 Live from Las Vegas, Nevada, it's theCUBE. Covering Knowledge 15, brought to you by ServiceNow. We're back, this is Dave Vellante with Jeff Frick. This is theCUBE SiliconANGLE's continuous live production of Knowledge 15, ServiceNow's awesome, I have to say, customer conference, 9,000 people. We always say, Jeff, that this is one of our favorite conferences. It really is, it's just tremendous, the innovation, the excitement, customer stories. You never seen so many satisfied, happy, excited customers. Great management story, the messaging, matches what's going on in the market. A lot of fun, cloud, we heard about productivity increases expanding beyond IT, some really cool, new development environments, some new capabilities, mobile, modern technologies that this company is using. Audience loved it, and we heard today about a lot of cloud, high availability, ready for prime time, a lot going on. And always the passionate customers. I mean, I think it's an interesting gauge for all the shows that we do to look at the percentage of customers that are on our show and are willing to come on and talk about what they do versus just executives and partners and kind of more normal set. And we continue to have just a tremendous representation here at ServiceNow. Now we've been coming for three years, our third year in a row, we're getting a bunch of new customers that we hadn't on before, and really that's the thing that I think is great. I love the completion and full circle of the vision that Fred talks about when he sits down and he tells a story every year about building the platform that nobody wanted to buy because it was just a platform. We know it has budget for a platform. They have budget for applications to solve problems, put the application in play, sell it, be successful, and then slowly that platform play comes back out as other people jump on and develop new apps, new places to go, and it really seems to kind of be hitting a stride, not that it wasn't hitting a stride a year ago in Moscone. I remember my friend, Omar Para, who was the CIO of Etna International. When I first met him in the early 2000s, David, Florian and I had a CIO consultancy and Omar came in and was our sort of advisor and he worked for us many years. We had a lot of fun and I used to ask him, as a CIO, what's the one thing that you would want out of a software company for your IT operation? And he said, I want the ERP of IT. So this was 2001, 2002. We were like, wow, that's a big task. So we were going to build, but that's essentially what service now has built. Right, the ERP of IT. They've used that terminology, that whole notion of making changes to my infrastructure and I need a single system of record that can manage those changes and document them, make sure I'm in compliance with those changes, have an audit for those changes and then extend into other business processes and that's exactly what these guys have built. But the neat thing is ERP has, with such a heavy connotation and big implementation and classical school, a center and SAP coming in and working for a long time. Yeah, it's not the best marketing technology. All right, but now these guys are delivering the function but using today's modern technologies. It's cloud-based, it's continuous innovation, it's ongoing improvements, talking about rolling 30 days and not having this big monolithic, let's design it, let's build it, let's deliver it. Now it's we do that and push out. Well, that's the thing, don't have to worry about it because people know what their platform looks like and it's like when Marit's talked about the software mainframe and all the marketing people said, oh, don't use that term. But essentially that's pretty powerful concept in virtualization world and I think ERP of IT is very powerful here. The other interesting thing is we see service now extending into non-IT domains throughout the organization. We saw there was an announcement today from Salesforce extending inward, taking what is normally sort of their CRM system and now driving toward HR. And we've been seeing all week. Two years ago we said, wow, app creator, service creator, that's like a pass layer. That's kind of like Salesforce and interesting to see how the opportunity is going to collide down the road and that's exactly what's happening. You'd expect that for a company like ServiceNow that has a 40 to $45 billion TAM, they're going to run into a lot of places. And their advantage is they're running into those places with what Frank Slutman calls their homies which are IT people. Why is that an advantage? The reason why that's an advantage because IT touches every aspect of the business. Everybody gets an IT tax. Why do they get an IT? It's like the government. They're everywhere in your life. You can't get away from it. Same thing with IT. It's everywhere whether it's marketing, finance, sales, logistics, HR doesn't matter. IT technology is the substrate and touches every part of the business. As a result, IT has purview over that entire purview, maybe not the right word, but it's got visibility around the entire processes. So it's going to be a really interesting dynamic as this company grows into new spaces. Look at a company like Salesforce, they're coming at it from a Salesforce angle. Very important function within a company, but does it touch HR directly? Does it touch logistics? Does it touch, it affects finance, but do they support the processes? No, so that's why I would say that ServiceNow has the advantage. The flip side of that is you get a company like Salesforce, big company, hot company, huge community. Very, very interesting dynamic emerging there. Yeah, and it is kind of the base in the community from which you grow. And I thought some of the interesting stories that came up over the last couple of days is where the IT guy had an efficient process, an effective process to get people a new laptop to onboard new employees. And the people in the department said, hey, that's pretty cool. And you got that done pretty well. How could we do that for some of our internal processes? So they almost have IT now as an internal Salesforce. We hear over and over again about the IT role changing and really building stores for their services and really getting entrepreneurial and changing the company. There's just a really good vibe. Most great tech companies have a really strong leader at the helm who's got a personality that helps really define that company. See it with Oracle, you see it with Apple, the jobs. And Fred is, he's a rock star, but he's such a humble guy. He's so approachable. He walks around and people are running up, taking selfies with him. He's one so humble, but then two, don't discount the vision. The guy is super smart and still one of our favorite interviews we ever did was with Doug Leone two years ago describing his impression when he first talked to Fred and listening to that vision. And I can't remember the exact quote, but basically he's a really smart guy and he can make it really simple and he knows where he's going. Well, what I like about Fred Lutty, well, first of all, I'm a groupie. I admitted I tweeted out I'm a Fred Lutty groupie. And now with a bunch of our homies, I guess homies is the better. I'm a groupie. I mean, I am only because I just, he's a guy who's got tremendous vision. You can talk to him about virtually any kind of technology subject. Obviously you can talk about service now. I just remember one of our interviews, I think it was last year or maybe two years ago, we're like, Fred, you know, you're super busy. You probably got to run. He goes, no, I got time. Let's keep going. You know? Right, right. Which I love. I mean, it's just like a lot of these, you know, times at these conferences, the executives are so stressed out because they're being pulled in a million different directions and Fred just kind of takes it all in stride. He loves talking to the people, pressing the flesh. People come up, they want to touch them. Right. Like Ali. Exactly. But you know, you're a good analyst. You study the numbers. You look at this. Where do you think potential headwinds are? Obviously they're growing. The bigger profile they get, the more targets are going to start coming on their back. What do you think some of the headwinds are going to come? Well, I mean, the near term headwinds obviously are currency related. And that's what sort of knocked them, knocked service now off the $12 billion market cap peak last Friday. It has recovered. They met with financial analysts this week and clearly they communicated the story. In fact, I was talking to Mike Scarpelli, CFO, and he said, look, when you compare the currency, you know, pre-currency fluctuation numbers, we blew it out. Okay. And I think what the street did, you know, Furrier was saying, well, the street really doesn't understand. I think the street generally understands the opportunity generally. Right. As best they can because they see high growth. They see big time. They see great management. They see happy customers. I mean, what more do you need? Right. For an investment. Right. And there's valuation metrics, obviously, and cash flow. But I think that what the street does understand is that there is a big opportunity here. So I think that Scarpelli and Slutman communicated in a way that scared the street a little bit because they were being conservative. They gave a little lighter guidance. Right. And the street is used to service now just blowing away its numbers. I said, I said on Friday, this is a really healthy, taking some air out of the bubble. Right. Love it. Right. Good, good, good. This is a really healthy thing. I like to see this kind of dynamic. You get scared when companies start to expand beyond their TAM. So to answer your question specifically, and it sounds like cliche, but I really do see that service now's headwinds and risks are execution risks. I think they control their own destiny. It's like a football team that can win out and make the playoffs. Right. I think that's the situation that service now is in right now. It's execution. We heard from Jay Anderson, I think IT scale, internal IT scale is a risk. He's got a very, very important job. Number one. Number two is I think we heard from Dan McGee on the availability piece. They are making some very bold claims about availability, focus on security. So that obviously is something that they've got to pay attention to. The ability to scale their cloud. But I really do see it as execution risk. I don't see competition right now. Everybody has said for the last 70 years, oh, we got the service now killer. Right. The service now killer emerge. Nothing close to it. You talk to customers, it's very clear. Yeah, they're not switching off, they're just adding seats. And then what do you think in terms of, is now we've seen, you know, Amazon kind of lift up the covers on their cloud business and now expose that a little bit more to the street and start to break those numbers out. And the impact of that on these cloud-based businesses and how they continue to grow. So I think it's interesting. So Amazon today announced earnings and they broke out AWS 1.56 billion in revenue, $256 million in operating profit. That's a 17% operating profit. I have been saying for two or three years now that AWS is far more profitable than people realize. Everybody calls it a race to zero. Oh, race to zero, race to zero, race to zero. The guys who say it's a race to zero, the guys who can't compete with Amazon's cost structure, 17% operating profit is not a race to zero. Now what Jeff Bezos and Andy Jassy decided to do with that operating profit is a different story. They'll pour it back into the business. They'll expand their capex because Amazon is one big lifestyle business for Jeff Bezos. So, but that's fine. But so I have been saying and I've drawn the curves that what essentially Amazon is doing is they're taking the old outsourcing, marginal economics of outsourcing, which was my mess for less. As you grow, scale, as you do more volume, your marginal economics actually get worse. There's diseconomies of scale, the opposite of software. And software we learned from Microsoft and the PC era, the more volume you do, the better your marginal economics and essentially your costs, your marginal costs go to zero. What Amazon is doing is they're taking the outsourcing line, the provisioning of services, technology services, infrastructure services, servers and storage and they're bringing that, they're tracking the software curve. So that means they're driving costs down lower than any IT shop on the planet. I don't care if the big banks think that they can compete with Amazon on cost structure. Long term, they can't in my opinion. Now they can compete in other ways, with proprietary sort of value added IP, but on cost, Amazon, Google, Microsoft, they are going to have a volume advantage and we're seeing it now in the numbers. It's not a coincidence that Amazon is 17% AWS operating profits is because it's not a race to zero. They've got better marginal economics and so now what does that have to do with ServiceNow? We've heard a lot about multi-tenant versus multi-instance. I think on balance from a pure infrastructure standpoint, Amazon is going to have better cost structure than ServiceNow, but companies like ServiceNow and Oracle who have differentiable advantage through software and can sell software subscriptions or software licenses in the case of Oracle can make up that cost, in my opinion, is a cost disadvantage in higher margin software and that's exactly what you see with ServiceNow. I don't think they'll have the marginal economics of Microsoft, but it's a great, great business model long term. Yeah and the other two pieces of it that I think are really important and with Bezos especially, I mean the guy's a visionary and he's making enough money to execute what he wants to do and people don't believe it but they haven't believed it for 20 years and he continues to evolve the business and the other thing that's still, people have been outsourcing their payroll for how long and why did it take so long to start to outsource your IT infrastructure when people have been outsourcing payroll forever? I mean if you are focused on a particular business and you can out execute people trying to do the same thing and that's the other advantage of ServiceNow is they're very focused and I think some of the guests this week said we're not trying to be a general purpose cloud. We run our application and we run our application better than anyone else and oh by the way it just so happens that our application is really a platform and there's a whole lot of other applications that you can build on beyond the ones that we did. So I think it's really good opportunity. I kind of like the data point that we heard this week. I don't know if you picked up on the nuance but several executives at ServiceNow said that their intelligence says that most customers are saying we want to place most of our workload over time into the public cloud. Now you could say ServiceNow is biased. Okay EMC is going to say the exact and VMware they're going to say the exact opposite. IBM's going to say the no most of the world's going to be hybrid. Okay so you got Andy Jassy on one side saying the whole world's going to the public cloud. You got Joe Tucci on the other end saying the most of the world's going to be hybrid. How do you square that circle? And I think that the growth workloads are very clearly going into the public cloud. I think there's no question about that and it's just the way numbers work. If you got public cloud workloads growing at 20, 30, 50% a year and you got private cloud workloads growing at 0% a year or 2% a year at some point they're going to catch up. So I think the vast majority of work is going to be done over time in the public cloud. That's not to say everybody's going to do a big switch. There's still plenty of applications there. They're 20 years old that are going to stay behind the four walls of the data center within a company but the economics of doing that are not going to be as good. So you have to have other reason. There's got to be whether it's really good business value reasons, competitive advantage reasons, security or compliance reasons. Compliance I think is a huge one. Well, I mean, Amazon has great security. The issue with Amazon is they won't do one offs. Service now will go belly to belly with customers and bend over backwards and do things for the enterprise customers that Amazon won't. That's why you saw when Workday launched its analytics service on AWS, nobody bought it. Because they said, well, I just negotiated an SLA and a security deal with you and we've agreed on the parameters of that. Now you're saying to access my analytics piece, I got to go with Amazon's SLA. That's not cool. I can't get that by my lawyers. Forget it. It's too hard. So I think people really kind of need to think about that. The service now is an interesting position to be able to do those things for the enterprise that are what Amazon would consider unnatural. Amazon strategy is any color you want as long as it's black. Let's add things over time that everybody can take advantage of. By the way, I think that's a great strategy and it's a long term winning strategy. But so the way you compete with Amazon, it's interesting. Somebody tweeted, it's kind of weird to see Dan McGee compare infrastructure to service from Amazon with service now. Okay, yes, that's true. On the other hand, from a conceptual standpoint, I'm putting stuff in the cloud. Why not think about it? So what does that mean? How do you compete with Amazon's ecosystem? The way you compete is you have differentiable advantage with IP that allows you to capture margins that reflect the value that you're delivering. Service now has that. I think very clearly Oracle has that. I've mentioned Oracle even though they don't have the volume that many of the people have and there are many, many others that have niches that Amazon doesn't want to compete in. And it's Oracle, it's specific, right? It's really a good focus on something that you can relate to. Well, I think I would add Salesforce very clearly has that differentiable advantage and Workday. I mean, many, many companies out there that have that. But Workday is winning. Sorry, yeah, Workday is winning, but service now is winning. You're clearly seeing Amazon when the cloudification, the classification of IT is here. It's now, and it's not going to stop. So we've been here for three days. I think we had 45 or so interviews. You're fine, I'm going to hit you with the, I won't go bumper sticker because we know you got to fly back to Boston. So it would be a long drive. What's your, what's the flag that hangs off the back of the airplane? Your banner as you leave after 40 some odd interviews three days on our third consecutive service now knowledge show. So to me, it's attacking the productivity problem within organizations, which by the way is a whole nother vector of discussion post our MIT cube action, right? So that's a whole nother discussion. I have concerns about that. What are we going to do with all this increased productivity? We better put it into innovation and we better educate our young people so that they can create new value. So that's sort of one piece. I think the second to me is the innovation on the software platform, the developer focus, the technology behind service now and the mobile capabilities and emphasis on new tech and on real time. Very, very impressive. And then I think the third is the cloud, the cloud piece, the DevOps, the cloud, the developer ecosystem adding value for the enterprise. Big opportunity and I guess that's the, really that ecosystem to me is my big takeaway of service now, knowledge 15, no 15, is that ecosystem development, that expansion of the ecosystem, that's where this company, this community gets its leverage and I think that's a winning formula. Yeah. My take is a slightly different angle and really just go back to Dynar, last guest, is people are always chasing innovation for their internal, I get my own people, not necessarily who are building our core products but who are executing our strategy. Where, how do I get innovation? And to me, what we've seen so many things in this show specifically is if you simply enable more people to be able to innovate and you lower the barriers for them to try to execute ideas, just a simple math by having more people contributing, you're going to get more innovation and the other piece that's really important for that is it needs to be a low cost of entry to try and if it fails, you need to be able to fast fail and get out. So now when you've got all these people in all these departments, seeing an opportunity to build a new application that saves time and is a little bit more efficient than what they were doing that before, you multiply that by hundreds and thousands of people, suddenly you're really getting significant improvements and efficiency and that's what I think is the most exciting about these cloud-based applications, the software world in which we live in where the barriers to actually develop things, a codeless developer is a really exciting opportunity that will enable companies to expose more innovation within their own workforce. I think it's for good stuff. All right, I think we're a wrap. I think we're a wrap. I want to thank ServiceNow, our awesome hosts for this conference, who are holding this conference, creating a great event and having us here now for the third year in a row, it really is a pleasure for us and the CUBE team to be a part of this. Greg Stewart. Shout out to the crew. Great job, Patrick, Leonard, thank you. Matthew, we hear you back there doing the countdown, thank you. Awesome job, as always, the entire CUBE team. John, my co-host as well, John Furrier. John is getting everything up on YouTube and on SiliconANGLE.tv, go to SiliconANGLE.tv where all the action is, go to SiliconANGLE.com, Kristen Nicole and her team are pumping out content. Bert Latimor is on the crowd chat, crowdchat.net slash no15. Bert, great job, thank you for all your help. And check out Wikibon, premium.wikibon.com. Check out all the research. We'll be summarizing this show. We're always on top of things there. Really appreciate everybody watching, sending in your comments, your tweets. We're a wrap, thanks everybody. Thank you. We will see you next time. What's next is EMC World? Yeah, EMC World, two weeks back here in Vegas. So again, thanks to everybody in the Service Now Knowledge community. That's a wrap. This is Dave Vellante with Jeff Frick for John Furrier. We'll see you next time.