ServiceNow's (NOW) CEO Bill McDermott Presents at Morgan Stanley Technology, Media and Telecom Conference (Transcript)

ServiceNow, Inc. (NYSE:NOW) Morgan Stanley Technology, Media and Telecom Conference March 3, 2021 6:45 PM ET

Company Participants

Bill McDermott – President and Chief Executive Officer

Conference Call Participants

Keith Weiss – Morgan Stanley

Keith Weiss

Good afternoon. And welcome to day two of the Morgan Stanley TMT Conference, virtual addition. I’m Keith Weiss. I run the U.S. equity research team at Morgan Stanley. And we’re really pleased to have with us Bill McDermott, CEO of ServiceNow to end up our today’s conversations. Great guests, really excited for the conversation. Thank you, Bill for joining us.

Bill McDermott

Thank you very much for having me, Keith.

Keith Weiss

Excellent. Before we get started, I do have to read a brief disclaimer. For important resource disclosures please look to our website, www.morganstanley.com/researchdisclosures, and one programming note, if anyone does have questions they'd like to ask, you can enter them in the webcast. It shows up on my page right here. And I'm going to try to read those into the conversations as well.

So with that under the way, again, Bill, thank you for joining us. This is actually your second time at our TMT Conference as CEO of ServiceNow. You've been at TMT Conference in prior role as well. And it's been a little over a year at ServiceNow. But I wanted to start off with a kind of personal question if you don't mind.

Bill McDermott

Sure.

Keith Weiss

You are CEO of SAP, a really large organization, you have a great track record, a great career behind you. And in those situations, for my team, I see a lot of guys go to a pre-IPO company, right. If you get a lot of shares, you can do really well on that side of the equation, or go to a really big company like, I want to have that Masstech like your predecessor going to Nike.

But you chose ServiceNow, you chose like a mid-market company that was big, but not that big, relative to sort of the overall space. What was it about ServiceNow that attracted your attention? What was that kind of spark that made you think like, I can really make a difference, or I can do something with this company?

Bill McDermott

Yes Keith, first, I'm a guy that needs challenge. And I felt that I had accomplished what I set out to accomplish in my prior role. And I love the challenge. And I wanted this challenge. The culture of the company is very, very special. It is a hungry, humble culture, built on an incredible platform the Now Platform. It was founded by truly software guy Fred Luddy, who has cast a long shadow of goodness across the company and throughout the customer base. Frank Slootman, was an excellent first CEO; John Donahoe, my wonderful friend, as you mentioned went on to Nike did a great job. So I really did stand on the shoulders of some giants here. And my job is to really scale it, in what we call the Phase 4, growth trajectory of ServiceNow. And I've done this before.

So it's always nice to have a great challenge, but also not be learning on the job with something that's important. So I think my experience, the need for a challenge, and my dream, to make ServiceNow, the defining enterprise software company in the 21st century, all came together in a beautiful bundle. And here we go.

Keith Weiss

Got it. Got it, that makes sense. I wanted to get back to sort of the founding company of this 21st century, software company. But before, it's hard to have these conversations and not talk about the crisis that hopefully we're emerging from that and we all went through over the past year. And particularly when it comes to ServiceNow, I think, one of the facets has been really impressive about this story is how well ServiceNow pivoted to really serve your customers and not just in terms of price extensions, not just in terms of, hey, listen, if you want extended payment terms like that, that's fine as well. But really pivoting the strategy to service and help your customers get through what they were dealing with, the challenges and really the flexibility of that ServiceNow platform to create solutions, really on the fly to help people through this crisis.

And you're able to pivot, I would say much more effectively and faster than some of your peers of life size and scale or even so some faster. So one, how are you able to do that? Like, what is it about ServiceNow that enabled you guys to really rise to the occasion and grow through this crisis much better than a lot of your peers?

Bill McDermott

We really went into a strategy meeting with the leadership team at ServiceNow. We went to Blue Sky, I think, in last March. And I explained to the leadership team, I had seen this movie a couple of times before, meaning when the world took on a large shock, I saw it 9/11 obviously saw in the 2008 financial crisis and I explained to the team that COVID would be different than those, but we would have to step up and be a brand that really contributed to fighting back this pandemic. And we came out with the emergency response applications in one week after that meeting and rolled them out globally. And then we came out with a return to work suite of applications that you mentally and physically ready by distancing procedures and protocols in place testing, PP inventory management. All that was in one bundle from ServiceNow in two weeks.

And now we're into the vaccine management part of the story, where we have countries like Scotland with 5.5 million citizens on the Now Platform. And from what I understand, they are executing as well, if not better than any other country out there. And states like North Carolina and great hospitals in Minnesota, so we really feel like, we're a part of the world's biggest challenges, because we know that those challenges are also the world's biggest opportunities. And if you want to be the defining one, you have to be center stage on the world platform when the world needs you the most.

Now, in terms of business practicality, there's three things going on, that we have obviously leaned into very heavily. Obviously, digital transformation is the opportunity of this generation. And we're one of the standard bearers of platforms in the enterprise. The move to cloud computing is absolutely fierce and it's increasing in its pace, because it's the only way forward. And of course, if you think about business model, innovation, companies will earn 30% of their revenue in the next three years, from businesses that are not in right now. And they need the agility of the Now Platform that scales from IT, to the employee experience, to customer service management, to create workflows. And all of this is on one architecture, one data model and one platform that goes through the enterprise seamlessly, integrating with everybody innovating for the customer, and helping people execute their mission. So we're pretty excited.

Keith Weiss

Got it. I mean, there had to be such a great proof point to your customers, you've been talking about ServiceNow, being the platform of platforms about how dynamic and how flexible that platform could be. The fact that you can come out with a solution in one week, you could come out with multiple solutions in two to three weeks is a great proof point for your customers to show them what they can do once they adopt that ServiceNow platform.

Bill McDermott

Keith exactly, in fact, every day we live it. We're not hooked on slides, we live in it. And one of the things that we've learned is focusing on industries, and really understanding the impact of this platform on business, business processes, and business outcomes. But do it in a highly innovative and creative way. For example, one of the things I said right out of the gates is we have to be the C suite favorite company. And now we'll have a conversation in automating financial services. And instead of having a product or even a solution conversation, we're having a 600 million or a billion conversation, because that's what's on the line for the customer.

And when you start off the meeting that way, and then you back into how you can help them when, it changes the context of everything. I think that's why the echo system has just jumped on board so quickly, with ServiceNow all over the world. And we're able to scale that in geographies, and industries, and personas, because we're making software that is consumer grade, gorgeous, and easy and beautiful to use. And that's why ServiceNow is on such a growth phase.

Keith Weiss

Got it. And could you talk a little bit about how you did it on sort of the go-to-market, because you look to kind of your past history and you found inspiration on sort of how to move ServiceNow forward. Also on the other side of the equation, Los Angeles, we looked at past history, and we all came to the wrong conclusion. We all were often saying well listen, there are these companies like ServiceNow, and Salesforce and Workday that depend on these direct sales guys that have to be on a plane, they have to be taking there to their customer to dinner, or there's no way they are going to get these big strategic deals done. But somehow you guys are able to do it. You're able to even with your sales guys grounded even with no dinners taken place, you are still able to get the business done as ServiceNow. How are you able to pivot the go-to-market in that way?

Bill McDermott

Well, the idea of a price that should never be wasted and immediately realized that we're going to have to use the digital techniques to have the conversation with the customer. But instead of worrying about it, we came up with relevant executive briefings that were tied very specifically to the industry domain of what was going on to the very specific heuristics of what was happening within the company that we were serving. And we didn't waste any time to operate at the top of the house. I always tell people, the air is a lot thinner. And it's easy to cut through at the top of the house than it is down low.

So we have Rolodex, that we exercise quite freely, and it's powerful people were looking for solutions to problems. And that was really the key. We increased our executive briefing, volume 80%, year-over-year, and we got the entire management team focused not just on our company, but on our customers customer, and what their companies needed to do to win. And that became our complete obsession.

And frankly, the work ethic, with a little blue-collar attitude helped too because we had to have the sustenance to have those conversations in every time zone. And we had to do it day in and day out. And not yet for one second complacent because the customers needed us. And I do think that's part of it. When you have a customer-centric culture, and the mission that you are on is bigger than yourself, and everybody believes that they're in the workflow, and they are automating the customers future, you'd be surprised at just how inspired a culture can get.

And then the second thing we had to do, Keith is really we had to over communicate everything internally, anything worth communicating is almost always under communicated. So, we had a daily, a weekly, a monthly, a quarterly cadence, and we figured out who needed to be in that communication zone up to and including all 13,000 of our closest friends at ServiceNow. And our extended ecosystem of partners. It's been a lot of fun.

Keith Weiss

Got it. So in terms of on a go-forward basis, the aiming high towards sort of the high end of these executives, that's been sort of the ServiceNow story for a while and you’ve sort of pushed a little bit further into it, that over communicating the showing fast time to value-added solution. What changes if anything as we start to normalize, if we will we come out of the crisis, your sales guys have the ability to get on a plane? Does the go-to-market strategy, go back to what it was before, is there a new kind of hybrid strategy on a go-forward basis?

Bill McDermott

It will be a hybrid strategy. I think we all learned, we all were doing a lot of silly stuff, when you could get on a plane and fly anywhere. And I myself, guilty as charged, I can remember flying from Beijing, to Europe, for a few meetings. Whereas easily if it was acceptable, we could have done some of that by Zoom. But we will get more active participants in the direct sales process, once the vaccination process has taken hold and people feel safe again. You got to remember, single account revenue growth, where you can take an already qualified, existing, excellent customer relationship and broaden it is a lot easier on this kind of technology than meeting a net new logo customer who doesn't currently do business with you.

And then you have to be very discerning about how you market yourself one-to-one, one-to-few and one-to-many, based upon the attributes of is it a customer, what industry are they in, what geography are they in, what culture, sensitivities do you have to have, and ultimately if you are going for new business, it's going to definitely be helpful to have a hybrid between the digital world that we're operating in now and the direct world. People still want to meet people, they still want to trust people that they are doing business with. So we'll have to do both.

Keith Weiss

Got it. Got it. I want to shift gears a little bit and talk about your vision of ServiceNow becoming the defining enterprise software company for the 21st century. Just to start off with what does that mean? What would be that defining software company or stated another way, how are you beginning? How will we tell when you get there? What ServiceNow is going to look like when it's the defining software company in the 21st century?

Bill McDermott

Well, I think, we have really big, great, large tech companies today that could be hyper scalars, or they could be in a very unique component of technology where they already took the world by storm and they're valued in the trillions. And that's fantastic. But you also have 20th century companies that have served the enterprise. And they have done a very good job of serving the enterprise. But they've done it in a 20th century style. And I believe that ServiceNow is a 21st century software company. And we want to work with everybody, because we integrate seamlessly with everybody. So we can actually make 20th century companies perform like 21st century companies. But we on a standalone basis, can define new markets, just like we created the workflow revolution. This business wasn't there before, nobody could even size this market, we created this market.

So we want to be the most innovative, the fastest moving, most resilient enterprise performer for our customers on the planet. And I do believe you'll know when we get there, because I expect that there will be a reordering of the 20th century participants and a 21st century leader like ServiceNow and I do believe that we’ll be one of the large, substantial global brands for generations to come. And you'll admire ServiceNow.

You'll say that they did it the right way. They innovated, they got big, but in doing so they never lost their temperament for staying hungry and humble. Their employees are inspired. If you look at Glassdoor, they are at the top of the ranks for employee – employer of choice. If you look at the customer satisfaction, the net promoter score, the retention rates, they continue to lead the industry. If you look at young people coming up in society, even before they get to university, and not to mention when they're already in university, this is the place they all want to be.

They've been working with the technology in high schools and colleges, and they can't wait to go to work with ServiceNow someday. But they know it is difficult to get into ServiceNow as it is some of the best universities in the world, because only the best, get through these doors. That's when we will know we've arrived. And we're going to work as hard as we possibly can to be that defining enterprise software company, of the 21st century and make everybody proud of us.

Keith Weiss

Got it. Got it. So, at the heart of that vision and encouragement if I'm wrong, is the ServiceNow platform, right an ability to – like you are talking about there's good legacy companies that are out there, there's a lot of good technologies that people have put in place, but we've been automating mostly transactions, we've been automating in silos, keeping the data in silos. And now you have the ServiceNow platform as an overlay across all these kinds of transactional silos to help people get broader processes done. Right.

Am I getting it right, that's across the value proposition there is the ability to sort of automate across all these different silos?

Bill McDermott

Yes, it is. It's amazing, like, we're not in a win lose world. We believe that the sum of the world's parts are actually greater than the whole. And if I look at what these customers have gone through, they've poured billions into IT in the last 30 years, and they got a hornet's nest on their hands of complexity. And it's so complicated to get beyond systems and silos. And people working together is really hard, because right now everything is optimized for one department at a time. But when you look at it from the CEO per view, they just want to win. And they want all the people to come together around a common mission to deliver something unique and really special for their customer.

What we do at ServiceNow is we create that software factory that enables them to manage security, development, operations, service management, asset management, business management, operations management, that whole IT backbone where we are the standard cloud platform in the world today, has now moved into the main entities in an enterprise. So, the employee experience having one portal where I can hire people, onboard people, give them the tools that they need, the training that they need, the benefits that they have, alignment to the core values, if something changes, they move, the facility changes, their work changes. All this can be remediated instantaneously in a workflow, and it's beautiful.

And then you have the idea of customer service management. We're in a frictionless economy. Why are things so hard? We should have customer service management in the enterprise that's as easy as getting DoorDash delivered to your house tonight. And that's what we're doing for Disney and AT&T and many other companies that want to go direct-to-consumer and bypass the complexity. How can it be that there are billions of call center calls, everybody in the call center can't wait to churn and leave their job. And there's no virtual agent that's taking over and enriching people's lives and simplifying their work, we can do that. We solve the root cause, we get to the work order, we close the loop and make the customer happy and we do it quickly. And then there's the creative workflow, where you can develop your own apps on our platform, in a low-code way you can write your own or no code, depending on how complex the endeavor is. And all of this is on one architecture, one data model and one platform. And that is the secret sauce to the enterprise pervasiveness of ServiceNow.

Keith Weiss

Got it. So, when you are competing in ITSM, there was a much more well-defined sort of competitive environment there. There was there was a set of legacy vendors, that ServiceNow competed very effectively against, there was a couple of ankle biters, if you will, in terms of other guys in the cloud, but nobody really to speak with. When you move into that broader enterprise story with the platform, where do the competitive set go to? Because there's a lot of people trying to tell similar stories to that, like there is real workflow management guys like a Pegasystems, there's the Appian, of the world, there's Salesforce with their AppEx, and Lightning platform, what's the real competitive environment when you're making this pitch to CEO?

Bill McDermott

All those companies, I'm sure, do some things that are very good. But they tend to be very good at one thing, and they are focused on one thing, and that's become their core business. And that's great. We have no quarrel with any of them. As I said, we've created a new market, we integrate seamlessly to 550 systems of record, we integrate seamlessly to all the collaborative tools. And we don't play favorites, because we want everybody to get behind the customer winning. And that's kind of been our internal rallying cry, we're not going to play negativity, go against other companies, because we created a new market, our market never existed before us. And nobody else has what we have.

So for example, if somebody has an RPA solution, where they solve some specific problem, they don't solve the whole workflow automation problem, they have a tool that solves a specific problem, they can integrate into our platform, that's fine. Some people might do process mining. We have no quarrel with that, because they could never do both the process mining and then automate the workflow on an enterprise level to actually solve the problem. You see, they got to pour all the data back into a platform like ours to do it. So what you'll see us doing is cooperate with everybody, integrate in a way that's pleasing to the customer and then we continue to innovate and build extra features into our product.

This year, we'll have two major releases, one is coming within the next couple of weeks. And then one will come before the end of the year. And so many things that customers want, because we design our innovation with the customer in mind in our design studio and we're constantly thinking about what's the next big thing for financial services? What's the next big thing for telco? How are we going to reinvent healthcare? What's going on with public sector, and so forth. And that is what obsesses us, not what other companies are doing. We wish them all well.

Keith Weiss

Got it. I want to drill down into some of the product segments within ServiceNow. Starting with the IP workflows, the core of whatever ServiceNow really came from. I think one of the most incredible parts about this story is from day one and then doing the IPO, the question of saturation with an ITSM has always hung around the ServiceNow story. And it is incredible. If you look at the like the IDC market sizing of how big they thought ITSM was and how fast was growing, ServiceNow is now bigger than what they would have forecasted the overall ITSM market. Said in other way coming into this category, you really expanded over time. And the fascinating thing is you guys continue to grow well in ITSM. New APD growth is still positive in ITSM on a go-forward basis. And it appears to me, correct me if I'm wrong, that the crisis of 2020 was actually a positive catalyst for people to drive sort of expansion of ITSM to drive more Service Desk and they really expanded the need for that solution. It might taken away the right conclusion?

Bill McDermott

No, you’re 100% right, Keith. What I think COVID taught everybody is that you have to run your company, on platforms that really get stuff done. So, for example, JPMorgan Chase, probably, if you talk to Lori Beer said, I hired thousands of people that I never even met. I had to onboard them, here's your phone, here's your computer, again, tied back into ITSM. And then I had to train them. And then I had to deal with all the care and feeding on a virtual level with them, there is your employee experience tied in, right? So they could then provide a Michelin three star customer service management experience for my customers. So what's unique about the workflow, and the Now Platform, it all emanates from IT. But it branches into all these other areas of the company.

We even had lawyers now, realizing that, hey, I'm working virtually, I can't just walk down the hall to finance in this department and that department, I got to solve all these legal facilities, financial management kind of issues on a workflow level. And it's going to give it back to you productivity. So, we did that and we keep doing that. And we keep innovating, and innovating, and pushing and pushing. And I think that's what makes such a unique difference in our company.

Keith Weiss

Got it. So within IT, the ITSM portfolio has expanded pretty broadly. I mean, you're not going to see the merits of IT operation management, there is IT asset management, IT business management. How should we think about sort of what's in your swim lane, what's outside of your swim lane? What are the areas within IT operations management that it makes sense for ServiceNow to do? What are the areas that doesn't make any sense for you guys to go into those areas?

Bill McDermott

Well, all the areas that you mentioned are obviously core strengths of ours. Security for example, we did more in one quarter in 2020 than we did the prior year, because security is such a hot issue, but it really gets better when you have it on the Now Platform, because it's tied to all the other workflow processes, right, same with developer operations, service management all the areas you mentioned. If you think about process automation, ways to improve IT and customer processes and link them together.

If you think about workforce optimization, really monitoring KPIs and productivity of your team and doing that in a way that's linked between IT and the employee experience. These are all features that we're rolling out in our new ITSM Enterprise SKU, which is coming out, like I said, within the next couple of weeks. Virtual agents, predictive analytics, this whole idea of AI is now accelerating digital transformation.

What's unique about ServiceNow is we've built it all into the platform for us as a company from a shareholder value creation standpoint that earns a premium price in the marketplace because it delivers a premium service for the customer. Now you take that concept that I just gave you, and you start to say, well, what does that mean for telco and financial services? Just two industry verticals to give you a case in point. While for financial services, it's long operations. How do you deliver modern digital workflows that streamline services for personal and business loans.

If you ever saw how complex this is. And I know because I sat through the review process on it, it really does hurt your teeth. What we have done is completely automated that process with AI. So when you can spot the bottleneck with AI, and make a business recommendation to a business person to say, not only is this a bottleneck in the process, here's what it's costing you in productivity. And if you turn that into dollars, here's the implication change it. And that's what they love. Take telecommunications and water management, enabling telco’s to launch new digital services with automated workflows, so they can increase operational efficiency and reduce fallout rates.

If you look at AT&T as an example, they're doing an unbelievable job with ServiceNow to say, I want my network operations stack to be world-class and perform with your IT service management solutions. But then I also want to make sure on my software business, I'm delivering world-class direct to consumer customer service management. So for example, if you look at HBO Max, that would be a world-class offering and we're in the mix on all those conversations.

Keith Weiss

You mentioned the AI coming into this solution and you guys have made a couple of smaller acquisitions on an AI Loom Systems, Passage AI, to incorporate more of that kind of machine learning AI functionality. Can you tell us a little bit – when you're looking at these acquisitions, is there a specific algorithm, a specific functionality that they're able to automate well, and that's why you're choosing them. And then two, every one of them you just put straight into the platform. You're not going any as a standalone and you're incorporating into the platform. What's the monetization strategy? How do you get paid on that incremental functionality that you put into the platform?

Bill McDermott

Yes, it's a really, really smart question Keith, because I look at the platform and this is my way of thinking about it. I think of it almost like a Netflix platform, right? All the value, all the content, all the power is in the platform itself. And the more power that's in the platform, the more subscriptions that you earn, the happier the customer is, and the more that you retain them. So I like to think about pouring all of that value into the platform. And then to the extent you come up with unique and differentiating IT solutions such as ITSM Pro. You can have a premium price point to that, oh, customer doesn't see the value. So don't pay the premium price point, just pay the regular price point. And then it's up to us to convince you and actually build into quality into the workflow procedures and the templates that give you that value. And that's what we're doing. So we started out doing that for IT. We'll do that for the employee experience. I gave you a few examples. We're doing that for customer service management. I gave you a few examples.

And then if you think about the creative workflows, just how you can make those creative workflows kind of out-of-the-box, give them a head start, build the AI into the workflow automation processes that we pre-package. So people get off to a fast start based on their industry or their persona or their domain that they're trying to solve for. All of this and more on monetizable concepts. And more, I really think we did pretty well is, the four acquisitions you talked about were not sizeable financially. But the customers love the fact that we built the innovation into the platform. We didn't complexify the platform like some other companies tend to do because they think about immediate monetization of these things.

And we now have a very large AI organization within ServiceNow with some of the best data scientists in the world, some of the most incredible patents in the world. And since we did a finish up last year's acquisition spree and AI with Element AI, I'll say, we also acquired a Turing award-winning founder, which is the Nobel Peace Prize as you know for AI. So we like to think at least on a per capita basis, we have one of the most formidable AI platforms in the free world.

Keith Weiss

And I think one of the things that you guys have done well is take that AI, and it is not just a buzzword. It's not just a sort of the latest fad or gimmick, but driving kind of real high ROI solutions for the end customer. And it doesn't seem like better routing of the help tickets to the person who's going to be able to solve it the fastest. And you get solved using AI, a good majority of this stuff without ever hitting a help this agent really fundamentally change that business. And the real aha moment for me was I came into 2020. It was like, this was a difficult spending year. IT budgets are strict. There's no way, even Bill McDermott, there's no way he's going to get anybody to bite on Pro this year. Like nobody's upselling to Pro and ITSM, but you did, right. You had a good year of incremental penetration of the ITSM Pro because it's not just AI for AI say it's just pushing it in sort of pointing out a specific problem and creating a real optimization in the business process.

Bill McDermott

Exactly, Keith. And I think the defining measure is the fact that we never told the customer, you didn't have choice. We give choice. If the value is not there, don't give us the money. So what you have to realize is the customer saw the uplifted value in that AI workflow automation, where they wouldn't have given us the money and they could still get the standard offering if they wanted, but they want a Pro SKU. Now we're over 20% penetrated. We still have nearly 80% to go, not to bed. And we're doing that for all the solutions. So I really think we're kind of got the culture in the right headset. This is all about customer centricity, absolute total conviction, to innovation, to automation, and to delivering value. If the customer doesn't get the value, you don't get the sale. And where I try to make sure from the factory to the foxhole, we're completely aligned is in the value chain that matters to the customer.

And we should be able to go in on the first meeting and at least have a range of the impact that we're looking to make. Whether that's in improving people's lives, it's driving productivity, it's taking on necessary wasteful cost out, or it's actually achieving positive revenue growth. We have the machine now that is ready and willing in every geography across industries and personas to have very intelligent conversations with the most powerful business cards in the world. And I think that's really what matters. And we have the case studies and the references going into those conversations to prove it.

Keith Weiss

Right. I want to ask a question about sort of the deliverability of that customer focus, that customer centricity. And one of my favorite ServiceNow story is, this is actually when ServiceNow IPO was on the road. And I remember specifically, and I was hosting a panel at a big user conference. When I'm hosting a panel for CIOs on public cloud adoption, this is a time when public cloud adoption was still a question mark, was still an investor today. And I asked one CIO like, so what applications have you guys adopted? What SaaS based applications? And he is saying as well, listen, we've just put it in ServiceNow has been great. We're automating all our IP workflows and is getting a lot more efficient.

And the second CIO next one was like, yes, we did that last year. It's been awesome. We're using this. The third guy, I was like, yes, we're right in the middle of it. We love it. Then the fourth CIO leans over and he's like, wait, what was that name again was ServiceNow. So I remember it was during the IPO because I couldn't say anything. I was restricted on ServiceNow. I couldn't say anything, but these guys were saying it all themselves, the CIOs are really preaching the story of ServiceNow to each other. How much does that help you now that you're trying to go, that you're pushing outside of the IT department, that you're going to the head of HR, that you're going to the CEO, you're going to the Head of Sales. Does the CIO become that core advocate for you saying, listen, it works in the IT department, is going to work in sales, it's going to work in security or it's going to work in HR?

Bill McDermott

A 100%, the power of the CIO and the Chief Technology Officer has been fully restored in the enterprise. For a while, there was a decoupling between the line of business executives and the CIO or the CTO. And that was in the early days of the cloud where operational expenses were easy to come by. And best of breed solutions did very well with line of business executives. But what happened was the CEO realized probably along with the COO and the CFO that we got a happy CHRO and we might even have a happy director of sales. But as it relates to the performance of the whole company, we're not going very far. And we're pouring a lot of money into technology. Why is it that we're not able to innovate faster? Why is it that our people aren't happy? Why is this that our customers aren't buying more and retaining or staying with us and our retention rates aren't going up and that's because they weren't working across those silos very well.

They weren't working in teams to get something very specific done that really mattered to the company. And now that has all fundamentally changed with the workflow revolution. And that is the biggest change that has empowered the CIO and the CTO. I'll give you an example. My wonderful former company SAP went live today with ServiceNow. And they did that with customer service management and ITSMs because they know that the IT backbone is mission critical in making sure the customer satisfaction, the net promoter score and the retention is rock solid. So they were very smart and serious all that together. And they're extremely happy.

So you can't have a happy customer without having the right IT backbone. You can't create a Michelin three-star experience for the customer until you've created a Michelin three-star experience for the employees. And they have to use common tools and processes in the workflow. So everybody is working for the customer and that is fundamentally what has changed. And that is really the bottom line fact on why the workflow revolution is here to stay. It's not because any of those points solutions are less good, it's because the cross platform integration of work has become the new defining standard for a well-run business.

Keith Weiss

Got it. I wanted to just quickly into sort of the customer service management and customer workflows. It has been a tremendous success story for ServiceNow. And one that was an outside surprise, even to me, I mean, that's very competitive market. There's a lot of big vendors that are trying to do the customer service and you guys come into the marketplace and in a remarkably short period of time are seeing success. And it's been in there for a couple of years now, but I remember one year in, I was at the Dreamforce event talking to some big systems integrators and they're like, yes, we're seeing ServiceNow and customer service engagements. How could that be? This product has been in the marketplace for nine months and they're already getting good wins.

In my perspective, it was because of that, like you're saying that that product focused so that so much of the product of these customers is now IT. You guys have the domain expertise in how to manage IT services well, whether they're facing internally or now externally. Does that to some extent limit the opportunity is the opportunity for CSM limited to just various software product based, or can it go broader? Could CSM cover all types of customer service engagements?

Bill McDermott

Well, the most important thing is the last mile. And I think that's the problem that we're solving right now. And by any conservative estimate, that's a $35 billion market and the $35 billion problems solved. So even if the last mile of making sure the customer experience is stunning, or there is real depth in root cause analysis and workflow automation of getting to the right person with the right skillset, the right tool, the right ability to solve the customer problem and closing out a problem in an automated fashion that makes the company or the customer you're serving happy. Or for example, to predictively maintain something, especially in a virtual world and remediate issues before they actually happen using the ITFM backbone with AI, or just thinking about call center operations and it's soul crushing nature of the poor people that can't wait to resign. They actually turn over 20% minimum a year, no matter what company you look at it's because they don't have the tools at their fingertips.

Forget about upselling, cross sell, you get a mad customer calling up and you're like, oh, by the way, did you buy my new service for $10 more a month, you can have it. And then like, I want to hang up now. So they don't want to be up-sold and cross-sold and the moment of truth they want to be serviced. And I think that is really the compelling differentiating factor of ServiceNow. Now our imaginations, our fantasies and their ambitions are limitless. So I don't want to limit our range just to $35 billion, but for now that's where we're focused. And once we get the job done there, I am sure we can springboard into new dimensions. Also there's lots of partners out there that I think are realizing the power of the Now brand. And they're very interesting and teaming up with us and we'd certainly warmly welcome that.

Keith Weiss

Got it. I think it's a $35 billion, some headroom to work with in it. Energy to make you with that for now. So you've talked a lot about the $10 billion target and the ability to get there and the ability to get there organically. And I [indiscernible] advocate in terms of what it potentially makes sense, given like ServiceNow. You got a great customer base, right? The Global 2000, you have great affinity with the CIOs. You could put your stamp of approval on all other technologies, put it through your distribution channel. You have a great distribution channel. Doesn't it make sense to do M&A, it doesn't make sense to get more product to push through that channel into that customer base?

Bill McDermott

Well, I really do want to make the clear point on M&A that when we said we'd be a $10 billion company we meant it. And if you remember, it was the first earnings call that I participated in is about a year and a half ago now. And so in saying that I'm more convinced now than ever that's entirely the case. So that's the good news. Having said that, you're right on all the dimensions that you mentioned, and we have to, as professionals always look at what's in the best interest of the customer, obviously the long-term sustenance of our company, and of course, our dear shareholders. So we're looking at everything from the small tuck-ins, as long as it doesn't compromise the gorgeousness of our integration to other things that could make big differences.

But the main thing is this, Keith, we want the customers to love us, just like you said, they love us. We won't do anything that sacrifices the customer relationship. If you look at digital transformation today, again, you only have 26% of the world's projects delivering ROI because the integration in the enterprise is fundamentally broken. We're the company that fixes it. So we'd have to have a very good story for how our platform and anyone else's collaborate seamlessly to maintain that promise. It is doable, but it's also essential because everything we've done so far, even if it was a small one, as you know, we recovered it into the Now Platform. So we really want to keep that promise.

And also at the same time, we recognized our growth is the fastest one in our space. We recognize our cash position is probably extraordinary compared to almost any other. And we need to look for revenue synergies that make extraordinary sense to the customer, to the long-term sustenance of ServiceNow, and naturally to our dear shareholders, who I want to thank for your trust and letting you know that we're working hard for every day. And we're going to continue to drive.

Keith Weiss

Outstanding. One question I wanted to get to the investor put up here, because it's a question that I get a lot. And I think we're going to see your more as some of these companies start to go public. To what extent can ServiceNow move into the RPA markets and offer services like an automation anywhere UiPath or an Appian. That’s investor question. I would add on, is it necessary for you guys to provide RPA type functionality?

Bill McDermott

Well, RPA like other things you could easily ask me questions about is only part of a workflow automation platform. So it's a point solution. It's not a differentiating technology in the context of workflow automation. When you think about digital transformation, which is what our expertise is, you have to think about a workflow automation platforms that are complete, and they have a well integrated set of workflow technologies, and they're all running on the Now Platform. So for example, when other RPA companies have a press release that says they integrate well into the Now Platform, I think that tells you something about how important our workflow automation is.

But at the same time, when you look at our new product introduction, it will have substantial RPA capabilities, certainly all the capabilities necessary to run on the Now Platform, the same can be said for process mining and other things. So we don't think that that would be in the interest of the constituents I mentioned earlier for us to go out and make a substantial M&A move. It doesn't make sense for us to partner. And it does make sense for us to offer our customers that service on the Now Platform as well.

Keith Weiss

Got it. And when you're talking about partnering both in terms of kind of official partners that we think about systems integrators, the Accentures, the PwCs, and the lack of [ph] the world, and it also partners on the technology side of the equation or perhaps?

Bill McDermott

Yes. It could also be partners on the technology side of the house. I really mean it like the whole world has to get past this win/lose concept, because the only boss is the customer and if we make their business better and we cooperate well together, all of our fortunes will rise. There's nothing but opportunity out there for good-hearted companies that have their mindset on the customer's cost. So it could be technology partnerships. We integrate well with RPA providers in the market. We have no quarrel with them whatsoever.

Keith Weiss

Got it. And maybe if you could just give us a kind of I know improving, expanding the relationships with the systems integrators, as well as high on your priority list for calendar year 2020. We saw some interesting press releases and some interesting announcements through the year and expanding partnership with Accenture and the like. How far into that endeavor are you feel good about where those relationships are today? Is there more room to improve? And when you talk about it as a force multiplier, how big of a force multiplier can these relationships really be for ServiceNow?

Bill McDermott

It's a very big force multiplier, Keith. When I first came on to ServiceNow, I was very keen to meet all the CEOs and Chair men and women of these large partnership companies. And it was striking to me just how limited the ambition was. And we basically stretched the ambition from hundreds of millions kinds of conversations to 1 billion. And then the next meeting was couple of billion and it just keeps going up. And what you see is companies like Accenture building a gigantic practice around ServiceNow, and actually dedicating a global general management division in entire worldwide practice to ServiceNow.

Deloitte has done the same thing. Ernst and Young has done the same thing. All of our partners in India have expanded dramatically on the Now Platform and are investing heavily in it. We enjoy a magnificent friendship and partnership with Microsoft and how that technology partnership is evolving is a real time and truly exciting.

So if you look at IBM, and IBM's interest in the Now Platform and taking what was their own on-premise ITSMs solution, that was legacy and centering their goals on ServiceNow and moving to the Now Cloud. And at the same time, spiriting their services and their AI operations ambitions, all that is examples. And there are countless others of how this has really force multiplying. What I have commonly seen is if we have 13,000 people, it wouldn't be unusual to see something in order of magnitude 20 times that in terms of the ecosystem, carrying a badge, that's somehow tied to the Now Practice. And that's when you get the incredible tailwind and scale effect.

Keith Weiss

Yes, that is indeed quite a force multiplier. Bill, you've been very generous with your time. I really appreciate you coming to the TMT Conference, maybe one last parting question, just in terms of what your most excited about for calendar 2021, what's at the top of the Bill McDermott priority list in terms of products or initiatives that you're really excited to roll through in 2021?

Bill McDermott

I'm super proud of our engineering team and I'm super proud of the fact that we'll have two major releases this year. We also have a Now-X team where we're working on ambitions and ideas that will pay off five years from now. They started in 2018, they're already in the triple digit millions in terms of the value that they're delivering back to the business on very focused on the engineering. I'm also incredibly proud of our go-to-market team and how they have held it all together across massive geographic industry and persona coverage and how they've kept the brand, the field, the product marketing all glued together. And we, as you said, Keith have an incredible ecosystem. And the way our leader has really expanded that and made a huge difference in that is inspiring to me. I'm very proud, especially since I'm at a financial conference to, mention our great CFO who was exceptional.

And her team is just unbelievable. And look, that's what I live for. I live for building great teams and all the things that want to leave you with is this nothing I love to do more than win and win it to win it. We're in it to win it in 2021 and keep all the promises that we made. But more importantly, we're in it to build the foundation for the defining enterprise software company of the 21st century. And we will not tire and we will not stop pushing until we get the job done.

Keith Weiss

Outstanding. Bill, thank you so much for the time. This has been a fascinating discussion and very much looking forward to seeing what unfolds for ServiceNow through 2021. And hopefully next year, we'll do this in person.

Bill McDermott

I'd love to Keith. Thank you very much for having me and thank you to all the shareholders for their confidence in ServiceNow. We're grateful.

Keith Weiss

Excellent. Thank you.

Bill McDermott

Thank you.

Question-and-Answer Session

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Operator