creator and the ability to create a simple confiture application in 92 seconds, is what we counted, 92 seconds. How many Lotus Notes applications are still out there in the workplace that need to be replaced or retired? How many simple apps can be evolved and streamlined into a single system of record? That's the opportunity for ServiceNow. We're going to take that message to the market, and we're having great traction and success in doing so.

As I mentioned earlier, the way that we get there is through partners. And I want to just quickly introduce a few guys who are helping me in the marketplace with our message. To be able to address what the system integrators are seeing as an opportunity. So Rick and Aaron, if you could come up let me quickly do a quick intro for them. So Rick Wright is the partner in charge of all cloud operations and activity at KPMG. He's our executive sponsor. And Rick and I have been getting to know each other for the last 2 years or so. Starting with no joint customers and we have since driven quite a few.

Aaron de Zafra joined us from Ernst & Young. So Aaron's claim to fame besides the 20 years he spent in helping IT organizations become more efficient, he also spent time as a Gartner senior consultant working with people. And so for those of you who quote Gartner a lot on what the opportunity is, Aaron has a unique perspective from the Gartner world.

So I prepared a couple of questions that I thought I'd ask you, and forgive my note because I just want to make sure I do it right.

So Rick, give us an idea of the scope and scale of your practice and maybe what your perspective is in the next year or so, where you think it could be?

Richard Wright

Sure. As you mentioned, we've been working together for 18, 24 months. As I go back 18 months ago, it was just a conversation. We officially launched, and Frank did it for us last year, at Knowledge12 the alliance. Since that time, KPMG is a member firm network, right? So we've got every country around the world as a part of the key KPMG network. We have now 12 KPMG member firms building ServiceNow expertise and capabilities to deliver. And there's people in EMEA, North America, Latin America and Asia-Pacific as well. So for us and the big 4 accounting firms that usually takes years and years. Just the excitement and the opportunity our partners within KPMG saw in the ServiceNow technology has been amazing over the last 12 months.

David L. Schneider

So Aaron, you and I also got to know each other about 12 to 14 months ago. Your firm's also got a fairly robust practice around IT transformation. Give me some insight into the size and scope of that practice area?

Aaron de Zafra

Sure. Absolutely. So as with KPMG, we spent a lot of time over the last, let's say, 12 to 15 months really investing in broadening our relationship with ServiceNow, focusing on historically the IT service management what's become is that the market has been heavily underserved. And it's such a revolutionary concept to be able to have the flexibility of the platform go into that type of environment. So for us, the value proposition around that is really how we've taken that data and expand and radiate with our clients in a meaningful way that allows them to take technology management data and stuff that's been in the domain of the IT organization and enable new business services. So for us, we've got about 30,000 professionals worldwide, where -- our plan is to actually expand and grow the ServiceNow relationship to where we're getting into areas of rapid PI -- or rapid finance transformation, rapid business service enablement and these types of things. So locally it's been probably about a good chunk of the IT service management space. But we're expanding from there.

David L. Schneider

Great. Maybe you can share a couple of examples where your customers, the people that you're getting paid to do transformation work with, what they've said when you plot ServiceNow to the table because many of them have not seen us or heard about us prior.

Aaron de Zafra

Sure. It's actually kind of an easy conversation. And one of the things we found is our pipeline has grown substantially. When we actually come in and lead with the conversation about have you seen ServiceNow, do you have them on your radar? And I don't know if you felt the same way. But it's one of those things where historically you haven't been able to have that conversation. You don't typically leave with a piece of technology. But the extensibility and the flexibility there allows us to be able to solve the problems they have. You mentioned Lotus Notes, for example. I've got a few clients right now that we're talking to on trying to get off of Lotus Notes and Domino applications in the workflow automation, and the ability to rapidly spin up new applications is a very compelling conversation. So the reaction with our clients has been very positive. Expect that to grow. I also -- if you look at ERP for technology and technology management, we view this as a very, very core part of our business.

David L. Schneider

Okay, great. We've spent some time in some pretty larger accounts in the past year. And I'm not sure if you can quote any of the names of the customers. But one of the things that you did is you came from basically nowhere from our relationship, became our sales partner of the year this last year, transforming our sales organization into really capable discussion partners with large enterprise customers. Maybe you can share a few examples of where you've been successful? And the opportunity that you see going forward beyond IT?

Richard Wright

Sure. It works really because your message around ERP for IT aligns very closely with our message of around running the business of IT, right? You need ERP to do that successfully. So as we're having these conversations with typically large global enterprises, there's a significant need from a profit perspective and more importantly, underlying technology, enabling technology that ServiceNow provides, to not only do traditional service management but what we're seeing is a dramatic shift in some of the things you guys have talked about today. For one large pharma client, we're building service interfaces. So no it's not an IT service interface. And there's 2 big ones. One is around the service interface for their whole learning development organization, right? You need a new course. You need a credit for some classes you've taken outside. ServiceNow will be the front of NOC. The interest -- the other interesting one is we're building the service interfaces that aren't in the organization, right? So these are a lot of external collaborators. So if an external collaborator needs to check out a molecule from their database or their inventory, that whole interface for the organization we'll be built on ServiceNow. And we see that over the last 5, 6 months become a significant part of our business as we move forward.

David L. Schneider

Great. Well, they'll be here during the Q&A session as well as we're live. So we look forward to spending more time with you. It's my pleasure to introduce Beth White in, I believe, the customer panel. Thank you very much. I'll be taking the cue from you.

Beth L. White

Good afternoon or good lunch time, I guess. Am I good? So we've got the panel here, and we can pull up the panel slide maybe. A very distinguished ServiceNow customers, and we're very, very grateful to have them. We have here with us Benjamin Nuttin from the New York Stock Exchange. He has some pretty interesting stories, which I think most of you will identify with, actually the used cases there. VeriSign, Matt Trimboli here and Geoff Cox, both joining us, have different roles within the company and we'll get into some of that. Javier Rodriguez is also joining us from Sephora and Nicole Tate from Metro PCS, which are -- your logo there is backwards, so apologies for that.

I think we won't mix up Javier and Nicole. All right. No risks on this one. So what we're going to do -- before we get started, I have a couple of housecleaning things I was asked to take care of. First of all, for the panelists, any of these folks that are part of companies that are currently in an M&A activity of any kind, they're not going to be able to comment on that. They have certain data types and security issues and things like this that are also we're not going to be able to talk about. Each of them has agreed to talk a -- give us a little sneak peek of what's coming next with ServiceNow. But they do have some limitations on how to talk about the future and their plans. The other thing is it's possible that personally the panelists may only talk of ServiceNow.

So getting the housecleaning out of the way here, we'll get the panel started. Thank you all for being here once again. You know how appreciative we are of that. So what we're going to do is try -- in 40 minutes here, we have a lot of data to cover and a lot of information to try to get out to you. So we'll be as efficient as possible. We are going to talk about sort of the impetus for change for these folks, what caused them to do something different. We're going to get into the selection criteria and how they came to select and choose ServiceNow. We're going to talk about how they have deployed ServiceNow within IT and for IT and then we'll move on to how they've actually taken ServiceNow beyond the walls of IT into other parts of the enterprise. And then we'll wrap up with a little bit of how ServiceNow has really become critical to the business. And what -- a little sneak preview on what's the next category.

So with that, why don't we get started here. Benjamin, if we could start with you, and I feel like I'm going to block you from the audience here. Why don't we get started with you. You guys have a pretty -- well, why don't you tell us first what your role is before we get into your speech...

Benjamin Nuttin

Sure. I'm Director of IT [ph] that's you met and renamed since then service management engineering. My team takes care of ServiceNow and a couple of other tools that are around ICLT [ph], IT, service management, things like that. I'm as well monitoring tools with NYSE Eronext. I've been at NYSE Euronext for 8 years now, starting when I was still Arca on my end and then we did a bunch of mergers to become NYSE Euronext today.

Beth L. White

And then you have a lot of software, yes, so...

Benjamin Nuttin

So when after the merger with Euronext, we ended up having 3 different installs of Remedy. One in Europe and 2 in U.S., and we had to merge them together. One of them was in a really old instance or really old version that was not supported anymore. So we had to do the effort of migrating to new platform, anyway. So we felt it was the very appropriate time to go back to the marketplace and see what was up available out there, what the state of the art was and what we could potentially improve on. And so we stumbled upon ServiceNow Discovery process and really felt it was a very compelling value proposition for us.

Beth L. White

Okay. No, that's great. That's great. Now, why don't you and Geoff introduce yourself. And then maybe you can talk a little bit about your change -- sort of the impetus for change within your organization. How you guys have started with ServiceNow?

Matt Trimboli

Sure, sure. I'm the Senior Manager of Configuration and Process Systems, which is -- sounds very much like Ben's job. I'm responsible for the service management -- IT service management aspect of things, the ServiceNow implementation and beyond that how ServiceNow interacts with some of our automation outside of ServiceNow to automate various processes and configuration of servers and network devices.

Beth L. White

Just Geoff, on roles for your side of it, with VeriSign now?

Geoff Cox

Yes. I'm the leader of engineering team -- software engineering team that works for ServiceNow. So we do the whole implementation that Matt talked about that we run for automation and other.

Matt Trimboli

Geof is being this dedicated to service -- with ServiceNow platform.

Beth L. White

Yes, that's right. Okay. So why don't you tell us a little bit -- you have a unique situation. You're -- VeriSign is a very technical company anyways. And so your version of technical users and non-technical users has very gray lines. Why don't you tell us a little bit about how that's impacted some of the implementation aspects and your selection process and the criteria as you went into choose ServiceNow because of the sort of nature of your business?

Matt Trimboli

Sure. So we don't think of ourselves as an IT shop supporting a larger business. It really is it's a business that's almost entirely a big IT shop. Since VeriSign is an Internet infrastructure provider for the world, our NOC entries incidence for things that happened all over the world with DNS resolution and domain name registration, not so much someone just making a call about a printer or anything like that. So we're very focused on that. The entire -- really almost the entire company is a technical organization. And in terms of getting started with ServiceNow, 4 years ago, they were on Remedy for incident management, SCO assist [ph] change management and in for enterprise for asset management. And these systems were not integrated. They were still piped, the data and all of them. They didn't share data. So they -- the processes didn't reinforce the data from one system to the other. They didn't use the data from one system to the other.

And all of these implementations were, I would have to say, slower than they wanted them to be, much more painful, and the end results was less than what they expected. So given all that, they were really looking to clean house with -- as a -- with a silver bullet, if you will, and ServiceNow was a leading candidate there. The selection team really was drawn to the SaaS model, given the problematic nature of some of the remedy upgrades and just running more servers.

I personally was new. This was my first experience with the SaaS model. And my guess that I joined VeriSign just at the same time we were selecting ServiceNow. I had a lot of experience implementing the systems from scratch. And I always like tightly coupled systems, where all of the various applications and aspects, all tied into the same enterprise, database. When I saw ServiceNow, and with the apps, what I thought of it, I realized it was the same thing that I had been working on for years. It's just somebody else had turned it into a product. So I certainly couldn't argue with it on that basis, and we went ahead with that.

Beth L. White

That's great. And Nicole, over at MetroPCS, she had a very, very extensive selection process, and you -- have a lot of issues around standards and not just within IT, but across the entire business. And we're going to see that story unfold as well as we go through this panel here.

But tell us about the selection criteria, sort of what started driving the change at -- for MetroPCS?

Nicole Tate

We had decided that IT was really too hard to do business with. Our customers were used to the ticketing system. They would just come down to the IT forum, find their IT hookup to help get their stuff fixed or get what they needed done.

So we embarked on -- we need to be easier to do business with. And part of that is we need a better tool or be the software to help us do that. And so we issued an RFP and went through an extensive selection process, where we had 18 different companies replied back to the RFP. We pared that down to the top 3.

Then we put those top 3 in front of our customers, and we had our customers rank which product they like the best. We figured if the customer was the one that we're trying to please, let them help select the tool itself. Then we had IT scored the back-office part, how do they feel about processing tickets and utilizing the tool. At the end of the day, we were able to select ServiceNow based on cost, usability and the customer experience.

Beth L. White

That's great. Thank you.

And, Javier, on your side of it with Sephora, so a lot of growth in the U.S. for Sephora, lots of your store popping up, lots of issues with complaints to HR management, not really any IT processes in place to manage and scale all of that. So tell us a little bit more about how you came into this and things started to change and what happened there with the selection of ServiceNow?

Javier Rodriguez

Sure. So fast-growing company -- by the way, I'm responsible for IT service management, and that covers all tools and workflows within IT, how we interact with business as well.

We had a small tool. We had Peregrine, which was end of life. And being a retailer, we get something really practical so that we can configure -- that we can license fairly easily. So we took advantage of the already preset IT service management that ServiceNow offers out of the box. So we had Incident Management and Change Management that we offered right away. So it's a quick win, quick implementation.

And then from there, we started growing into a more mature organization, where we weren't having the IT hookup-type problems. It was very common for us. And we were able to solve for that in the heart in our organization. And the top model was perfect. We didn't have a lot of budget, so -- and being a retailer, our dollars are really, really tight, and we need to be real concise about what we spend and how much [indiscernible].

Beth L. White

Great, thank you.

And so now we'll switch gear here a little and come back to -- Ben, let's start with you. Next, we're going to talk a little bit here -- I've got to get my left shoulder forward. We'll talk a little bit about how the implementation went within IT, a lot of customization going on, a lot of the extensions going on, even with an IT where all of the panelists here use out-of-the-box IT applications from ServiceNow. They also were heavily levered in the platform, even within IT, to stand up their solutions and applications. Some of them are actually building their own IT solution [ph] applications as well.

And so, Ben, why don't we start with some of the work that you guys did getting it started. And in particular, I think you had a -- some very interesting applications around the training for tracking, asset tracking systems, with the PDAs and the keyboards and IT trying to track everything going on out there and your traders running around and...

Benjamin Nuttin

We're pretty varied company because we've managed the actual floor of New York Stock Exchange. So we also managed electronic exchanges around the world, where we -- it's managing the data center. It's not exactly the same thing. And so the way they track assets on the floor is not exactly the way you do Change Management in a regular data center. And one example that always shocks people when I tell them within IT service management world is the way we track assets on the floor, down to the keyboard and the screens and everything and even the arms on which the screens are hooked up because everything is to be -- obviously, SLAs are several minutes, if that, and there's usually a trader at the end of the SLA that's yelling at the so [ph] technicians to replace that arm.

And so we built specific applications just for the trade floor repair teams to make sure that workflow is extremely specialized, but it still enabled us to have the data within one central database so that all of the assets track within the same database and we don't end up having 2 basic separate instances of ServiceNow, one for the floor and one for the data center. It's all one big tool. And so the UI is different depending on who you are and how you work.

Beth L. White

Yes, that's great. And can you also give the room a sense of when you start your journey with ServiceNow, the number of users that were on ServiceNow and how that's grown?

Benjamin Nuttin

Sure. We started basically with the Incident Management. So there was a lot of Incident Management. There was a lot of desks were involved in that. And then a year later, we migrated all of our Change solutions, as well as Asset Management. So basically, you had maybe half of the IT staff that was onboarded for the first phase, and the rest really was onboard at the second phase, because everyone within the company is pretty much involved in all of those areas.

Beth L. White

Do you have about how many users?

Benjamin Nuttin

About 2,000 users.

Beth L. White

About 2,000 users now. Great. Okay.

So, Matt, the lines are blurred again throughout your story here between where IT stops and then within VeriSign. You started with a lot of out-of-the-box applications and really aggressively went after extension to customization pretty much immediately as you were implementing. There was a lot of work that you did around applications for some of the gear asset tracking, as well as an issue tracking that you had, as well as the storefront that you set up for your technical folks and then your less technical folks. So why don't you talk about what happened there?

Matt Trimboli

Sure. So when we started out, our charter was to do -- for our first project was to do Asset Management following inventory of all the assets. And again, we're very data center-focused company. So what's going on with the laptops is not nearly as important as what's going on with the data centers around the world and the cabinets and the racks.

So we got that done and then Change Management and then the Incident Management. But both much easier to do once our Asset Management was -- data was of high quality, because then the incidents could refer to asset records that actually exists, and we represent actual assets. And the Change Management process -- so some of the customizations that you mentioned that we added early on were -- so that the Change Management process would actually manage the asset data for us, so that we wouldn't have to constantly redo audits. And if you wanted to move something from A to B within a data center or across the world, it'd -- the locations existed, the objects existed to move. And the -- as long as you went through your change process that we developed, it would go -- it would keep the asset data perfectly up to date for us. You also asked about.

Beth L. White

Your storefront.

Matt Trimboli

Storefront, yes, in the more technical and less tactical users, yes. So there's always the part of the line between the IT guys and everybody else, and VeriSign is just sort of layers and layers of guys who think they're the technical guy and the other guy is not. So there is constant need for one team or one engineer to need some kind of service or access from another engineer from their team or from their infrastructure. So our service catalog is not for end users. It's really for peers to get services and organize life from one another. And there's really no end to the number of workflow that we -- well, there is a finite number that we have created, but ongoing. Everything they do, they want tracked so that they can manage it and manage their priorities against.

Beth L. White

Give some examples of that?

Matt Trimboli

Well, access to log files. When somebody needs half a terabyte of log files about DNS resolution shipped off to the data warehouse or a dev team could do analytics. A DVA team could give access to various databases for research or operational tasks.

Beth L. White

So all these different kinds of roles in the system using ServiceNow to...

Matt Trimboli

Yes. It's almost always one engineer asking another engineer for something. And we have a lot of non-IT related things around badge access to different rooms and data centers and circuits some financial things.

Beth L. White

As well?

Matt Trimboli

Yes.

Beth L. White

Great. And the number of users when you started with ServiceNow? Just to give a sense of the growth and...

Matt Trimboli

The first -- our first base in the first 6 months, we were -- we had about 200 ITIL users and maybe about 100 non, and then we really quickly maxed out and went through about 500 ITIL workflow users. But we kept getting requests from the rest of the staff for access, less privilege and access to ServiceNow, and we just went ahead and just added everybody in the company because we were just getting so many requests. So it's really about 500 power users and 1,000 altogether.

Beth L. White

And 1,000 altogether, great. Okay, that gives us a great sense of that.

Nicole, back to you here -- better watch where you [indiscernible] here. Your team was focused really on the business from day one, as we know, and you had also started down with ITIL being a big important part of your implementation and part of your selection process. Did you want to give kind of sense of when you started rolling this out, how that played a role in really standardizing and getting it set up to where you are today in terms of being -- so to roll this out to the rest of the business?

Nicole Tate

Absolutely. One big key things that we realized early on in our project was the need for a common language and consistency. So if we were going to give our customers better service, we better be very consistent on how we treat them.

We realized early on that ITIL would be the best standard for how to go about doing it, and we had all of our SaaS become ITIL foundation-certified before we even rolled out ServiceNow. We realized early on that ServiceNow was really a catalyst for us to become a true kind of ITIL shop, and it also allowed us to manage our vendors better. MetroPCS is definitely the king of outsourcing. So we deal with a magnitude of different types of vendors. We can't pick up the phone and tell one vendor that we have a Taiwan [ph] and pick up another phone and be like "Oh, that's a P1 in New York." It was very, very important for us to be consistent with how we treated our customers, as well as how we interact in our vendor community.

Beth L. White

That's great. Thank you. And when you started, how many users did you have on ServiceNow, and then how has that grown?

Nicole Tate

We launched the platform in January of 2012 with 60 process users. Today, we're about 750 process users. I mean, a majority of those are actually business people utilizing the platform not just IT folks. We have 85 in IT.

Beth L. White

And, Javier, when you started out, you were similar to Nicole and you just really want to come and tick it up a level with ITIL and the organization and you started your implementation there, but then you went on to build your closed incident review application and so on and I know you're very proud of that, so I think it would be interesting to share that sort of IT implementation journey that you went on as well?

Javier Rodriguez

Sure. So we started with all the IT tools first, and that was important to take it to operational maturity, and then after that, we have some demand with the growth that we had. So a lot of that was okay, how do we organize ourselves as a team, and how do we add to value to our business partners, so the biggest thing that hit us by the way is we had a dot.com migration, and I had to build a tool, tool to help the dot.com team to indicate with the direct users. So sort of have a direct link at the tool that they could use.

The other thing is with the that went outages, we didn't say, okay, how do we evaluate or went wrong, how do we prevent it from happening again? And what are the next steps to prevent this from happening? So there's a lot of growth, and we have to grow up really, really quickly, and we have our tools we have to as well. The biggest problem that we had though was interacting with the business for, as far as project request. And that's what's really getting us in trouble because the CEO would say every time I have a conversation with IT, it's $12 million, blah, blah, blah. everything else he just said.

So we have changed that perception. Essentially every time something would happen, whether it's the business' fault or our fault, the IT badge would go off and IT will be to blame. So we have to change that perception. It's kind of have intelligent conversations and how proper intake, so we started having a built a tool for project intake where we can have conversations with the business, prioritization conversations and just overall gave our CIO kind of walking paper and walk around from each executives and say these are all the projects, this is the status and we're on schedule.

Beth L. White

And you even sound overlap and multiple requests for the same thing through your implementation [indiscernible]?

Javier Rodriguez

Yes that's right. So we had a spreadsheet that was given to us. We said, okay, let's write down all the projects that we have from the business and that turned out to be 900 projects just for that one year. So rest then we do that we have a problem, but we can see it with instead of emotional conversations.

Beth L. White

Instead of discussions, you went on to the -- yes, so that's great. All right.

So we'll move on now to what's happened when we hit beyond the walls of the IT department here in the organization. And, Ben, I think we didn't talk about also how much is grown the number of users you have. So maybe we can start with the number of users when you started with ServiceNow and then how much that's grown and then we'll get a little bit into your custom applications that you've developed. And I'm sure that the compliance tracking app would be in particular, very interesting for the folks in the room.

Benjamin Nuttin

Sure, sure. So we went from about 5 users [indiscernible] to about 2,000 users. Now everyone pretty much in the firm uses ServiceNow to the extent, either for IT-related things or for non-IT-related things and one of the things you mentioned is an app that we just created, which is on top of the IT service management apps, but whenever we have some events on the systems that's out in the markets, we have to report it to the SEC. And the reporting up into that point have been very manual and very labor-intensive where lawyers are involved, et cetera, et cetera, and there's a lot of emails going back and forth.

In one instance, one person was tracking the status of those requests and reports to the SEC. We put it on a whiteboard in our office, and she would move the process from left to right, as they were progressing in status, so when we saw that, we for our and said, look the data is all in ServiceNow, and we can just create an app from all that data and it's not going to take very much time and in just a matter of weeks, we had a prototype where you could go and ready to be approved legally. Again, because everything is already there, there's no point in not leveraging that data, and leveraging all that good stuff that we put into the tool.

Beth L. White

Yes, and maybe even bigger, we look deeper and sort of the process of what happened like when legal and all this human intervention, right. You're at legal, this approval, that approval, all these things that happened before it hits the SEC, right?

Benjamin Nuttin

Right. And what was great actually is, again, all of the back and forth has been basically deduced to almost nothing and now it's all sub-contained in the tool. It's audited, so we know who added what modification, et cetera. But we can also pretty customize the way the report comes out, so that the lawyer said, well, it needs to have enough request on it. We used to have a confidential statement on it. We were able to [indiscernible] very easily, just to make sure that the lawyers would be happy with the application and would actually. So that was really helpful for us.

Beth L. White

Right, so you automated big pieces of this process now, so you talk to certain human checkpoints?

Benjamin Nuttin

Exactly. So basically all the activities that that person that deals with the SEC on the regular basis was doing the work very manual or she was good to be copy pasting. It's just infuriating that someone in that position has to do this. This will be automated all of that, so really what she does is what she's good at, which is translating IT's terms into terms that the SEC would understand and we can [indiscernible] with compliance partners.

Beth L. White

Yes, that's great. Okay, thank you. And, Geoff, internally, you have a great story here where your internal users are now actually using all production instances of service Knowledge to create their own apps and then you guys basically come in and make sure they did [indiscernible] this platform over hysteria inside Verizon was quite profound.

Geoff Cox

The user, it's so easy to go in and to get started prototyping an application and service. Now that the project management team no longer just comes to us with an excel spreadsheet with requirements in it. They come to us and said, here, we've done this on our sandbox instance and take a look and integrate it with the rest of the stuff. So the requirements are largely covered by the examples that they've provided. And it's really just leave to us to make sure that the data's sensible and hits in with the schema of the rest of the day in the database, then all pieces become connected.

Beth L. White

And so examples of those kinds of apps that different folks in the company have been coming to you with some flavor right?

Geoff Cox

Yes, we've done applications and totally not IT related stuff including I think matching to the physical security department has asked us to do some restricted area access request portfolio, some products that for data center chaperoning if you need the handheld...

Beth L. White

the access badge.

Geoff Cox

[indiscernible] data center, yes. Next, they want us to do the motor vehicle registration for the employees of the company, so we keep track, it's part of the [indiscernible].

Matt Trimboli

One of the more impressive ones I thought was a project manager have prototyped the entire cell phone tracking system to handle bills from the vendors. And he did that completely on his own, and a very exciting thing, Ben wasn't involved at all [indiscernible] anybody to do anything. But he use this prototype to get approval for the project before he even talked to engineering. So he came to us with requirements and funding, which was sort of rare and wonderful.

Beth L. White

That's great.

So, Nicole, let's see, you serviced -- started really just going after the IT problem. And when you chose ServiceNow just to solve that and you guys got under the hood and sort of discovered the platform and now you rolled out something like 15 applications, non-IT applications all over the business, and why don't you talk about how did you come to discover the power of that platform under this and get rolling with that and really changed the perception of IT within MetroPCS?

Nicole Tate

Absolutely. So before we even deployed the software out to the enterprise, we were getting kind of some chatter from different groups saying, "Hey, we need this, too." And one of them is engineering. Thinking, "Well, we're IT. We do things a little differently. I don't know how this is going to go. Why don't you guys just wait." So we told them we're going to gauge as soon as we got our feet wet and we rolled out the product.

Another group came at us, which is HR, and I thought, "Really? Like we're IT, why do they [indiscernible] use our platform for?" So I went into the platform and I found an out-of-the-box application called HR, and I was like, "Oh, well, maybe they were right, maybe there is something here." And I engaged them almost immediately after we deployed IT. I kept engineering off a little while. Those guys are kind of hard to work with. And I partnered with HR, and I said, "You guys really have a very mature process. You know exactly what you need." They were using e-mail for all of their requests throughout the entire enterprise. So if you had a benefits question or a concern about an HR policy or a complain about your manager, you are sending those in email. And they're trying to extract those from email into some sort of access database, so that they could provide reporting to [indiscernible] fail, like epic fail for them.

We engage in a project and -- from start to finish, including testing and Change Management, all the things that you have to do to roll something out, it took us 4 weeks. It took us one day just to build the app. So they were very impressed. We got an immediate home run, and we engaged with engineering. After that, at best side, [ph] we have about 15 custom apps on the platform, and this has been done in about a year. And we have groups such as legal, our network operations team, which is using a form of service request management. Legal for contract management, because keeping track of all the contracts that everybody signed is very hard. And all the other different kind of silo teams are now using the same platform to complete all their workflow management.

Beth L. White

Do you have other examples? The thing that's very interesting is how broad you went within the company with this.

Nicole Tate

Absolutely.

Beth L. White

Let's put you on the spot and see if you can like remember all of them.

Nicole Tate

Absolutely. One of the -- one that's kind of my favorite is one that we did for -- it's owned by HR, but it touches every group within the company, and that's the name change. And I didn't realize at the time how hard it is that somebody who already got married or whatever, that they have to get their name changed. And there was this one guy in our company who would knock on everybody's doors throughout all the different department to get somebody's name changed. So we created a workflow and it's all automated, so if person A, B and C has to do something before D, E and F, it's all times [ph] and done for them. And we didn't -- we don't have to door knock anymore.

I'm thinking about a really fun example. The other one is purchase order requisition. So we have this Bees [ph] called Oracle, and licensing is very expensive and it's very hard to get a purchase order in our company. So you have to kind of find somebody who has the Holy Grail of a license, plead your case to see if you can get a requisition and, hopefully, you have a PO for your vendor. Well, we created a customer-facing app where you can go in key in everything that you need, how much you need to spend, your justification. It can get approval by your VP. And then it's sent to the person who has the Holy Grail of licenses, who can then actually facilitate the process in our financially significant applications.

Beth L. White

That's great, and thank you.

And, Javier, you talked about your project intake application, which I know is a big one for you. But you also did a lot of work with the general complaints, things coming in from the stores that you couldn't manage, the devices, the number of devices out there that you guys are really trying to manage, why don't you share a little more about that?

Javier Rodriguez

Sure, so we have a HR retail team, and they get complaints from the source. They were tracking it over email and they figured, "Well, let's see, we can use HR function in ServiceNow." My mantra has always been a ticket is a ticket is a ticket. So the workflow is a little insane. You would have a requester. You have a fulfiller, then notifications. You resolve it and then you track it and report against it.

So HR is no different if you have an issue. You have somebody who sends a request. I have a complaint. And you need somebody to take that request, and you need somebody to file it, do something about it, and then to get back to their folks, the source. So doing that, we have over 10,000 store employees, it's a -- we needed to do a better job of tracking them an e-mail. So bet the tool out where we can have that workflow, and then that way, we had people that can leave on vacation and not have to worry about checking their email. While they're on vacation, they can just reassign the case to the next person. So it should be helpful. It was really easy to build. There's an instant win, and I think from the business standpoint we were like, okay, it's not just an IT platform anymore, this is more of something that we could use as value to us. And -- it's just little things like that.

Another one is with the finance team. Because SAP is not managed within IT right now or it wasn't, and essentially, they have issues with SAP, the system, and they have people that requesting from them. So they need their own form of Incident Management. So I built a finance tool for the finance team where they could take in a request, they can work their issues, close the ticket, notifications are fired off and they can report on it.

And then we have HRS, it's another team, same thing. They work with the source for payroll problems and request and leave some of the request to HRS. They resolve issue and get back to employee. Essentially, a lot of these little use cases keep coming up. And instead of buying multiple tools, it's just easier to consolidate it into one platform, so regardless of the business need.

Beth L. White

Yes, that's great. That's perfect. So excellent examples there for us.

All of you have talked about also how critical ServiceNow is to your business and how it's become to be your -- over a year, between a year and 3 years down your journey here, and still more is happening and more is going on pretty much everyday with ServiceNow.

But I want to sort of give a flavor for the audience of where -- sort of what this really means to you, it means to the business now that is in there. And as you talked about this, all of you really shared about how the data model is so important and the flexibility of the data model is so important. You have that. You use your own work around single source of truth, the golden source of truth, the single system of record, and you all have your own ERP. So I really want to kind of wrap up a little bit here of how this implementation on which you've done within the company that's really changed things and the data model side of it with [indiscernible].

Benjamin Nuttin

Well, I think to have a good IT service management tool, which is what we started with ServiceNow, you need to have very good asset data, you need to have very good service data and you need to have very good people data. So we spent all those effort creating all these really good data in the tool, and now, there's really very little limit to what we can do with that data. And all that effort that we spend into it, that's why we use the term golden source of record, because if you want information about an asset, you don't go to any other system but ServiceNow. And ServiceNow integrates so easily with all the systems via all the different methods that they use, it's just built in. And so if someone wants information about I want to know who is in the Paris office, I can give that to them. I have the data. They don't have to go to much different data sources, ServiceNow is really at the core of the way we manage everything now, and we can extend it very easily.

Beth L. White

And the flexibility, the data model is important for the platform integrated into that was also very important as you were customizing and driving all these...

Benjamin Nuttin

Absolutely. I mean, there's a lot of stuff now that we see a knowledge in the different publications, all of these new app and this net, we really see those as accelerators for the apps that we wanted to develop. We have the data, we have the forms, we right click and personalize. it. Creating an app in ServiceNow is so easy. Now the problem becomes more demand management and making sure that we don't get overwhelmed by demands from everyone in the business saying I want to know about this and that and et cetera, and try to coral everyone to make sure they don't make our system completely unusable, this giant monster, because it's so easy to create apps in it.

Beth L. White

Yes, that's great.

And, Matt, how about -- Matt or Geoff. I don't know if you both or one of you want to answer this one.

Matt Trimboli

About -- the culture has become ingrained unless people know that people are coming to us every time they have a new issue or problem to be solved. We have somebody come down from the eighth floor last week to a meeting, we have been in a roadmap to integrate ServiceNow with this third-party application that they wanted to use for the business resilience office and after like 4 to 6 months of investing with that company [indiscernible] going on they have like a failed condition. And they come to us after we just implement what they wanted in service center itself rather than to integrate with them.

Geoff Cox

We started out as an integration request, turned into, hey, you just make a new tool for us, so we don't have to integrate it. This is a great -- this is a pattern. It's definitely a pattern you'll see. Then someone will say, "I have this weaker tool that would benefit from the data you have in ServiceNow, could you integrated the 2?" And then your conversations, as long as everybody has an open mind, the other tool can just go away because if you have 80%, 85% of the data needed for that system, you just add that 15% sometimes it's a very, very good return on investment.

Beth L. White

Well, you also, if I recall, from a data center perspective, this has been a big transition for you, because the tools were so old, and the data was inaccurate and trust issues in your users were all like, "No, we're not using this stuff anymore, right?"

Matt Trimboli

That's a key thing for us is, I like to use the term, transparency. So the data is now available in a standard format, in a standard UI, that everyone has access to, so they can see the details of one another's work, whereas before it was very much hidden behind email or post it notes or something like that or spreadsheets [indiscernible]. The data is locked up. And really, there were details that if someone had a [indiscernible], they could really make better decisions. They could move faster and that's a key transformation that we've seen it. Everything is just -- the pace of everything has picked up because everyone had answered their own questions without an email, without a conversation.

Beth L. White

Yes. That's great.

Nicole, you talked about ESP. Why don't you tell us more about how an ESP came to be and what that means?

Nicole Tate

So actually, our engineers don't really know that we have ServiceNow, even though it's our overall browser, but could we relabel the tools we called ESP, which is Enterprise Service Portal. Basically, it's now the landing page for the entire company. If you want new business cards or you need a badge request or you have an HR problem, you need something from engineering, it's no longer the need to go, "Hey, who do I talk to about this?" They just know to go to ESP and request that they need to get what they want, and they have a lot of confidence. And when they click that submit button, they have visibility into their request. It actually gets done, because of that layer of visibility. And there's no longer this worry or fear and uncertainty when I click the submit button on whether or not they're going to get their business cards or their badge or their request from engineering.

Beth L. White

Yes, that's great.

And, Javier, you also -- the integrated data model in ServiceNow is really important to you as well, and why don't you tell your story about the gateway to everything, I think you called it?

Javier Rodriguez

Yes. So we have the doors in IT, so essentially, we likely have issues with project request, but it's getting everybody to stop coming into the windows and come through the door. So that was a big win for us to have that single source of how do I call for IT and how do you know everything that I need and all our data in ServiceNow, so even though we have external tools, if you've been to supply, he knows we have a lot of iPads, and a lot of iPods for mobile point of sale. we track all that in another system but essentially we describe it and we put it into ServiceNow. So we have a store, I can look up a store, I can look how many devices I have, what PCs, what registers they have, and so it's really, really helpful just to be our single source of truth and the discovery tools, what we used to blog and to scan our networks and bring in all the devices and essentially you call in to ask and we say okay I can see you have a Dell version running and it's nice to have that data kind of makes you look like you know what you're doing.

Beth L. White

Yes, you've had a great turnaround for IT and the perception of IT before I believe is low as results of that, and things don't break anymore and some pretty pretty good turnaround story.

Javier Rodriguez

And those -- the claim ServiceNow as IT since the end of this we have that trust with the business that we know we're doing it, and we have the data.

Beth L. White

Yes, that's great. So why don't we go on to what's next. I think we're doing okay, just fine [indiscernible] over here. But we'll wrap it up.

Geoff, you actually -- and so Geoff, you guys had a backlog, the request going on right now coming in and so you're next sort of plans right now are more about getting deeper with your implementation.

Geoff Cox

We are very much -- we're overhauling a little bit how we manage connections. One of the things that we're sort of famous for from here anyway, is sadly we have to go with our IT management tool. So that we can manage connections and create, keep track of assets and connect it to server here and everything else. We're breaking that up now into -- we're going a little bit deeper with Schema and two connections, physical connections, logical connections, port protections. There's a lot of data to be gathered and [indiscernible] so that's one of our big efforts. I mentioned that we're looking at implementing a business resiliency application coming up, we have a roadmap projects I think through 2014, it's more of an issue of prioritizing [indiscernible] what we're going to do next.

Beth L. White

Ben, you have the same thing, but you have a project to push service catalog out for the whole enterprise, right?

Benjamin Nuttin

So we really want to make sure that there's no more email of any kind or spreadsheets of any kind, and we've gotten adoption from some groups that we have had a hard time reaching before. And now they're completely on board. I mean I used to say well, they're going to submit a service request, but there needs to be an Excel attachment with all form and all that we want to see. we finally convinced them to really go to the service [indiscernible]. so is to clear to a spreadsheet so we're really pushing that out, and the other big thing that we're doing is now that we have all this data, we want to enrich it a little more, but pretty close to what we want to -- where we want to be. It's just really using this data and other systems and doing a partial integration. We have several people that work full time on integrations with different systems and now that we can kind of reach all over the place with this really valuable data that we have, ServiceNow is really shining. Again, it's just so easy to do, now it's just the matter of getting all right people around the table and getting this data flowing back and forth.

Beth L. White

Yes, that's great.

And, Nicole, you guys have planned around some customer communications and sort of the approvals around that, is this something that's going to be hit in millions of your subscribers, right?

Nicole Tate

Absolutely. So one of the key things that telecoms like to do is ban their customers. With a lot of restriction around when we can send you a text message or when we can do a voicemail job. and it's a very complicated process just to get a promotion through a text message on to your handset. Part of that is being automated in ServiceNow. And it's really interesting because we have rules around it can't be the first 2 days of the month or the last 3 days of the month, and the last rolling 30 days, we can have sent all the android customers message. all the [indiscernible] around trying to make sure we don't over spam our customers. And we're taking the service down to our platform and leveraging the workflow automation piece of that to be able to enforce them of our own rules to our sales people. The other thing we're going after is enterprise wide business processes. So now that we have every kind of SILOS, the company, utilizing the same platform, you're now able to take things like a rate plan introduction, which goes from marketing, all the way to the VP to IT billing to engineering, we can now automate that entire thing so that you no longer have to worry about being notified at the right time, you know exactly what you're doing when you're introducing or rolling out that new rate plans. and I think the third biggest thing we're going to go after is given the recent merger activity, we'll be able to leverage again an enterprise service portal, it would be really helpful for us to all be leveraging the same tool as we become part of the family at T-Mobile.

Beth L. White

Yes, that's great. And, Javier, you talked about in particular, the application set up for your business partners and third-party vendors, so why don't you share a little.

Javier Rodriguez

Sure, so we multiple spa partners traveled was Bradford is that others that those were for us in a stores. And a lot of this companies are small in that have taken too, so essentially, in building a supportable work coming in and the third building essentially build host environment, and are using incident management tool, so not only the British have the same told that I guess, what we can organization within our third-party vendor. So it's a same tool, same language, same support process, and that's all it is.

Beth L. White

Yes, that's awesome. So that actually wraps up. I think we're good here [indiscernible] over [indiscernible] just to [ph] maybe a story here to be told. And if we could give the panel a big round of applause. [indiscernible] very, very nice.

I believe we got Arne Josefsberg coming up to talk about enterprise cloud.

Arne Josefsberg

[indiscernible] to be back. sounds so good? Okay. First, [ph] it's just fascinating to hear how our customers use the platform.

My name is Arne Josefsberg. I'm CTO of ServiceNow, and I'm going to talk about what it takes to deliver enterprise cloud and, specifically, how we've done it at ServiceNow.

So how many of you have heard Adobe's announcement last week about the cloud initiative? It's another sign of the industry moving the cloud. Adobe announed that, going forward, all their software is going to be cloud-based.

And when you think about our customer base, the enterprises, they got thousands of legacy client/server applications inside their data centers. There's going to be a monumental shift in the industry as these client/server applications move to the cloud. And this essentially creates opportunity for enterprise cloud providers. That's where those applications are going to end up.

So what does it mean to be an enterprise cloud provider? Let me describe sort of the clouds that exist today. We think of them as of 3 categories. Consumer clouds, we all use them every day. Facebook just fundamentally changed how we interact and how we communicate. The consumer clouds have introduced very, very interesting technologies like horizontal scale out to serve hundreds of millions of customers. But scaling out is not sufficient to meet the needs of the enterprise. So these consumer clouds are fundamentally not designed for enterprise cloud computing.

Department cloud are really the replacement, the cloud replacements for the legacy client/server applications of the '90s. These clouds really address department-specific needs like HR and sales. Now these clouds are very important, of course, but they're not mission critical. If your HR system is down, it's not going to take down the enterprise.

Enterprise clouds, on the other hand, are a totally different beasts. They;re designed for enterprise from the ground up. They support the whole business. And as a company, this is where we operate. We sell to IT, and IT has become the underpinning of the modern enterprise. There's not an enterprise in the world today that can survive without IT. So IT is absolutely mission critical.

So what do we do when we take -- to build and deliver an enterprise cloud? We think of the 6 key attributes, and let me talk by piece all individually. The most -- first and foremost, security. When we talk to new prospects, the topic that comes up the most often is around security. So in an enterprise cloud, we have deployed world-class security technologies, like firewalls, intrusion detection systems and a range of leading-edge security tools. But the true enterprise cloud needs to have security built in. You can't just bolt on security.

So what does it mean to be designed for security? Well, in our case, it means all traffic in and out of the clouds is encrypted. Every single transaction in our platform is log so it can be analyzed and audited. We also put important security controls in the hands of our customers. It's very important in enterprise to allow your customers to fine-tune the security controls. So for instance, our customers has the ability to set up very specific role-based access controls. They can encrypt data using their own keys, and they can restrict networks from reaching their service.

Let's talk about industry-specific requirements. Now how can a broad cloud be flexible enough to address industry-specific requirement? So let me talk about a couple of examples of that, one is pharma. Pharma is one of the most highly regulated industries in the world. And under pharma FDA regulation, pharma systems have to go through something called an end qualification process. So any IT system in a regulated pharma company has to go through this process before they can go live. And so how do you do that in a cloud environment? So in the ServiceNow cloud, we built a set of processes to allow all platform to do qualifications on behalf of pharma.

Another example of meeting this unique industry requirement is the ability to do selective upgrade. So in a more consumer-oriented cloud, when you do a software upgrade, all the customers are upgraded at the same time. In a enterprise cloud, having the ability to selective upgrades are very important. So let me explain how that work. This is very important for companies like retail chains. When they do large-scale rollouts and sales campaigns, they essentially lock down all their IT systems. So using our selective upgrade, customers can choose to delay the upgrade of the software until their sales campaign is over. So having the ability to address these fine-grained requirements for industries is very, very important for a true enterprise cloud.

Compliance. So when you think about the compliance, that's doing 2 things for our customers: number one, it creates trust; and number two, it opens up doors for our business. So you can't just tell your customers you're secure. You got to prove it, and this is where the compliance certifications come in. They're independently audited certifications of our security infrastructure.

So earlier this year, we achieved our FISMA Moderate government-wide Authority to Operate. This is one of the most stringent security certification for an industry. We could just not sell into federal government without our FISMA Moderate authentication.

Matt mentioned earlier our ISO 27001 certification. We received that one in October last year. So ISO 27001 is an industry-wide generally-accepted security standard and using 27001, it allows us to bring more customers to the cloud who would otherwise not accept cloud services. So currently, we're working on additional security certifications to continue to open up more doors for our customers.

So one of the key concept, very unique concept for enterprise cloud is the notion of data isolation. When you talk to enterprises and ask them why you want to move the cloud, you'll hear them talk about fast deployment, they don't need to manage servers and they get the cost benefits of scale-out architectures. Now one of the things they worry about when it comes to cloud, while they worry about security, of course, they also worry about their data being intermingled with other customers' data. So we have a very unique architecture that we call the multi-instance architecture.

So let me explain how that works. We believe multi-instance provides the best of both worlds of isolation and cost efficiency. So in the -- as you can see on the picture, each customer's data live in its own isolated logical database. The customer's application code live in -- instead of isolated job [ph]or virtual machines, together, the virtual machines and the data base make up what we call a customer instance. Now using our cloud automation infrastructure, these instances are then deployed to a set of shared server. So we have a large server pool, and this algorithm is designed to pack instances as dense as possible to get us the best possible cost efficiencies. So essentially, it's a combination of isolation and cost efficiency. Multi-instance gives us the best of both worlds. So this architecture is built on a single platform. It's using ServiceNow technology, if you heard about orchestration earlier today and it's a single architecture that scales from very small to very large customers.

Now we talked about how the data sovereignty rules for industry were all about where to place your data centers. So data sovereignty regulates where data can be held and how data can transport over national borders, so take advantage of these opportunities to get at a nimble data center approach. So for ServiceNow, we don't own the bricks and mortars of our data centers. We work with global data center operators. And inside their environment, we create our own logical environment with security, networking and server operations. In effect, it's like owning our own data centers without the overhead of owning buildings.

So we believe in nimbless [ph] -- being nimble and have very, very low cost. So this -- with this type of approach, we can enter new markets with very, very small footprints to address regulatory and data sovereignty regulations. A great example of that is Switzerland. Switzerland has very restricted regulations for financial data. Financial data has to be hosted inside their country. So using our nimble data center approach, we built 2 very small low-cost data centers inside the borders of Switzerland.

We talked about the enterprise cloud and how critical it is to the enterprises. You got to be up all the time. So availability is very important. So on the previous page, you probably saw that we deploy our data centers in Paris, and that was a very strategic position for us. And it provides the foundation for something we called Advanced High Availability, and let me explain how Advanced High Availability works. You see it on the picture here. So customers have 2 instances, the primary and the secondary. And data from the primary instance is replicated in near real-time to the mirrored instance. So should we have a server outage or a broader data center outage, that we can transfer the operation of the customer's instance to the mirror data center literally within minutes.

We also use this technology to minimize impact of preventive maintenance. So for instance, when we do security patching, we use this technology to transfer operation of the customer's instance away from the server that's about to be patched. So you probably heard the IT leaders worry about disaster recovery of their mission-critical IT systems. With Advanced High Availability, we provide both disaster recovery and disaster avoidance.

So in summary, what does it take to deliver enterprise cloud? Number one, it got to be both for enterprise from the ground up, security and compliance and data isolation has to be built in. Number two, it's mission-critical. You got to have high-availability. And number three, you got to take a nimble and flexible approach so you can meet industry's specific requirements and data regulatory requirements. Essentially, that's the ServiceNow approach to deliver enterprise cloud. Thank you.

Now -- I'm going to hand over to Mike Scarpelli, who's going to talk numbers.

Michael P. Scarpelli

Thank you, Arne. Okay. I just want to take you through -- a lot of these numbers you've seen before and there are some metrics you guys have asked for before that longer-term guidance, so we'll kind of talk a bit about that and how we're going to get to our longer-term guidance.

So the first thing is we believe, based upon what we're doing today, continuing with our existing go-to-market strategy, and that is really leading going into the IT organization first, and IT will bring this into the together groups, that we can get to $1 billion in 2016.

It's really focusing on 3 things. It's the 3 things we talked about before and we'll talk more. It's really landing new customers, and why is that so important? Because once we land a customer, we're able to retain those customers, as you'll see with our renewal rate. And then once we renew customers and we continue to see engaged with those customers, it leads very quickly to expanding within that customer with more upsells.

So if you look historically, our land, as of the end of last quarter, we're about 14% penetrated. We had -- and that's within the Global 2000, and that's roughly within the 12,000 customers that we think our target audience that Dave talked about. We've been adding north of 100 customers per quarter. If you look at last quarter, Q1, which is typically one of our weaker quarters, we added 128 net new customers, and we added, I think, about 17 or 18 Global 2000. We add, generally every quarter, 17 to 20 Global 2000. We think we're going to continue at that rate.

Expand. Expanding is generally additional users within the organization. As well, we're now starting to see more, we're selling more Discovery and more run book because we -- or Orchestration, because we have seated so many accounts in the past, kind of 12 to 16 months with those. You will see some variability in our upsells as a percent of our total business. On average, that's been 30%, but that will be kind of go up and down depending on the size of deals. But we think we'll continue at that average rate, and you may see it spike up a bit as Dave talked about as well, too.

And then retaining our renewal rate. This is a dollar renewal rate. We've had 13 consecutive quarters of 95% plus renewals. We think we're going to continue to have very large dollar renewal rates going forward. And that's a testament to the Net Promoter Score that Frank talked about earlier on.

A lot of you have asked in the past, what is the typical buying pattern of a customer? How does the customer progress over time. So we just pulled one quarter, Q1 2010, and looked at those same customers through Q1 2013. And by the way, we started pulling a few more quarters and it's pretty similar data as well, too. So this is not an outlier quarter or anything. But we landed 49 customers in Q1 2010. Of those 49, we lost 3 of those customers. The impact of that loss is in here as well. And you can see, the average user license count, how it's grown over time, it's about 2.1x where it was in -- when they first started as the customer, as well our annual contract value is pretty much doubled as well, too, for those customers over that same period of time.

And let me show you kind of what drove that. So some people say, well, this customer come back once. Do they come back many times? How do they -- or do they come back at all? And when we look at it, on the left side, this is the percentage of additional user licenses sold to those customers. And you can see 41% only had 0 to 50 additional licenses. But we have 18% added 100 to 150, and 10% added 500 to 1,000 of those customers, and this is on average of those 49. And then you'll say, "Well, how many times did they actually come back to you with additional purchases?" And 8%, actually, there were no upsells to 8% of those customers, and that would factor in the lost customers in there as well. But 24% actually came back 3x in that 3-year period. They came back annually to us. And you got 16% that came back 4x. So the point here is, there really is no set buying pattern with customers, how they come to us. It does vary across the board.

And then, another thing. A lot of people have been asking about is our long-term cash flow forecast. We really have not given the Street much in terms of longer-term cash flow guidance. What we are comfortable in saying right now is we do think longer term, 6% to 7% of our revenue will be for CapEx. We think this year that our cash flow from operations is going to grow roughly 25% over the prior year. Our plan, though, is to reinvest most of our cash flow from operations back into the business, such that our free cash flow is going to be flat this year over last year. And we're really focused on investing back in the business, and that's really seen in the headcount that we're adding, as well as the additional facilities we're putting into the business this year. Most of the 14% of revenue to CapEx this year is going into the new data centers we talked about in Brazil and expanding our data centers, but also facilities. With the headcount, we added a record number of employees last quarter. We're going to add north of 750 total employees this year. That takes a lot of facilities to bring those people on.

Another thing people have asked a lot of questions about is our longer-term tax rate. The tax rate is very hard to forecast, given where the mix of the business is going to come from. And also SaaS attracts different type of tax than a normal business. So I'll give you an example. When you go into Brazil, there's actually up to a 25% withholding on service payments over [ph] the country. That has get impact in here. So from a GAAP tax rate, we think, this year, we're going to be in that negative 3% to negative 5%. On a non-GAAP, when you strip out the stock-based compensation of that, it's going to be pretty much a breakeven there. When you look at it from a cash basis, because of the NOLs that we have, we have significant NOLs in the U.S. because of the stock-based compensation, it's going to be about $1.1 million to $1.3 million in cash taxes this year. Most of that is foreign. Longer term, we think our cash tax rate is going to be 6% to 8% once we get its [ph] foreign and alternative minimum tax.

Another question a lot of people ask a lot is about our share dilution. So we exited Q1 with -- on a fully diluted basis, this is not a Treasury Stock method that you're just purely looking at, adding up the common share, stock options and RSUs. There is about $167 million outstanding as of March 31. We did a refresh in the Q1 quarter. We will be doing annual refreshes in that Q1 quarter, so expect the Q1 to have the biggest impact on dilution. But we expect longer term, we'll be at the a 3% dilution rate for our equity based upon the new employees we're adding in refresh.

And then, how are we getting it to a longer-term model? This longer-term model is the same model that we showed when we went public. The number one thing is the subscription gross margins. How we're going to get there? Well, we took the first step doing that migration from our -- what we call our Gen 1 to our Gen 2 data center. We fully exited those. We're just in co-los [ph]. Now we're looking at expanding our capacity within our existing data centers. And then also we think there's going to be some innovative ways to get more compact within our data centers, so that's going to be the main driver for how we's are going to get to that 78% to 80% subscription rate. We should be able to get there over the next few years.

And then on the PS and other gross margin side. You've seen dramatic improvement in our PS when we went from very large negative margins on the PS. Last quarter, we exited at 8% on a non-GAAP basis -- or sorry, yes, 8%. This quarter is the 23% to 25%, but I want to say, that has the impact of Knowledge. And just to refresh your memory, we have the $4 million in Knowledge revenue, but the costs are all sitting in sales and marketing, so that gives you the boost in our Q2 professional service and other gross margin. You always see that boost there. But it's really with having more productized offerings for our PS group focusing on our utilization rate, such that we feel pretty comfortable that we'll get that 13% to 15%, and that's, once again, only going to take us a few years.

In terms of the sales and marketing, how we really get our leverage there getting to 29% to 31%, our installed base is a very large piece of our business. Renewals becomes a very big piece of our business. We're not paying the same commission rate on renewals as we do on new business, such that you'll get leverage in that over time, as well, we've added so many new reps in the last year and a lot last quarter that are fully ramped. So over time, the percentage of our reps that are fully ramped versus new reps is going to increase, such that that's going to drive the sales and marketing at the total down because we're going to get more productivity out of those people.

R&D. We're going to continue to invest very heavily in R&D. But as with -- as our revenue number is growing, we feel we'll get there pretty quickly to that 11% to 13%. We did step up our R&D on purpose in the last few quarters. You're going to see that start to come down over time. And G&A is really just improved economies of scale. And such that, our longer-term operating margin at 20% non-GAAP, and I stress, these are non-GAAP numbers that we're showing here. This is just the required non-GAAP reconciliation that the SEC provide us. I'm not really going to talk about that.

With that, we're going to open it up to questions now. I'll call Frank back up here, but you can ask any of the executives in the room questions and we'd be happy to answer those.

Question-and-Answer Session

Unknown Attendee

[indiscernible] going into operations...

Michael P. Scarpelli

It's not working. Can you just turn that up a bit? Is it on?

Unknown Attendee

In the past, you have alluded to getting into operations, IT operations. And wondering how easy of a cross-sell that would be? Or you're still thinking about all the great customers you had up there were all in service managements and their title in their departments? Will that be an easy enough cross-sell, or will that see some heavy lifting?

Frank Slootman

So let me try and answer that question. What we do is we manage work. We don't manage systems or components or elements of infrastructure. That -- it's something that we could do, it's something that we have chosen not to get into. So the pieces of ITOM -- by the way, there are pieces of ITOM that these guys will talk about Orchestration, reaching into the on-premise infrastructure or, in fact, in Change, so there are actually quite a few elements of IT operations management that we'll talked about there. But they all had in common is the seamlessly slide into the service we own. And this is where we're focused on. We are going to be, in our key operations management, to the extent and to the degree that's on a process standpoint, they're hand and grub [ph] with the service side, and I will give you another example of that. One of the things that we're going to talk about here at the conference as well is the event consolidation because events are waste [ph] through the Mac [ph], right? Through monitoring [ph] software and various tools that can raise an event to the network operation center. Events often become incidents, right? Either automatically or automatically cognizant [ph], or a NOC version besides [indiscernible] event has to become [indiscernible]. If and [ph] there's really the initiation of a structured workflow, either goes from something is going on to when marching down the field and going to go and deal with it. Those are the kinds of things where we're going to be touching IT operations management. But we'll not see us do any sort of time frame that that's right here, just trying to go after Tivoli or OpenView or see a Unicenter. But we are -- definitely the pieces that touch the managing of service relationships, absolutely. And as you've heard, orchestration is an extremely important part and we are touching people's infrastructure when we are managing service relationships. It's unavoidable. So that's just sort of the way I would answer that question.

Unknown Attendee

So I guess, Frank, for you, over here. On -- I think I'm not sure [indiscernible] put up the slide showing the percentage of different sort of functionalities or apps being used. And I think SDLC and PPM were pretty low, like 20%, 25%. I'm wondering, obviously, develop a population in some of your customers are very large groups of people, thousands, tens of thousands. I'm wondering, what do you need to do to penetrate that group? Is it more product? Is it just time? Is it selling in a different way? And then just want an update, maybe from Mike, on pricing on the platform in maybe a few more weeks, months here in terms of feedback from customers on pricing and the platform. How's that going? And do you have to address it all in terms of the Street price versus what you expected?

Frank Slootman

Yes. So I think this is one of the reasons why we have the customer panel up to give you an idea of how people sort of evolve and more from the course set of apps into other areas. Product and portfolio management is an area where we still have to invest more. I do think it's important. I talked about the whole personal productivity sphere this morning, spreadsheets, outlook, and personal database, it's all that kind of stuff. Product management also fall from that -- in that category, right? So we do think that is strategically important because Product Management, they are service-oriented processes that we have to tackle. It's just one of these things where we have not had the traction that we would like to have. I personally know why that is. There are certain gaps in the product that have prevented customers from embracing it to the extent that we would like to or you would've seen higher adoption. But as you can see, we have a lot of moving parts here. There's a lot of going on. We can answer to fire [ph] at everything all at once, so we're picking our battles toughly [ph] and sort of moving down the field. These are the major release cycle. We tackle different set of apps. We did that with asset management, app creator or mobile enterprises, all these kinds of things. So as you see...

Unknown Attendee

Is that same for SDLC?

Frank Slootman

Yes, I would argue that it's very similar for SDLC. The whole notion of release management is actually an interesting one for the platform it's out. For that, I think, Matt provide a whole notion of dev apps where the creation of apps and the planning [ph] of apps is sort of one seamless integrated discipline, in which in that area is interesting to us. What SDLC really is for applications to be released that have a set number of fixes and enhancements and that all gets work flowed through that particular application. But we have so much going on. Our salespeople have not focused on SDLC per se or PPM per se, so we have a lot of things going on. Most of the time, when we see penetration, these customers' discovering it on their own. It's really not [ph] because of anything we did.

Michael P. Scarpelli

What the of what was the second part of your question?

Unknown Attendee

About [ph] pricing, Street pricing. I mean, why [ph] permit will be [indiscernible] flat. But I think we're [indiscernible] figure out [indiscernible] experiment [ph] of this accounting [ph] and so [indiscernible]

Frank Slootman

Sure. David's in front of customers all the time. Why don't we let him talk about it?

David L. Schneider

So I often feel a year ago, we included all the platform functionality as part of process to your [ph] licenses. We started separating that out that area [ph] level [indiscernible]. And so now, as we've gone back to these customers and we've had reestablish what the use case is in modeling, the interesting part is when people buy platform, they're usually buying via application or functionality. And so we had originally licensed your [ph] thought about kind of a price per employee or a bundle of applications or limited apps. We're finding use case apps as the way we've been selling in the early stages, building to a one price model. So we're going -- establishing price per application via ROI calculations.

Unknown Attendee

Can you sign up [ph] on that last point, and I think one of the interesting takeaways from that customer panel was how pervasive the usage of these applications on the platform are, given the ease of creation. So how do you think about that pool [ph] aspect from users within the business group coming to IT? First, to the extent that IT -- you want IT to be driving that decision, how do you make sure that the business users know to go to IT and asked them for that capability around the platform, given that hasn't been as [ph] much focused on the marketing [indiscernible]? And secondly, how do you make sure with those price points are set appropriately, so it only [ph] become 10, 100, 1,000 applications being built to platform, and some of those may effectively become blow [ph] over time that your customers are in a position where they can feel free to build as many apps as they want without paying for applications that they may not be the utilization they initially envisioned?

Frank Slootman

Well, let me -- I'm trying to remember [ph] what your question is. Oh, how do people know about, yes.

Unknown Attendee

Yes, have you guys [ph] align [ph] it?

Frank Slootman

Yes. So yes, the reality is a lot of the examples that we've talked about was GE, the large retail example. This is one of the business goes to IT and says, what should I use, right? And in most enterprises, IT is still regarded and respected enough where they at least go there for an opinion, right? So we do rely on IT being our advocates and our sponsor in large accounts. That's been the strategy that has worked very well. Now there will come a time where we want to sent [ph] out more and touch other parts of the organization, probably, right? But our go-to-market cadence has definitely been governed by the whole IT focus. We had this whole notion of by IT, for IT, through IT. We get through the enterprise through IT even that -- IT really like this, right? Because we're not trying to do a circumvention, which is something that has really irritated them the way a lot of other vendors have gone around IT, established themselves and then IT, later on, have to sort of pickup the responsibility. So we're very careful not to sort of betray that confidence, and they are really are conduits to the enterprise. I can't see, over time, we get enough coverage in terms of our people that we can have more touch points and maybe drive demand back into the IT organization. I will tell you that most of our IT customers have backlog, okay? There is more stuff than they can handle, right? So in other words, that actually becomes the issue at that point. So they all have back up, they all have products they want to get to that they haven't gotten to. And it's just -- even though, as you heard, it's relatively easy to do. It's not automatic here, right? Now your second question on pricing the platform, how do we know that it's enough? We think we've established price points that are reasonable in that regard. So we've done an enormous amount of research [ph] and benchmarking against everything else that's going on there. And we start high, and then we'll see where it ends up. At this point in time, we're very much in our land ground mode, so we're not going to be driving top dollar. We want to get platform established as well and as aggressively as we can, right? By the way, that's very much with service nowadays and the early days as well, and what certainly -- what Dave and Mike and I have done over the last 2 years, we brought the price point in a marketplace way up, not by raising prices but by really increasing the pricing discipline and price integrity in our business. So our customers will all tell you, the ServiceNow has increased their prices over the last couple of years. Well, we haven't. We just have been more disciplined in pricing our products.

Okay. Any more questions?

Unknown Attendee

Two quick questions. [indiscernible] on a upgrade [indiscernible] in a auto manage [ph] when we look at ServiceNow [indiscernible] you guys wanted to [indiscernible]. Just wanted to get an update [ph] on to what extent [ph] you'll accelerate [ph] or fasten or whatever [indiscernible] struggle or [indiscernible] or sourcing ahead as well. And then secondly, your customers [indiscernible] working. But once application [indiscernible], there has to be sort of [indiscernible] guys. Just wondering [indiscernible] was in your Orchestration letter [ph], really the [indiscernible] around a lot of your [ph] Orchestration [indiscernible]. How do I [indiscernible] I'm wondering if you guys talked [ph] about that as sort of your [ph] target [indiscernible]? It's a huge touching [ph] point right now. It seems that this is a demo [ph] I think that you guys have the opportunity[indiscernible].

Frank Slootman

Yes, we'll start with the last question first. What are the challenges you have on your enterprise like ServiceNow? It's what I call shiny objects syndrome. Everything looks like an interesting opportunity to go and pursue. What we don't want to do is to choose [ph] every goods across the lake, right? Because we assume we're [indiscernible] we compute ourselves worst [ph]. One of the things that we have done, we've been very, very disciplined in our go-to-market cadence, right? We are establishing ourselves in the IT organization through the refresh cycle of software that's now 10, 15, 20 years old, and we evolved from there. For your first question, there's no doubt that the upgrade of legacy products prompts [ph] an immediate served [ph] event. But we're no longer selling just on the basis of that event happening. That's still going on. But just enterprise essence [ph] agreement's expiring, and people revisiting their vendor relationships and just your [ph] need. I mean, one of the things that I've said, time is our friend. Being that every day, the legacy software is getting older and more painful and more agonizing, right? So with every day that goes by, the need increases for people to start thinking about making the move. There is a lot of friction. Business in the sense that people don't just [indiscernible], "Oh I think [indiscernible] on Monday." I mean, that's a very -- this isn't [ph] the IP grade system, right? It's a very serious undertaking [ph]. But once the system is in, as you could hear from the panel, it starts to morph a mushroom all over the place because it's so easy, right? But ripping out these legacy systems is not easy. These are systems that are around a long time, they're highly customized, they're highly integrate, we don't really know how their work anymore. Having visuals issues with these is very high-profile, high exposure. So people knew it's easy to get their head around the projects of ripping them out [ph]. Once their ships [ph] start marching down the field, they got their roadmaps established, we do really well. But a lot of people say, "You know, I can't handle it right now because I've got this, that and other things going on. We need another 6 months, 12 months, whatever." That is not unusual in our business. So we cannot really [ph] know force people down this path. But eventually, we believe they are all going to go. They must. They have nowhere else to go. They can't stay where they are.

Unknown Attendee

One question -- one thing I discussed with investors quite a lot is about the whole notion that Arne started to talk in terms of multi-tenancy against multi-instances, and obviously, the Departmental cloud guys will say, "Oh, it's multi-tenant. -- multi-tenancy. Our [indiscernible] is going to work and scale long-term." Can you talk a little bit about what's different with you, and why you think their notion is wrong? Or why it's working for you?

Frank Slootman

Yes. And that's really what we want. Arne's going to talk about the second [ph]. I talk about this all the time. I think sales were good, did a phenomenal job in marketing the multi-tenant cloud as the only formal SaaS. You all know we wouldn't be having this conversation right here, right now if we had a Salesforce caliber cloud because we would not be able to accommodate our large financial customers who will not have their records co-mingle with other customers, not even a conversation that can be entertainment buying [ph]. We could not shoot up the retail industry because we'd [ph] be able to lock down their instances during the Christmas holiday. The pharmaceuticals, I mean, on and on [ph] the federal customer base. So enterprise cloud is several customers saw -- enterprise cloud is different from an SMB clouds, it's different from a consumer cloud. I mean the Google people that are selling into the enterprise, they have it [ph] fixed because they can't tell where they hell the data is, because Google's clouds is like -- it's amorphous. It's a true cloud in the sense that it could be anywhere, it could be Timbuktu. Well, you can't deal with the enterprise that way. They must establish jurisdiction around where the data is, right? So our cloud is very much designed around being able to meet that set of requirements, and that's why we've been highly successful. The scale is only arguments [ph] we have met not through multi-tenancy but through automation, right? We're managing instances in groups, and that works really well for us. But the flexibility that we have is sequestering systems and meeting unique requirements is an incredible powerful thing. And don't forget, we deal with IT, we don't deal with sales organizations, we don't deal with HR organizations. It is different, right? So this is an IT cloud and that audience has a very different expectation in some of the other clouds that you're familiar with.

Unknown Attendee

So Frank, when we look at the categories behind you, all [ph] the next year, which are the categories which could see the most growth? And Mike, in your slide, you had a step function after about a year while [ph] customer has purchased products after about a year, there's [ph] a step function and what to buy. What causes that step function? And is there an opportunity to [indiscernible] for changes after that?

Frank Slootman

You go first.

Michael P. Scarpelli

Sure. The step function, most of the step function that we see is when we initially, if you go back into Q1 2010, most of those sales are a light user replacement initially. So if they had 100 people on their remedy system before they were initially purchased 100 licenses that will quickly happen, is those customers would start to [ph] those IT organizations, would start to do more of their IT business processes through our system, and hence, they add more users over time. That is by far the most common reason for increasing the number of licenses.

Frank Slootman

Can you repeat the question for me?

Unknown Attendee

Which category that would see the most growth over the next year?

Frank Slootman

Well, I think that's -- the whole, obviously, platform is going to see an enormous amount of growth. The core ITIL set is continued to have high penetration because that's -- our go-to-market cadence is very much focused on the core ITL application set. If we focus somewhere else, you would see higher penetration there, but this is very much a function of how we go to market. I mean, you just asked the question about PPM and SDLC. The reason the penetration levels on those are not [ph] [indiscernible] because our organization hasn't focused on -- that a high part of our business [ph] is, there's so many -- these are all markets onto themselves, right? We could make any one of them a big focus area, right? But we like the way we're going to market right now. It seems to be working for us. And as you can tell from the panel, once we get in we morph very successfully in through other areas, and that's exactly what we want to happen, right? We're an enterprise. We have too much opportunity in front of us. You may think of that as a champagne problem, but that actually [ph] is challenging for us, right? Because our market is very, very large but our success depends on our ability to -- throughout [ph] sequence through the set of opportunities and not just open the floodgates. I mean, these guys will get confused and they will become ineffective. They'll become blunt instruments.

Brent Thill - UBS Investment Bank, Research Division

It's Brent Thill from UBS. I wanted a sales process question. When you're going in the platform, maybe let's start with David. Are you seeing [indiscernible] uncontesting where customers says having a great success on the service side and roll this out now to travel approval, like some financial firms I know, beyond the core IT side and starts to spread or are you seeing another vendor brought in during that process and maybe if you can just address sales force. Do they have a focus on the service marketing, where you're seeing them?

David L. Schneider

Sure. I think it is sort of dependent. If you're example, you're airplane [indiscernible] is probably approved through ServiceNow, all the way down here, so another licensing opportunity. But I think what we see is when we go through IT, to a department, they're coming at them with a set of tools or knowledge of how to do something. If we're just trying to approach a problem through the line of business, they are looking at every tool. Meaning, if I'm going to sales or HR to deal a front end where our work there are people soft system, they're going to look at a number of different tools. But if I've got IT shepherding me through the process, then we're already [indiscernible]. So that's why it's important for us to follow that streamline.

Frank Slootman

I'll have one more thing to add. This is really important. I said earlier, when a business has an issue, in other words, they want a system to tie something, they go to IT and they're all like, what should we use now? If at that point in time, what should we use becomes a difficult conversation like I need programmers and I need budget. It's high friction. They start to back up like, woah! this seems like a lot of work. But the great thing about ServiceNow has been it's super low friction, right? Because they have the systems in place, there's no hurdles around security, nothing that could be evaluated, they can go ahead protest things. I mean, you heard on the panel where a guy was saying, I built it first and then I asked for approval for it, right? It is a very, very stealthy way, the way it comes in because there's very, very low friction in terms of starting to use it. I mean, the example I talked to you about, about GE Energy, I mean, that was very offensive to Salesforce because they've used GE as their premier customer. [indiscernible] of the IT organization that advocated that and we didn't even know what's going on, right? Because they didn't have to talk to us to go and embark on this project, you just do it. And once the whole thing is already way out there, then the incremental users in [indiscernible] asked to true up with us periodically to contractually. But it's all about lowering friction to the adoption. That is the key thing. And Salesforce comes in, they have so many hurdles to get over in order to get established. We don't because we're already there. It's a super important thing to appreciate about what's going on here.

Brent Thill - UBS Investment Bank, Research Division

Her's the follow-up. Running through 2013, on your customer base, how do did you use that [indiscernible] so that's a tool that once enabled [indiscernible]. Just a follow-up for Mike. Just the pathway to $1 billion, is that organic? Or are you open yourself to look at tuck-ins going forward ?

Michael P. Scarpelli

No, that's really organic growth. We look at acquisitions all the time but we don't need to acquire a product. It would be more interesting technology that would fit on there. And there's nothing in that number that's predicated on an acquisition in any way.

Unknown Attendee

Hi. You guys have done a really good job in getting some of these big integrator partners on board with you. Can you maybe just talk about, since these announcements of KPMG and Ernst & Young last year, maybe how much of your business were coming last year through the partner channel versus a year later? Where you see that going? And then secondly, if there's -- if you've noticed some meaningful difference in size of deals that are coming through the partner?

Unknown Executive

Sure. I'll answer part of the technology. So I think, last year, I think it was about 15% of our business, I believe, went through the channel. Generally, the business that actually goes through the channel is in the developing countries that were going into and some of our international. The big system integrators, KPMG, Ernst & Young, that business does not go through them. They're just involved in the deals because they want to sell consulting services around that. So we're -- what's interesting is we're seeing more business from some of the big system integrators like HTL [ph] and Cognizant and ones like that. I'll let Dave talk more.

David L. Schneider

Yes. So I think your question is a percentage of revenue through channel. Typically, that's not the largest deals, the largest size typically don't run the paper. They want to do the PS engagement or they're contractually obligated not to run the paper. So as far as number of deals, KPMG, I want to say it was more than 8 or 9 Global 2000 that they directly involved us into. And I would say they were a huge part of the sales campaign. In the case of NOI, we're getting started and we're seeing a very, very nice and the pipeline. And I think it's, again, it's our ability to understand how to work with the partners and their ability to get educated on our products. This was a very, very good 18-month period of excitement build up.

Unknown Attendee

As you start to unbundle the platform and the process user pricing, can you talk about how we should expect that through and through? And then specifically, how did this transition to 1 year invoicing, and that's for your contract, impact your ability to get people to start paying for platform?

David L. Schneider

So the second to the last question, I'll answer first. That whole 1 year invoicing, there really isn't anything changing there. Our payment terms have always been with our customer 1 year in advance. Why we used to be historically more multiple year contracts in advance is because we intended the sales force very heavily to do multiple-year billing. We took that a lot of that incentive away, hence, we're not seeing as much of the multiple-year billings. Or if you look at the contract terms, a customer actually signing up for, that's from the increase in system. They're average new business contract term. It's been varying around 31 to 33 months. Our sales forces are intending to sell in a 3-year contract. Why you have some customers not doing a 3-year? Something like Nike [ph] to begin with. They started with a 12-month contract because they viewed it as more of a proof of concept and if we could prove what we do, then they'd renew for longer period of time. Well, Nike has since renewed and they renewed for a longer period of time than their original. In terms of the split from the platform versus the process user and the platform out separately, you generally don't see the impact of that right away with customers because most customers initially will buy the process user for IT, and once they've rolled that out, then we expect they'll come back for the platform licenses later on. And generally, a customer is 6 months to 1 year that they're deploying the ITSM suite of applications because many times, they'll do it in multiple phases, IT starts to play around with the platform, see what they can do. And so subsequently, a year past the initial deal that we expect we'll start to see the platform licensing opportunities. And that has started to come up right now. But once again, the vast majority of our revenue is still coming the ITSM process users today.

Unknown Attendee

And then when you're invoicing, does that give you more opportunity to upsell? I mean, should we look at it that way?

Unknown Executive

It's multi-year, right? We can't mix the 2 together. And the reason I say that, what the important thing is if a customer comes and want a 3-year contract, the salesperson is not involved in the subsequent year invoicing, that's all contractually driven. And that's just our back office function. The salespeople though, with what Dave has done, how we're realigning the sales force was having people focused on our large accounts, then they're [indiscernible] the upsell opportunities because those reps are engaged with the customers on a regular basis. And once again, you saw that analysis I showed over the 3-year period, there is no set buying pattern for our customer. They come back when they need to come back.

Unknown Attendee

On competition, just a quick question on BMC going private now. Do you expect that to impact your [indiscernible] in a way?

Michael P. Scarpelli

I have not elect my brain worrying about it. Well, I don't want to be flipped about it but it's just not high-profile topic. Of course, when we go private, they really like to make a good deal about the fact that we were private. Maybe we can return the favor, I don't know. I don't think it's a big event. I think BMC has very significant challenges in front of it of all sorts. They may have to do what they have to do. So I don't think it's going to be a positive or negative or at least not a quantifiable one in any near-term scenario. Not that we can tell right now. They've lost a lot of talent. We picked up a whole bunch and they've gone to other companies. And that may accelerate if there's any talent left.

Unknown Attendee

On the offering, we understand the ecosystem in the ITSM space where you compete with BMC, HP, IBM. On the platform side, you don't compete with the [indiscernible] and the Azure [ph] and the typical past players, it's a very simple platform for, I guess, non-developers to develop simple applications. Who else does that? I mean, is there an established company for that kind of offering where you have a very simple platform for non-developers to develop...

Frank Slootman

No, I don't think so. I think this is relatively unique to us. And if there is, it's not of any consequence at this moment in time. There are a contest with sales force. I don't want to make it sound like it never happens. And there's friction between the companies, right? Their salespeople are trained on dealing with ServiceNow. So it's not like this is a below the radar skirmish that's going on. That's a good source of irritation for them. But they've really campaigned their platform through their regular -- their sales force going after different departments and enterprise. With us, as we discussed, it really flows through the IT channel and we're viewing IT as our channel. That's predominant. It's oftentimes invisible, happening without a single shot being fired. There's no RP, there's nothing. It just -- it stands itself up and it just poof, it's there. I love that part about how this works, it's great. I wanted to ask -- I'll add one thing to it, I said at this morning as well and I think it's very important. I mean, our thesis about the business is that the IT organization and their influence of cloud computing will become less of an infrastructure provider and more of a service organization, right? And so they're going to be serving the enterprise with these kind of capabilities. As being their platform of choice, puts us exactly the place where we want to be and we think that the market forces themselves are helping to align for the opportunity. That's really one of the big messages that I wanted you to take away from today. It's really important.

Unknown Attendee

[indiscernible]

Frank Slootman

Okay. These are ERP-grade systems. I mean, you may think they're simple, but they're not, we make it simple, right? But these are very, very sophisticated global recordkeeping reporting systems, right? With coast-to-coast failover. I mean, the most sophisticated operational capabilities people have ever seen. So we make it very simple from an approachability standpoint, they're not simple systems at all. We have extracted it to the point where they're very approachable to people. The complexity is all below the surface. That's the way to think about it. I mean, you can develop very simple apps with it, sure, right? But you can also build very sophisticated applications with it.

Unknown Attendee

[indiscernible]

Michael P. Scarpelli

[indiscernible] one of the asset, Frank talked about the whole notion of onboarding applications, it's actually quite complicated in terms of workflows, multiple integrations at the back end, all the handshaking, that goes on. But -- what's his name? Rob Phillips showed how to off-board people, [indiscernible] in one click in off-boarding. That's not that simple. Obviously, below the surface, right. There's a lot of software interactions that are planning out to allow that to happen. But I think they're very sophisticated, these applications. Not in the sense of an SAP or ERP implementation with accounting rules and revenue recognition, foreign exchange. Not in that sense, right? That's not the sort of app that we get into.

Frank Slootman

There's things such as a new [indiscernible] -- have IP, unfortunately, I have run out in front of them. But a lot of people don't think of when you off-board a person, think of an employee, and there's a huge cost saving to the company. An employee has a lot of different software applications that are on their computer that the company purchased. When you off-board an employee, you'd like to be able to reclaim those licenses. If you can't, in an automated way track those, and know how to redeploy those seamlessly, you're going to spend a lot more money because when you bring new employees on, you're going to buy more software for that person, that is actually not that easy to do. And with our system, it's done like [indiscernible]

Michael P. Scarpelli

And it's a compliance requirement for us because we have to warrant to our customers that when somebody leaves, they're off the systems, right? Because that's now an exposure for them. We have to -- we've got to be able to tell them, yes, we're doing it, and it can be audited.

Unknown Attendee

Frank, a couple of questions. First, you mentioned you're very excited about replacing a lot of Microsoft Office type of systems. Is that mainly the kind Excel and spreadsheet replacements we heard [indiscernible]

Frank Slootman

Microsoft Project. Yes, it's all that stuff. Microsoft Access, it's the entire Microsoft personal productivity scheme, it includes Office and everything else. That's what I'm talking about. Yes, Outlook, obviously.

Unknown Attendee

And then, you talked about a lot of things, especially the touch on HR. You're doing point-based workflow applications. And people are building it. Would you expect that some at point you might see competitors emerge that are SaaS-based to offer some of these, do you see this as a profitable market? And where might those come from if they did?

Frank Slootman

We're already seeing competition in the HR space that we've never seen before. Because these are players that are specific to the HR space. So we would not know them. But that was my example about the whole Visual Basic -- when Visual Basic came out in early '90s, they generalized and commoditized application development where before, there have been all these tools and it generalized and commoditized, we're seeing the same thing happening in our business, we're generalizing and commoditizing across all these different service domains, where a tool like ours can be used for HR, whereas before, the tools that were in use there were HR-specific, right? One thing that I'm sure you took away from the conversation with the panel, once you have an established ServiceNow infrastructure and a rich data model, it becomes incrementally so much easier to add an application to it as opposed to let's start another one over here. We have another island that we need to manage, hardware, software, security components, all that nonsense, right? So it's a very, very high bar for not having it on the ServiceNow platform.

Unknown Attendee

So I just have a quick question. Mike, you just talked about a use case that seem to have a very high value proposition. Have you developed a handful of use cases that just you found more effective to open the door, get in there and start a conversation with?

Michael P. Scarpelli

Yes. Dave can answer that question as well.

David L. Schneider

Sure. So the answer is we have a number of set players that we try to run against the organization. So I mentioned one in mine, the password reset element is a very strong ROI set play the we can run the HR on-boarding off-boarding application as a first extension to a platform app is an easy one for us to go after and has been monetized a number of times in the last couple of quarters. So we look for those obvious ones. I will make one comment. The HR helpdesk replacement gain, he's got a limited budget, right? So we see that, we obviously try to get as quickly outside of just simply a remedy replacement as possible because when we are able to do that, the dollars perceived, the dollars for enterprise goes up dramatically.

Unknown Attendee

Just a quick question around ROI. What is the typical ROI when you do replace typical IT management system? And what are some metrics around how much smoother these organizations run when they adopt ServiceNow?

Frank Slootman

Our business is not really an ROI-driven business. And here's the reason, right? When you buy something new, you need an ROI calculation of sorts to prove that it's worth having, right? In our case, we're replacing a spending category that's already preexisting, right? I mean, Michael was using the example of when we brought up SAP in our organization, we didn't do an ROI calculation because you know what, we have to have it. It's not really a choice, right? So it was not really driven by the ROI, it was driven by, well, this one is better than the other, and we looked at, and that's [indiscernible] which we were using before. And we look at relative cost and we make a decision. That's the way our business runs as well, incidentally. It's also ERP, right? It's the same kind of thing. So people are typically looking for sort of a budget neutral transition from the old to the new. And then over time, they grow. Now where they gain just dramatically, all the approachability, the speed at which they can stand systems up, the rate of change, all these kind of things, right? [indiscernible] in our sale cycle is always when we do proof of concepts or proof of value, right? We sit in a room for 2, 3 hours and the customers ask us to come in and show us a bunch of stuff and then they go, can you hear this, can you hear that, and they're expecting us to say, well, why do we have to come back, we do it right in front of their eyes and then they start going like this, did you see that? Did you see that? That's when the quarters drop, right? Because it's such a different experience and we have great grassroots demand for our -- in other words, the people that have to use this stuff day in day out, that would also get us from the executives on down because they view it as a way to really evolve the management of IT. [indiscernible] of all people, that we're sort of at the implementation level, we also have the CIO decisions track here at the conference because they have a very different perspective on a lot of these issues than the group of people that you saw here. And we solve it at both layers, that's really part of how we do stuff.

Unknown Attendee

Just a question for Mike. Mike, you mentioned in one of the slides that the total contract has gone up 2x for the customers signed in 1Q '10. So my question is twofold. One is what is the later penetration at these early customers? Are they still early? Or do you think they'll get it saturated? And the second part is have you been able to monetize the platform application within these early users? Or is this something that comes in users signed in 2011 and later?

Michael P. Scarpelli

So I'll start backwards. Most of those customers are still on our, I'll call them our legacy contracts, where it's kind of open-ended, whether you were eligible to use the platform for free or not. A lot of those have come up for renewal and some of those in the renewal discussions have kind of pushed back on that. Others have been open to things. But most of those are still on the legacy contracts. To the extent others additional process users they add, they will pay for those. In terms of how penetrated, I must admit, I haven't looked at those for 49 customers to actually see how penetrated they are. But just based upon the continued buying pattern we'd see in those, I would say we're not fully penetrated in those customers or maybe some fully penetrated, others we're still scratching the surface on those. And I know there's a couple of customers inside that, that remains kind of jumped out at me that I know there's no way they're even close to be fully penetrated.

Unknown Executive

So also just on the historical contracts. They were paying for processes users. So they were paying for it, they were just being lumped into one category of a user type, which is an important element. This wasn't a freebie. You saw the telco company from Dallas, MetroPCS. Their IP utilization is 80 to 100 users. That's how they have an IP. But they have hundreds of users using electronic IP outside of that realm under our process user contracts. So have we monetized the platform? Absolutely. Does it show up [indiscernible]

Michael P. Scarpelli

[indiscernible]

Unknown Executive

So that's the hard part, is when you're asking us to reporting into those historical ones, we're lumped in, that's why we've broken it out so we can do a better job for that in the future.

Unknown Analyst

Frank, I was curious. When you talk about some of the outsourcing companies and this idea of cloud being the, I guess, the distribution vehicle for IT for a lot of small businesses over the next 3 to 5 years. I guess, have you guys had any discussions with the IBMs or the CSEs or other and maybe not IBM, but at some of the other public cloud vendors or service providers in terms of what you all can do in terms of helping them distribute IT resource more effectively because to the extent you take the cloud sort of analogy out, a lot of SMB customers are going to want to -- they're not going to have necessarily their own helpdesk, they'll have someone else delivering for them. I was just kind of curious how you see yourselves fitting into that as you've been an enterprise company to start and how that might expand your market?

Frank Slootman

Well, there's a couple of different things going on. I mean, we're also talking to the very large enterprise outsourcing companies, you all know who they are, they're very large. They have a burning issue because they have, over the years, fill up a legacy where every customer they [indiscernible] on some one-off version of some flavor or suffer [ph] that's, I don't know how old. So there's an enormous amount of trouble in that area. I mean, our customers experienced that more on a [indiscernible] within the outsourcing world. It aggregates that set of issues, right? On the SMB side, I mean, we already addressed that opportunity through our MSP channel, right? I mean, MSP channel is about 10% of our business, right? So the Sunguard's of the world, [indiscernible], Dimension Data, I mean, they managed to service relationships for those much smaller entities. Dimension Data has 38,000 small business enterprises that come in through ServiceNow. So the MSP channel is really how we do retail today, if you will, but the big outsourcing companies, and by the way, some of these companies are competitors of ours today. [indiscernible] but they've got to be do something. They have an untenable situation.

Unknown Executive

Okay. One more question or are we going to wrap it up? Okay. Well, thank you, guys, very much for coming today. We're really appreciate you around.

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Source: ServiceNow, Inc. - Analyst/Investor Day
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