ServiceNow (NASDAQ: NOW) is an IT operations SaaS service provider listed on the New York Stock Exchange eight years after its establishment, with a market capitalization of $2.95 billion, and in the next four years, it has become the world's third largest SaaS company with a market capitalization of $33.7 billion (January 28, 2019), second only to Salesforce and Workday.
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ServiceNow's key services are ITSM (IT Service Management) and ITOM (IT Operation Management) SaaS business, which has been recognized by large enterprise users in the mature IT market in the United States, surpassing traditional IT operation and maintenance service providers in the IT service segment. It has become a SaaS star company with a market capitalization of tens of billions of dollars.
What is the core of ITSM and ITOM?
The purpose of ITOM is to monitor the operation status of IT infrastructure in real time, and the purpose of ITSM is to help the IT department establish a standardized management system, and the service is all for the IT department within the enterprise, helping the IT department employees improve work efficiency and reduce the possibility of errors.
The chaos and error-prone nature of IT operations are the reasons for ITSM. Under the traditional manpower management of IT O&M, once a large IT system has a problem, it is difficult to find the root cause from thousands of devices, and operation and maintenance personnel rely on manpower to troubleshoot and maintain equipment, which also wastes a lot of manpower. At the same time, IT information is easy to form information islands, and the team cannot standardize and summarize historical information, so it is impossible to solidify the solution into a problem-solving system.
The emergence of ITSM platforms has given IT operations teams the tools to standardize, so that the effectiveness of specifications replaces the possibility of human error. The advantages of ITSM are to reduce the cost of IT staff, reduce downtime, and speed up service delivery time.
A difficult start in a traditional mature track
ServiceNow was founded in 2003, and we noticed that its performance growth in the first 6 years of its establishment was not very rapid, and its annual sales in 2009 were only 19 million US dollars, compared with other star SaaS companies with annual revenue of more than 100 million US dollars within 7 years of establishment (such as slack\zoom, etc.), the development speed in the early days of its establishment was indeed slow, but this also has industry attributes.
Before ServiceNow provided SaaS-based IT management services, there were already four IT management service technology vendors in the U.S. market: BMC, CA, IBM, and Hewlett-Packard, which have accompanied traditional IT deployments along the way. At that time, large enterprises with IT operation and maintenance demand basically used the products provided by Big 4, and this industry pattern had almost 20 years of development inertia, so it was very difficult for new enterprises to enter, not to mention the SaaS service model.
But the turning point came after 2010, when we clearly saw the decline of the leading players in the traditional track at an accelerated pace, replaced by companies represented by ServiceNow that adopted new technologies and models. The Big 4's market share in the ITOM segment fell from 55% in 2012 to 30% in 2017, while ServiceNow's revenue grew at a compound rate of 48% between 2013 and 2016.
There are many reasons why ServiceNow can surpass the Big 4, the key is that it has made up to 7 years of preparation in the early stage, when the market is disgusted with the bulkiness, expensive, and low user experience of the traditional operation and maintenance service model, and the B/S architecture has replaced the C/S architecture at the critical node period, seizing the opportunity and achieving business corner overtaking.
How to maintain performance growth: Expand products and services around the IT department
The premise of ITSM business is that the complexity of the customer's IT system is high enough, and there is a rigid need for systematic process management tools, so ServiceNow's core customer base is concentrated in large customers. There are two main types of customers, enterprise and commercial. Enterprise customers refer to customers with revenue of more than $500 million and more than 5,000 employees; while business customers refer to customers with between 3000-5000 employees. Currently, 80% of revenue comes from corporate customers.
ServiceNow's own total market size for ITSM business is expected to be around $6 billion, while IDC's estimate is even less optimistic, estimated to be only $3.5 billion by 2020. The low industry ceiling and the extremely slow expected growth rate have led ServiceNow to seek new growth points in other IT service areas.
The ceiling of the ITOM market is higher than ITSM, with Gartner estimating that the total market space will be $31 billion by 2020, while ServiceNow estimates it is lower at $16 billion. In the ITOM space, the competition between ServiceNow and the Big 4 continues.
In terms of service IT departments, ServiceNow focuses on HCM, CRM and security services. In the field of HCM (human capital management), its business focuses on solving IT and security problems that accompany changes in personnel within the enterprise, so it temporarily avoids competition with leading HCM companies such as Workday, but we believe that the focus of the HCM field is to open up various businesses to form a closed loop, and it is difficult to say that Workday will not add similar IT security services to HCM in the future, and Okta also provides similar identity authentication services.
In the CRM (Customer Relationship Management) business, ServiceNow's product focus is on customer problem solving, which faces stronger competition from stronger competitors such as Salesforce and Zendesk. For CRM business, despite the vast market space, it is worth observing how much cake ServiceNow can cut.
In terms of security, ServiceNow's security operations focus on increasing the detection and prevention of malware attacks and reducing response time. Since this business is closer to its advantageous business, the development prospects are more worth looking forward to.
summary
As a professional SaaS IT operation service provider, ServiceNow has a moat for its expansion due to the continuous accumulation of high-quality and large-scale customers, so we believe that the stability of its core business is high, but the growth of diversified business layout is questionable. With a low market ceiling in the area of strength, and other aspects of services around the IT department facing competition from many market competitors, the logic of upselling and cross-selling may not hold true.
The enlightenment of ServiceNow to domestic related businesses is that with the advancement of the digital transformation of our country's enterprises, the IT architecture of enterprises will continue to be complex, at this time should pay attention to the work efficiency of the IT department, the demand for ITSM and ITOM business will have a significant increase, in this process, medium and large enterprises have a heavier demand for IT operation and maintenance, will use the combination of cloud and local deployment as a solution, traditional IT service companies (Digital China, Unigroup, etc.) need to pay attention to the transformation at this stage, and startups also have certain opportunities to participate.
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Posted on 8/23/2020 4:19:38 PM
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