 ServiceNow Knowledge 14 is sponsored by ServiceNow. Here are your hosts, Dave Vellante and Jeff Frick. Hi, everybody, we're back. This is Dave Vellante with Jeff Frick. This is theCUBE. We go out to the events. We extract the signal from the noise. We got a crowd chat going on. It's crowdchat.net slash no14. So check that out, put your tweets in, crowd chat, awesome engagement app. Frank Slutman is here. President and CEO of ServiceNow. Frank, it's a pleasure to have you back on theCUBE. Great to see you again. Great to be here. Thanks, Dave. So how are you feeling? I'm feeling great. I got the keynote out of the way. Got the keynote out this morning. You had the financial analyst in yesterday. You had the industry analyst. They're working you hard. Absolutely, it's a circus. Yeah, so your keynote this morning was great. It was right up front. They have a nice spot for the industry analyst. We appreciate that. Take good notes. But one of the themes that you struck was really hit home to me because you talk about transforming IT from essentially a cost center into a value producer and how ServiceNow is at the heart of that and how the role of the CIO is changing. So I wonder if you could sort of summarize and talk a little bit about how you see the role of IT and generally in the CIO specifically changing and what role ServiceNow plays in that transformation. Yeah, just to get a little bit of macro context, right? The worst of all scenarios that we see out there where IT is essentially viewed as a commodity, as a utility and as a result, people don't see much impact. They just want to get it cheaper, cheaper, cheaper and they want to cut more cost out of the infrastructure and staffing levels and so on. And IT is just an organization that we're tolerating because I guess we have to have email and internet access and all that sort of thing. Now you go look in the broader world around what technology has done to change business, right? What Amazon has done based on their technology platform, what we've seen in online banking, what we've seen in online education, there's just incredible examples of innovation using technologies. Now, IT hasn't done that for their own enterprise. They have in some instances, there's some really great examples out there where IT did impact the business but by and large, IT is not viewed as the go-to people that know how to bring technology into business in a way that really turns to tables on the competition, do some mind-blowing things. I always ask CIOs when I meet them, I say, what have you done in the last 12 months that really blew people's minds in terms of applying technology to business problems? And they start sort of thinking like, oh actually there's surely nothing I can think of. Well, that's probably a question you should be asking yourself all the time, right? If it's not lightning in the bottle and it's not the sort of thing that sort of lights up the whole enterprise like we want to do this, we have to do this, that excitement, then you're shooting too low. And in general I find the cost of session in IT is an indication that we're not looking for the opportunity and I think that's a damn shame and we're here to change that. Well, you talked about panning for gold, it was Apropos here in California. And it's also Apropos, I mean your company is smoking hot and you're commonly associated with the likes of Workday and Salesforce and Splunk. You must be very proud of that. But also there's gold and then there are IT shops, right? There's gold in those organizations that's not being mined. And I think you talk about your penetration is what, 20% of your target, your global 2000? We have footprint in about 18% of the enterprises that we think are relevant and appropriate to us but within those 18% we were probably a third saturated. So very early innings for service now even though we've achieved considerable scale and very high growth at that scale. So when you go into one of your accounts, can you discern that actual value production vision that you set forth? Can you see it? Can you touch it? Can you, you know, to a skeptic, a prospect, isn't that right, that sounds good. Can you actually sort of provide proof points? Yeah, managing surface is just essential in terms of economizing and saving money. And here's why and I'll give you some very professional examples that we've seen in real life in the Human Resources Department. And probably a good example because IT everybody sort of understands how the game works, right? HR organizations historically have not had service models. They've had email and phones and so on and you had a problem, you just called somebody. As a result there was a huge amount of work that preoccupied the HR organization that nobody knew what people were working on. And the staffing grew and grew and grew to deal with the growing volume of inquires and problems and changes and so on. Until they had systems, service models, and they had reporting and analytics that showed them what was consuming their time. Once you know that, you can put initiatives in place to start dealing with the underlying causes that are driving that work. I have seen HR organizations dwindle their staffing by 50%. Just by understanding what are these they were working on, right? That's what service management is all about. Instead of just delivering service, you're managing it, right? And once that quarter drops, by the way, RT organizations, they get this in space, right? Because large enterprises, they got 50, 100,000, 150,000 incidents flowing through their organization a month. It's a huge consumer of resource, right? If you go to these other service domains and you see very similar things, this layer of software really optimizes that resource. The way they attack it oftentimes is human resource. Doesn't that scare a lot of prospects away when they hear, oh wow, there comes service now and they're gonna replace all these people? It's a good question. I actually wrote a blog post about it recently as well. There is no doubt that in the economy at large we're gonna see massive substitution from people to systems. Why? Because the technology is here and the economic imperative is here. It's very much a societal and social question. But here's the thing, what's the alternative? Are we gonna try and stop it and not do it? It's going to happen. The markets are going to run their course. What needs to happen is that we adjust. For example, in education we have a lot of teachers, right? What's gonna happen to teachers when education is delivered through online streaming? Well, teachers probably will have to become curriculum developers, in other words, evolve and change in their roles because education is going online. Slowly, but it's going to. Why? Because the format, the service experience is that much better, it scales that much better and it's that much more economical than what we currently have. Well, you said today in your keynote that the system's broken, having to put four kids through school, I appreciate the little nudge there to the educational system. Why did it take so long? I mean, these are the IT guys, these are the technology guys in the organization, they're there to deliver value. Why did it take so long for this kind of transformational? Yeah, Steve Jobs has been, the late Steve Jobs has been quoted many times and saying people don't know what they want and the light show it to them. And that's sort of what we're doing, we're showing it to them. That's what we did this morning, we're showing people what they can aspire to. And that's what we're here for, we're trying to stimulate, inspire, motivate, give people a sense of mission, right? As opposed to keeping the lights on, managing crises, running around with your hair on fire, that's not a very attractive, you know, a view to half of your organization and what you do all day, right? Yeah. So, struck again by your keynote, the Affordable Care Act, which is actually known as Obamacare, the government not a customer of yours, or what's the scoop? Oh, no, they are, they are. Could you have helped with that problem? We could have, for sure, but then again, many people could have. Yeah, sure. You know, for the people that in software and technology, they look at something like that, yeah, last night I set a dinner with the Head of Infrastructure for Kaiser Permanente, they certainly know the problems of open enrollment at a massive scale. And it certainly, we didn't want to trivialize the problem, it is really, really hard to operate a service like that at the scale that they need to, but there is no doubt that, you know, we don't need any new core technology to build systems like that. I mean, the technology exists, the skills exist, obviously that should happen, like a lot better than I did, so. Let's talk about your business a little bit. This is your third year now, right? Since you've joined service now. It was exactly three years this week. Yeah, so let's sort of break that down a bit. When you joined service now, the discussion was around, and you talked about this yesterday, the whole TAM and everybody was looking at help desks saying, wow, how can these values be justified? And then of course you blew that away, and now people are beginning to understand that. It's interesting to note, at Data Domain, you sold the company, I think for what, 2.5 billion? The entire market is now greater than the market that it replaced, interesting. That's right. The market was 3 billion, it's now, according to IDC, bigger than 3 billion and growing. Yeah. So that's kind of interesting. Now that's a much more confined market. You talked about the TAM there being finite, you always knew it was finite. Here it's different. You guys have started to sort of fine tune your TAM analysis and communicate that it's still hard because you just don't know how people are going to use your software. They're finding new ways. But the TAM, I took a stab at it, I came up with 30 billion, but it was a top down, it wasn't a bottom up, and I had to get the blog post out, so it was kind of a back of the napkin. But still, it's very, very large, clearly a multiple of the IT service management market. So I wonder if you could talk about sort of the evolution of your thinking in terms of the market opportunity with service. Now were you always sort of where we are today or did that have to evolve over time? No, it has evolved, I'd say dramatically. Obviously the expansion from what used to be called help desk management to IT service management has basically exploded the market at least five-fold. I mean we're licensing five to 10 times as many people on our system now for IT SM purposes, then we used to in the mid 90s during the help desk era. Because back then all we did was license people ever physically on the help desk, right? People that would take phone calls and emails and so on. Now really everybody in the IT organization is an actor and a participant in the workflow of service management. If you may be a DBA, you may be a network engineer, you're gonna get, when an incident comes in or a problem is defined, you're gonna be part of that workflow, right? So that expansion was not understood early on, but beyond that, service is everywhere and service is everything, right? And every physical and even non-physical assets have service models around them. So once you start looking for it, you see it absolutely everywhere. I don't know what's a few billion among friends, I don't know what the numbers are, but this is heavily transformational. I think one of the things that people struggle with, they're looking for a line of sight, right? In other words, a company like Workday is viewed very positively. Why? Because they're seeing them take dollar-for-dollar market evaluation away from companies that they can't identify, SAP and Oracle and so on. It feels very credible to them, like that's $250 billion a market. I can see those guys from Workday take a chunk out of their hide. You go look at service now, you need to have more imagination. There was this great quote from Arthur Schopenhauer that I showed yesterday, which said, take talents to hit a target that nobody else can hit, but it takes genius to hit a target that nobody else can see, right? It's transformational, right? What Workday does is modernization. What ServiceNow does is transformation. It's fundamentally different. So when you came on to service now, I presume your focus was putting in the infrastructure and the processes to make sure that you could scale, just having watched you in your career. You're big on growth and you're pretty aggressive. So take us through sort of where you sort of started and what the emphasis was and where it is now. I mean, clearly you're investing in sales and marketing, you're investing in AP. I didn't know this, the substantial number of global 2000 companies in Asia Pacific, so that's another. So how is that, I mean break that down into maybe one or two or three sort of segments of your attention and your effort there. You can sort of split it up in two major stages or phases. The first phase, when I took over the helm of the company, was very much focused on operationalizing, stabilizing, scale, being able to deliver of what we were already doing in a consistent and predictable manner. And that was not a minor task because the company had grown so fast that it hadn't been able to basically catch itself in terms of building the business, building the organization underneath its business. So that preoccupied us tremendously. The whole thing about cloud is not like there's a lot of people running around out there that actually know cloud, that understand cloud, that can build clouds. How many people do you know that have actually done this because there's, you know, three years ago, I mean, there were far and few. We actually recruited people that had built the original cloud at eBay because those guys were pioneers. They had solved a lot of the problems associated with cloud early on. We saw a lot of people that understood data centers, cloud is almost inverse to data centers, the mentality that you need to build and to run them. That was phase one for us. And we sort of got through that, you know, about a year and a half ago, for sure, about a year ago. And we started to shift gears, you know, really from the operational infrastructure concentration that we've had to really starting to drive strategically the business towards enterprise service management and really expanding the addressable market way beyond where we had been before. We were going to market and telling CILs, look, at the assembly replacement, you have to do it. You're sitting on 10, 15, 20 year old software, it's crappy, it's gotta go fine. We're gonna do that, right? But we wanna give you this much bigger perspective of managing service and enterprise and, you know, make that admission that you can own as a CAO and drive throughout the organization over a period of years. And a lot of our customers have roadmaps that are 24, 36 months, and it shows you all the things they're going to knock off over the period of time in all the different, you know, parts of the enterprise, it's facilities, it's engineering, it's marketing itself, so on. Yeah, so okay, so TAM expansion and now obviously accessing that TAM, hiring a lot of salespeople and go to market. I was struck walking around the exhibit hall last night because you just announced App Creator, I think last year at Knowledge. I was struck by, you know, that the booth down there with the number of apps, I mean it's just astounding where that's going. Wouldn't have predicted, you know, some of them that I saw. So that's obviously part of the TAM expansion as well. I wonder if you could talk about the importance of a single system of record in order to achieve that vision because it's not always easy, right? Politically, people wanna keep data in their own little silos. So how does that work? Can you, you can't force it in, does it sort of just happen organically? How critical is that to your success? I mean, when you have applications or services that relate to each other, like for example, you know, this morning we showed in the demo, I think we showed like seven or eight different applications in the course of one demonstration. The reason that a single system of record matters so much when you do that is all these apps need to be aware of each other, right? When you're staffing a project, you need to look at resource management. Well, that resource management relates to the skill requirements as well the skills that are available, right? What you don't want is these apps living in their own universes with their own data models, your own databases because now you have to start the hack integrations between them to make any sense out of that. And that's the world we've lived in. That's been the bane of software existence for so long. The service now says we're not gonna do that, okay? Every application that relates to any other application, they're gonna be operating on exactly the same data model. And by the way, you see that throughout our platform, right? When you bring up an asset in the CMDB, like a server or a router or a SAN or whatever it is, you'll be able to see all the other data artifacts throughout the platform, like incidents, problem changes and projects and tasks that relate to that particular asset. There's nobody else that can do that, right? And we provide that full 360 degree visibility. That makes application development so compelling because all the users are already defined in the system. You don't even have to get started with that. You only define users once, right? You reuse all that. And all the other artifacts already exist. So you get this data gravitas that the more data that is there, the richer the application development environment becomes. Yeah, we talked about this too at the analyst meeting about the relationship to your M&A strategy. You've got to be selective. It's got to fit in to that single system of record. Does that however limit your choices? It will absolutely limit our choices, but this is the commitment from an architecture standpoint that we make is that we're not going to repeat what legacy vendors have done is having 50 apps all stand along with the hack integration between them. As I said, that's the world that our customers want to leave behind because it was just horrible from an efficiency standpoint. After a while, all your people do is managing the operability of the patchwork plethora of assets that they have. They're not doing anything productive. And in our world, they do none of that, right? They're not upgrading software because it's the clouds. We do that. And they're not hacking integrations between apps because there is no constant of integration on service nowadays. All the apps are aware of each other through a shared data model. So is there still plenty of M&A opportunity for you out there though? I mean, your stock's up. I know it's off a little bit lately, which I think is really healthy. I'm happy about that. Nice little breather. But still, you've made great progress. Adding value, you can obviously use your stock as acquisition currency. Are there still plenty of opportunities for you? Yeah, there's absolutely tons of opportunities. At the end of the day, software infrastructure is very similar and very common between applications. So for us to bring an application into our user interface framework, I mean, they have to have a user interface framework of some sort, right? So whether we replace what they have with ours, whether we replace the data structure, we replace the underlying cloud, we can do all those things, right? The question is, is it going to be hard? Is it going to be expensive? Is it going to be time consuming or maybe not as much? And that will influence how attractive we are to the asset. All right, Frank, we're way over on time, but I could go forever. I mean, really appreciate you coming on. Good to see you. And thanks for having us here. It's really a fantastic event. All right, keep it right there, everybody. We're back with our next guest. This is theCUBE. We're live from Moscone, right back.