 ServiceNow Knowledge 14 is sponsored by ServiceNow. Here are your hosts, Dave Vellante and Jeff Frick. Hi everybody, this is Dave Vellante with Jeff Frick. We're here live at Knowledge 14. This is ServiceNow's big customer event. About 6,600 people, up from about 4,000 last year as we've been saying. It's kind of tracking the growth of ServiceNow which has been pretty meteoric. We heard from Mike Scarpelli, the CFO, Frank Sluteman. They're really doubling down and it's exciting to see. We're here in San Francisco where all the action is. Jeffrey Moore is here, author, consultant, pundit, all around smart guy, cube alum. Great to see you again. Thanks for coming back. Thanks for being here. So you're speaking at the CIO decisions. I love the fact that they got so many CIOs here. Real CIOs, right? Yeah, yeah, yeah, yeah. A lot of times these conferences get the infrastructure guys, but so what's the vibe like over there? Well, you know, it's kind of cool because if you think about ServiceNow and you go back, say, 10 years, this was all about how to make IT more productive around the ITIL model and you'd use these automated services to do this stuff. What's happening, and Frank nailed it in the keynote, he said, look, this infrastructure can be turned inside out and you can service enable the entire enterprise, not just IT, you can service enterprise. HR, marketing, any other shared service you can turn into a bunch of services that you can sort of call in and use ServiceNow as a platform. So the CIOs, it was all about, well, that's a different vision and so how do we map from the old way of sort of thinking about this as an internal productivity facility to this new way of saying, no, this is an enterprise enablement platform. That's a big move. It's a little bit like Salesforce going to force.com. It's that same flavor. Yeah, so Frank's keynote was talking about how the CIO has to become more business savvy and of course we've heard that a lot for years and years and years, but in fact, a number of the folks that we've had on here at ServiceNow are actually of that ilk, maybe they came from the business, but most CIOs didn't necessarily come from the business. They weren't P&L managers, they weren't running sales. Do you see that changing? Yeah, I think what happened in the 20th century was IT was sufficiently complex that frankly you had to be a technical person to do it. It was just really hard and yes, you needed business consultants, but at the end of the day, you needed 10% business consultants and 90% technical people. I think we've come a long way since then and the next generation of stuff is more around systems of engagement, these things that communicate with each other as opposed to systems of record. And so the profile of the winning IT strategy is migrating from help us run information about our business in the back office to help us actually re-engineer the dynamics of our business in the world, in the present. And that's like going from data to behavior. We call it going from systems of record to systems of engagement. It's a big show. And is that transition, in your mind, is very disruptive? So what happens to all those purveyors and buyers of systems of engagement? Do they morph into systems of record? Do they morph into systems of engagement? Do they just get blown away? No, it's interesting. So first of all, you're never going to get rid of your systems of record but at the margin, we've probably extracted most of the lifetime value from that investment already. So you need to maintain them. And so the industry is consolidating around an anchor set of vendors who we trust to do that. But the growth is going to be, like if you look at systems of engagement, we might have gotten 5% of the lifetime value there. So at the margin, if you have a dollar to spend, people want to spend it in there. So the challenge of being an incumbent is I'm not going to lose my base, but man, the growth is happening over here. So the real challenge for the incumbent vendors is how can I participate in the new world and still maintain my relationships in the old world? Whereas the new guys are just coming in saying, I'll leave the old world to you guys. I just want to play over here. I can get your take on the structure of the IT business. You've observed, as have I, sort of these disruptions and these changes over time. Obviously when we went from mainframe to PC, you saw the competitive line started to get more disintegrated if I could use that term. And competition occurred on those. I see it in Intel's Ascendancy and Microsoft and Oracle, the best database company and EMC was the storage company. And everything was sort of siloed. But leadership, the leadership matrix has largely stayed intact. I mean, even IBM and HP said it's up and down, but it's largely stayed intact. Do you see the cloud changing that, fundamentally changing the economics? Yeah, yes, I think what happened is, so in the client server era we did, we built the stack, what you just described, and every layer of the stack had a leader. Now I think since 2000 Y2K, that stack is being compressed, meaning there are fewer and fewer vendors that are still in that leadership cadre. And as we go to like cloud and computing as a service, you start saying, well, yeah, I still have Cisco in there, I still have IBM in there, but maybe I'm buying them as a service rather than as a set of equipment. So you kind of can feel that world just, I think compressing is the right word. And whereas the experimentation, the opportunity to sort of find new places to go to is very much in this world, outboard of the IT data center where it is about engaging, engaging with your customer, engaging with your employee, engaging with your supply chain. And using mobile things and social and analytics and cloud and all these new technologies, the freedom to do that is actually outboard of the old style IT. So what you described is sort of phenolicopoly and you got these big whales and I'm always asking guys who follow this, are we going to see somebody to disrupt that Amazon is the obvious one, you got a $3 billion company growing at 60% a year with marginal economics of services that look like software. But at the same time, it's okay, they've got this huge lead, but it doesn't just make sense to me that it's sustainable. I mean, because hardware economics never will go to zero. So you would think that somebody was almost like the IBM early PC days. Remember IBM had the lead and they were dominant play. That's kind of what kind of way Amazon is now. Do you see that? Do you see more competition from Amazon? Why is it that they don't have direct competition? So the last book I wrote and the last thing I've been working on most recently is around why is it so hard for the established incumbents to catch the next wave? And the problem is, so you look at why Amazon, why is Amazon so unopposed in many of its initiatives? Well, their business model and their economic model is completely divorced from the incumbent model. And so you look at the incumbents and they're going, it's not that I don't see what the guys are doing. I get what they're doing. I just don't see how I can get my investors or my whole infrastructure onto that new place. And my example of that was Kodak. So Antonio Perez came from HP. He knew what he was getting into. He understood digital. Everybody at Kodak understood digital, but they couldn't get to the other place. So it would call it escape velocity. How do you free yourself from your own past? And you really do have to take a pretty dramatic approach to it. And I think, by the way, I think I'm looking at Microsoft in particular. I think Microsoft is going to give a very, very big run at doing that. But I think that they're still more the exception than the rule. You would wish that every one of those vendors would say, look, you know, because every CIO here, if any of those vendors came in and said, hey, we're going to really try to play here. Will you help? They'd say, yes. They don't want to change their relationships. But we get trapped in these business models and then you sort of grind and you grind and you grind and after a while it's like, well, man, you've just ground yourself into a whole. It's classic Clayton Christensen, right? In a measure's dilemma. And it also begs the question, as you said, David, it's been the same characters, kind of changing companies. Had not Jeff Bezos and Amazon come in with a completely different model to drive cloud, would the other people have to transfer? So the people you want to give credit to, you want to give credit to Bezos. You want to give credit to Benioff. By the way, Benioff has been the kind of the prowl of a ship that brings in, and Neil Busri at work there, brings in NetSuite, brings in ServiceNow. So the software as a service thing is coming in at one level. And remember, if you were an on-premise guy, how do you move? It's very, very, I mean, how many years did SAP commit an enormous amount of money to say, we're going to have a great cloud offering? And it's just, it's so hard. So, and then you're looking now at these sort of this next layer of collaborative IT and you're seeing Box and Akta and Peng, all these cool things. Analytics and Splunk and Sumo Logic and all these companies are going, really? I mean, if you're my age, it's like, okay, do you have a t-shirt? I mean, They got a lot of t-shirts. They got a lot of t-shirts. But the point is this free space and they're saying, there's these cool problems to solve. We're not encumbered by any of the legacy. We're going to race ahead. And so if you're a CIO, what we spent most of our time with the CIOs today was, okay, I have established a set of relationships here. I'm not going to abandon them, but at the margin I need them to help me think about the future. I've got these really sparkly new startups. Some, I'm sure not going to exist next year, but some are going to be the leaders. So how do I play that game right now? And the pressure it's putting on the IT organization is the people I know that are good at this are not the people that are good at this. And so how do I, so we had talked about talent and how do you manage and how do you create career paths and do you have an infrastructure officer versus an innovation officer? I mean, it was all around that same problem. Right, and then, oh, by the way, there's Hadoop and Mobile and Big Data and some of these other just open source innovations that are being just thrown on these guys' plate. It is, so from a technology plate, from a technology plate, if you're a technologist it's like bring it on, right? Right. But I think the interesting thing is in most of my career, IT was about the business. So you ran a business and you had IT systems which gave you information about your business. What's happened in the last 15 years is that more and more sectors of the economy, IT is becoming the business. So you saw what happened in newspapers. So IT isn't about the newspaper business. IT is displacing the newspaper business. Google is displacing the media business. Amazon is displacing retail. You know, mobile banking is displacing banking, Airbnb, Uber. I mean, so now we have the taxi guys who worry them. And so you start saying it isn't, IT isn't about the business. It's a digital world. And so all of us, and that was, I think that was probably at the core of the discussion. So which CIO, what do I have permission to be? Which, do my colleagues get this? You know, am I competent to do it if they do? I mean. You've talked about this a lot and you've given a number of examples. So was Nick Carr just dead wrong in 2003? Or was he just too narrow and as far- What he was saying, I believe, is that systems of record are dead. I think at that time, by the way, it wasn't obvious there was anything else. Because, no, seriously, I can remember in truth, you know, the whole venture community kind of abandoned IT for about six or seven years. Drive up and down one-on-one, it was your first time. Yeah, it was, it was. And even in the physical infrastructure, there's still, the IT is the basis of the competitive advantage, not the reporting system. Yeah, and I think this issue about, so I think there's still a few businesses where really IT still is about the business. And you know what, you can kind of stick with whatever you were doing, you'll be okay. But if your business is under an existential threat, meaning the new IT model eviscerates your business model, which arguably, you could say, all those incumbent stack vendors, you know, I mean, Cloud does eviscerate the on-premise hardware data center business model, which was the fundamental foundation of IT as I knew it for all my business career. And now all of a sudden it's like, holy, how do I, how do I, how do I deal with that? So we talk about Amazon as a potential, you know, new, you know, big whale. Salesforce is obviously, it's kind of, but they've been around since 99, so there's kind of the exception that proves the rule. I don't, maybe a service now or a work day, you know, we'll see if this market is big enough. It looks like it might be. What often happens is these guys just get gobbled up or Larry Ellison writes a check. You remember he used to say, he's the denigrate people who write checks, not code. And then he became the biggest check writer. And he got such massive cash. He's never been afraid to reinvent himself. You have to say that about Larry. Absolutely not. You've got to know what Ellison is. He changed the game, right? He changed the dynamics of the industry. So do you think we will see another big player and where will that come from? Will it be the SaaS guys? Will it be some of the guys out of the Hadoop world? So here's what I don't think will work. I don't think you can be an established incumbent vendor under this compression power and write a check and get yourself out. I think what happens when you write a check is you just bring a hot property into cold molecules and it loses its thermal. Which is equally evident. Exactly, exactly. So I don't think that will work. I think if you want to be one of these incumbents and succeed over here, you have to actually pull part of your own DNA and capability and literally just jump. And then I think you can acquire it to build a thing there. But what Larry did was he consolidated. He basically was the first guy to figure out Nick Carr is right. I need to buy up all the properties and run a maintenance business, which by the way can... He paints a red and charges more. Yeah, well, computer associates had that playwork in the 80s. It's the same playbook. This is a different playbook. Well, I love what you're saying. And EMC is an interesting one to watch the way Tucci is setting up this federation with Pivotal and VMware and you know, we'll see what happens with the core EMC. And I think that that is, I mean VMware is one of the wonderful examples of where a company did not cause the hot molecules to become the cold molecules. The thing you wonder there though is it feels a little bit like a holding company, if you will. And so, and by the way, VMware is in a curious tweener, right? Like they kind of were the most, they made the old stack incredibly productive. So in some sense, they can feel like they're part of the old world, right? They're probably the newest kid on the old world. But then you think, well, yeah, but I want to, I mean, you look at their plan now, they want to be into software defined networks, they want to be in software defined data centers. They definitely want to play over here. And it's an escape velocity problem. So do all their partners. It's arguably they created the cloud, right? One could argue that that was the basis of what became the cloud, right? Yeah, yeah. Absolutely, absolutely. So what are you working on these days that's exciting? Well, so I think this issue of working with management teams to say, okay, look, this is a self-imposed exile that we're putting ourselves under. You know, we get it, I'll call it the Kodak problem because I don't want to talk about anybody in high tech specifically at the moment. But the point is every management team in the established vendor group puts itself on a self-imposed discipline to make certain kinds of EPS things, certain kinds of growth, you know, whatever it is, the expectations of their investors. And you look at the situation and you say guys, that is a slow glide path to extinction. We all know that. And by the way, off the record. They know it. No, I'm told it, I'm told it. This is not a failure of intellect. This is a failure of will. So then the question is, well, so how do you negotiate a different path? And part of it is you have to be able to tell a story to your investors. Part of it is you have to negotiate a different operating model inside the company. And what they've done so far is they said, well, okay, we've got our established businesses and we've got our innovative businesses and we know enough to keep them apart. So that part is not the problem. And they actually come up with cool stuff. The moment of truth is when can you scale any of these innovative businesses to compete, to actually be a material part of your historical portfolio. Meaning in my terminology, at least 10% of your total revenue going to 20%. And what happens in that journey is at a key point, you have to draw on the resources of your established business and all the people that make their living and they're compensated on getting the next quarter and the next quarter go, guys, I can't make the quarter and do this. And you've got to find a way to say, if we don't figure out a way to pull some of that resource over here and play our next hand, we'll invent everything in the world, but we'll never get it to scale. And so there's a bunch of stuff around business model planning and then investor relations, organizational development, it's all around saying, and there's two key ideas. Idea number one is it's a go-to-market problem, not an R&D problem. You do not have an innovation problem, you can't get your thing to market. And the second cool idea is you can only do one at a time. And everybody says, well, but the risk is so high, you gotta three or four or five of these things maybe want to work. It's like, no, the sacrifice is so great. If you put two or more horses in the race, people won't even run. So, tough one. That's right. Yeah, focus and don't, it's okay not to make the quarter. That's like on American. It is. Well then you went to like Michael Doe, right? I mean, that's ostensibly what he's hoping to be able to do. And I think one of the reasons you see people go private is to say, I can't play this game by normal public company protocol. I mean, I'd like to, but I can't get there from here. Now, I actually don't think every company, a lot of have to go private to do this, but I think they do have to change their playbook. All right, Jeff, we have to leave it there. Hey, great to see you. Thanks very much. We feel smarter just hanging out with you. Keep it right there, buddy. We'll be right back after this. This is theCUBE.