High prices remain ServiceNow’s top challenge in market expansion, says analyst

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Success has been an undeniable fact for ServiceNow Inc. over the past decade, with a lauded initial public offering, a current annual growth rate of 35 percent and a $17 billion market cap. Yet the information service management provider wants more, with plans to extend its software automation platform into new markets within enterprise workloads like security, Configuration Management Database, marketing and logistics.

Striving for $4 billion in annual revenue by 2020, ServiceNow has defied early market limitations with a platform-first approach that remains flexible for enterprise clients. Yet rising prices for ServiceNow’s product lineup could be a challenge as the company bleeds into these new, competitive markets, according to Wikibon analyst Dave Vellante.

Live from ServiceNow’s annual conference Knowledge17, Vellante (@dvellante) sat down with co-host Jeff Frick (@JeffFrick) to kick off coverage of the event with theCUBE, SiliconANGLE Media’s mobile live streaming studio. The two established expectations for Knowledge17 given ServiceNow’s noteworthy growth in the software as a service market, outlining the challenges ahead for the uniquely positioned company.  (* Disclosure below.)

“When we first covered ServiceNow Knowledge they reminded us a lot of Salesforce — we said, ‘They’re on a collision course!’ Well, there’s plenty of room in the market for both — these are giant markets built on the cloud and built with flexibility,” Vellante said, noting the upside to ServiceNow’s growing presence in the Global 2000 market.

Helping to push ServiceNow into more enterprise workloads are current cloud trends for configuration management database and software automation, particularly for marketing, human resources and security departments. Becoming a single source of the truth, ServiceNow’s initial entry into enterprises through IT departments now benefits from the ripple effect, according to Vellante, as the company’s flexible platform can address workflow complications across the many departments now tying into IT.

“When we first started talking to [ServiceNow] customers, many weren’t adopting the CMDB — they are now,” Vellante said. “The example [ServiceNow] often gives is on-boarding — multiple departments to talk to for setting up a new employee’s office, phone, laptop — all these things have to occur. That’s given ServiceNow a lot of leverage inside these companies.”

With a platform-first approach, ServiceNow can effectively adapt its software to client needs without having to fully customize each solution. In the company’s recent efforts to grow vertically within the enterprise, ServiceNow has been adding modules to its core platform for security, marketing and logistics, to name a few.

“I’m most excited about security,” Vellante shared. “ServiceNow isn’t competing with security specialists, but automating their run response,” becoming the software-based glue that hangs it all together, he said.

Yet bigger market opportunities with larger enterprises means bigger client projects with higher price tags, Vellante explained.

“Several customers are paying over $1 million for [ServiceNow services],” Vellante said, citing conversations he’s had with ServiceNow users.

Rising prices are cause for concern with ServiceNow customers, as the market presents a growing number of options for workload management from Hewlett Packard Enterprise Co., Workday Inc., Salesforce.com Inc. and others. With an eye for growth, ServiceNow’s sustainability for international growth is a key area of interest for Vellante.

“What ServiceNow has to do is tap the ecosystem and lean on partners to accelerate implementation and share best practices,” Vellante said, recommending ServiceNow increasingly emphasize the value of its products over the price.

Recent changes in leadership could help ServiceNow in this area, as former eBay chief executive officer John Donahoe takes the helm. As the company’s new president and chief executive officer, Donahoe’s corner-office leadership style “could be perfect” for ServiceNow’s need to “shift the conversation from price to value,” according to Vellante. This would be a vast shift from Frank Slootman’s aggressive sales push that’s helped ServiceNow grow these past few years.

Watch the complete video interview below, and be sure to check out more of SiliconANGLE’s and theCUBE’s independent editorial coverage of ServiceNow Knowledge 2017(* Disclosure: ServiceNow Inc. sponsored this Knowledge17 segment on SiliconANGLE Media’s theCUBE. Neither ServiceNow nor other sponsors have editorial control over content on theCUBE or SiliconANGLE.)

Photo by SiliconANGLE