 From Orlando, Florida, it's theCUBE. Covering ServiceNow, Knowledge 17. Brought to you by ServiceNow. In 2004, Fred Luddy had a vision. He was the founder of ServiceNow and his vision was to create software that was really simple to use to automate workflows within organizations. Two years later in 2006 was the first ServiceNow knowledge. He rented out a room at a hotel that could support 50 people. 30 minutes before that event, nobody was in the room. By the time, the time came to start the first ServiceNow knowledge, 85 people were in the room talking to each other about this transformation that was occurring in their business and they started the talking to each other. Fred Luddy stepped back and said, you know what, to have a successful conference, I just need to let people talk to each other. And here we are today in 2017, 15,000 people at the ServiceNow Knowledge. Welcome to Orlando, everybody. My name is Dave Vellante and I'm here with my co-host, Jeff Frick. This is, I believe, our fifth knowledge, Jeff. This is like a 14, 15, 16, 17, fourth or fifth, yeah. Fourth knowledge, we started at the Aria Hotel in Las Vegas with about 4,000 people and now we're up to 15,000. This is a story of a company that did an IPO right around 100 million, brought in an excellent CEO, Frank Slutman. In six years, this company has exploded to $1.4 billion. They're on a path to do $4 billion of revenue by 2020. They've got a $17 billion market cap. If you look at software companies over $1 billion, there is no software company that's growing as fast as ServiceNow 30 plus percent a year and throwing off as much free cash flow as ServiceNow growing at about 45 percent. So they are incomparable in terms of comparing to other software companies. They are on a tear, the stock price is up. Lo and behold, Frank Slutman, the CEO, is getting out at the top, bringing in new CEO, John Donahoe. I feel like it's, you know, an NFL quarterback. You know, it's Bill Walsh handing the reins over to George Seifert, maybe, and as I said, getting out at the top. John Donahoe totally different style. We're going to be talking to him on theCUBE, just finishing up his keynote now. But Jeff, here we are, our fourth year, I guess, at Knowledge. And a pretty amazing transformation in this company. It is a pretty amazing transformation. You know, we talk a lot about big data and we talk a lot about cloud and maybe the shows we go to. But we probably don't talk about enough and we are going to for the next three days is really the success of SaaS apps. And as I always like to joke, there's a 60 story building going up in downtown San Francisco. That Salesforce is completing to show you the power of SaaS apps. And I think what the ServiceNow story is, is more of that same story. You know, they started out with a relatively simple idea. Fred wanted to make work easier and he started with the ITSM because that was an easy place to get going. But really it's about simplifying workflow and a SaaS application, letting people get work done easier. And then it's pretty interesting because now as you look around, Dave, the conference, they've got five bubbles or five balls or five posters to really symbolize how they've moved beyond just ITSM into HR, customer service, biz apps and security. And applying the same foundation, the same method, the same software to get after more and more of the workloads that are happening inside of the enterprise. From a company perspective, this story here is about execution. A company, as I said, I gave you, shared with you the financials. They've penetrated the global 2000, over 50% of their average contract value comes from the global 2000. And there's significant upside there as well. In addition, their average contract value is growing very dramatically. I was speaking to some customers and they're asking them, what was your deal size when you first started with ServiceNow? You're like, oh, it was small. It was like $60,000 contracts. Now they have many, many customers, well over a million dollars. They have several customers over $5 million. So this is a company that is largely focused on large organizations, but also governments and mid-sized companies. Not small businesses yet, Jeff. I mean, you and I have been dying to get a hold of ServiceNow for small business. They announced Express a couple years ago, but what Express really was, was a way for the larger companies to try, get their feet wet before they really jump ball in. So we are still waiting for that day, but in the meantime, ServiceNow has a lot to do. As I say, their goal now is to be four billion by 2020. It feels like, when we first covered ServiceNow knowledge, we said, wow, this company reminds us a lot of the early days of Salesforce. They've got this platform, you can develop on this platform, call it Paz or whatever you want to call it, but we at the time said they're on a collision course with Salesforce. Now there's plenty of room for both of those companies in the marketplace. Salesforce obviously focused predominantly on Salesforce automation, ServiceNow, really on workflow automation, but you can see those sort of two markets coming together. People really know Salesforce, we try to use it for a lot of different things. And so giant markets built on the cloud, built with flexibility to add volumes. We started at problem change management, help desk type of things within IT service management. We're seeing that expand dramatically. And one of the things that you've always emphasized, Jeff, is the ecosystem. Take us back to the early days of when we walked the floor of the original knowledge that we did. It was four or five years ago. The companies that you saw there are much different than what you see today. Right, but the passion is still the same. And that's why we've loved coming to this thing for so many years is because it's one of the companies that has a real passion. And there was a shout out to Fred, which is where it all started. I think Frank did a great job continuing that. And now clearly John is a really polished guy, did his time at Bain, eBay, which he talked about as a community-based environment. And that was built on the strength of it. But the other part in terms of their expansion, their TAM expansion, which is always a popular topic, is John talked about IT living at the intersection of interconnectedness across departments. And they've really done a good job of leveraging that. And he talked about a simple HR onboarding process to highlight all the departments that are touch. Security, facilities, you need to get your badge, you need to get your laptop, you need to get checked in. So they're leveraging this and coming up from the bottom. And we talk about IT being an agent of transformation and not a cost center. Well, what better way to do that than to continue to simplify all these basically mundane processes, but again, just start eating them up and pulling more and more processes into the ServiceNow platform. The key to success from a customer standpoint is to adopt a single CMDB and to adopt a service catalog. Jeff, when we first started following ServiceNow and we talked to the customers, not everybody was adopting a single CMDB. That was a very political sort of football. When I talked to customers today, many more, the vast majority and just anecdotally, have adopted the CMDB. What that gives the customer and service now is tons of leverage because you essentially have that single source of the truth and then you can use that as a ripple effect across all the other innovations that you drive with ServiceNow. So for example, you start with help desk and change management and problem management and then you move on to maybe IT operations management and you're automating those tasks. Then you may move on to HR. You might move on to logistics or marketing. You're now dealing with security. So the example, the perfect example that they often give is onboarding. When you onboard a new employee, there's six or seven or eight departments that you have to talk to. There's at least eight, nine, 10 processes. You've got to order your laptop. You've got to get a phone. You've got to get your office. You've got to get onboarded to HR. All these things that have to occur that are generally separate phone calls or you're walking down the hall. ServiceNow, when you onboard, they give you the example. They're eating their own dog food. You go into the portal and you do all these things and it has a ripple effect because of that single CMDB throughout the organization. So that's given ServiceNow a lot of leverage within these companies. What you hear from customers is, one, it's complicated to install this stuff. And in the early days, especially where there weren't as many experts in ServiceNow. So it used to take a couple of years to implement this. Second is, your price is too high. You know, you hear that a lot. That's, I mean, if that's your biggest hurdle, you're in good shape. So what ServiceNow has to do, in my view, Jeff, is two things. One, it's got to tap the ecosystem and you've seen companies like CSX now, DX Technology and Accenture and others, KPMG, EY join the fray. I was joking, the SIs love to eat at the trough. Well, ServiceNow is becoming a big, robust ecosystem with a giant TAM. So ServiceNow has to lean on those partners very heavily to go in and accelerate implementation, convey best practices. ServiceNow has a program called Inspire, which is a lost leader. It's one of the best freebies in the industry where they will go in and share best practice with their largest customers. And then doing that in conjunction with the SIs to accelerate adoption. On the price side, this company, and I think John Donahoe is perfect for this, really has to, and I want to ask him about this, has to increasingly emphasize the value. I think to date, Jeff, it's been a comparison. Well, I can get this from BMC for this much or HPP for this much or IBM's got versions of that or other competitors in this space. ServiceNow is essentially, their pricing has been compared to them. What they have to do is shift the conversation from cost and price to the value that they're delivering. Biggest surprise, you got to spend a little day kind of behind the curtain in the analyst's day. Biggest surprise that came out of that for you. Well, I don't know if it was a shocker, but it was certainly underscored is the actual amount of upside that this company has. Because they have penetrated the global 2000 pretty substantially. But what struck me was their ability to add new capabilities and expand their TAM. I think I wrote a piece in 2013, basically sizing the TAM. When ServiceNow first IPO'd, Gartner came out and said this is a dead market, help desk is $8 billion market, where are they going? I followed that up with a piece that said, this TAM is quite large, it's probably about 30 billion. And I shared with the Wikibon audience how it could get there. I think I underestimated that. I think the TAM is 60 to 100 billion dollars. And the reason is that ServiceNow is able, as Fred Lutty said when we first interviewed him, it's a platform. I took it out there and said, here it is. And the VC said, what can you do with it? He said, anything. And I said, well, we're not going to fund it. And so what they've been doing now is adding modules and one of the ones that I'm most excited about is security. And it's not competing with the FireEyes and the Palo Alto networks and the McAfee's. It's actually automating a lot of the response to security, automating the run book, automating the incident response and doing so in a way that actually builds that ecosystem up and is the glue that hangs it together. So I guess the biggest eye opener for me, Jeff, I talked earlier about the revenue growth and the free cash flow growth for a billion dollar plus company. What was surprising, the biggest eye opener or surprise to me was the sustainability, in my opinion, of that upside. Right, but if it works, no one's going to give it up. And if the efficiencies are so much better, no one's going to give it up. And I just look at those other huge categories of enterprise software, right? There's CRM, which they're praying a little bit into, not coming at it from kind of a sales perspective, coming at it from a customer management perspective. There's HR, which they're clearly going after. There's ERP, which they're probably not in a position to do in the immediate term, but there's still a lot of work getting done in large enterprises that can use a significant amount of customization, automation, with a little big data twist in the back and a real eye to the customer experience as the millennials more and more in the workforce and the expected behavior of enterprise apps needs to mirror more what we get on our phone. So I think they're in a pretty good position. Yeah, so ITSM is the core, everything stems from that. That's sort of the main spring. And really, IT are their peeps, as Frank Slutman used to say. ITOM, IT Operations Management, is another large and substantive business, not as big as ITSM, but bigger than the others. Customer Service Management is a new and growing area. Security is a huge upside, in my opinion, in security. HR, they've been at it for a while. We've talked to Jen Stroud many times, and that's a big growth area. So these line of business entries are what's going to power the growth of ServiceNow going forward. There's also M&A, we haven't talked about M&A. When we first walked around the ecosystem on the exhibit floor at the ARIA four or five years ago, what we saw were a number of companies that could fit right into the ServiceNow platform. So one of the most more prominent companies that ServiceNow acquired was DX Continuum. It's sort of an intelligent AI machine learning system, and they're deploying that to help predict outages part of their IT operations management service, and they'll use that elsewhere. So it's a very specific, AI, we cover AI, we cover autonomous vehicles and so forth. That's actually a great use case, but so much of AI is fuzzy, and so much of deep learning and machine learning is like, how is that applied? Well, predictive analytics to say, okay, this component is going to fail, replace it or move the work off of that server. That's a really tangible use of AI. So we've seen ServiceNow use M&A. Now what it does when it acquires a company, it has to go through cycles of replatforming. ServiceNow doesn't just bolt on third-party products. Wait, basically it rebuilds them from scratch on the platform. Into the platform, which is what you have to do, which is kind of part of what SaaS has all about, and in the early days of SaaS, there was a lot of pushback, because everybody thought they needed customization. Well, he didn't really need customization because you can't have 47 versions of the platform out there. What you need is the ability to configure and have great configurability, and that's what good platforms do, and that's what Fred tried to build in. Oh, by the way, I got to get started, so I went with the ITSM. So I think they're in a great position, Dave, and as we know, cloud economics, of which this is a big giant application, get good as the thing gets bigger and bigger and absorbs more and more functionality. So again, interesting change of management. We're going to talk to John, really look forward to it, fresh new energy, and I think they're off the races. They've been racing for a while. Some of the other things, let's talk about customers for a minute. So one of some of the things that I get from customers when I talk to them is, and again, again, CMDB and service catalog, those are too critical. If you want to get the value out of service now, you got to implement those two things and others. But as well, this idea of multi-instance allows you to upgrade at your own pace. What a lot of SaaS companies will do, and we know this as a customer of a lot of SaaS companies, they say, new upgrade coming, beware and boom, the function hits, or it also oftentimes hits with a price increase. What service now claims is that because you're in a multi-instance as opposed to a multi-tenant environment, you can plan your upgrades. Now, having said that, what a lot of customers will do is they will try to avoid custom mods, custom modifications, and they'll try to take service now function out of the box. The desirability of that is when a new upgrade comes, you don't have to worry about the modifications that you've made. However, it's not always that simple. I talked to a customer this morning on the way over here, and they're a big SAP user, and they're doing a lot of custom mods with their implementation. I said, aren't you worried about that? Yes, we're very worried about that because that's going to be problematic for us when we upgrade, but they're wed to SAP. So my advice to customers is always try where possible to avoid custom modifications. You hear that a lot from, for instance, in-for customers. You frankly hear it a lot from Oracle customers trying to avoid the modifications. So mods can drive value for your business, but in the cloud world, in the cloud era, they can really create problems for you. And everyone thinks that they're special, but the reality is a lot of processes are repeatable across businesses. And actually, if you're sitting as a SaaS software provider, you see it across a lot of customers try to go with what's the standard out of the box with basic configuration changes and try to keep away from the customization or like I said, you can get yourself in serious trouble and not really take full advantage because you want to take advantage of the upgrades. You want the security upgrades. You want the functionality upgrades. You want the latest plug-ins from the ecosystem. So stick with the core and try to really avoid. And if you've got stuff that needs to be kept up and it's old and it's legacy, try to shield it as much as you can from kind of this new age application. So we're here for three days, the cube, knowledge, 17, the hashtag, no, 17. And so we will be covering all the innovations. It's an interesting conference because the roles here are IT practitioners, CIOs, line of business professionals like those within HR and other lines of business. So really a diverse crowd. There's a developer conference, a lot of events within the event. There's a women in tech luncheon tomorrow hosted by John Donahoe. So a lot of stuff going on that we're going to be covering. Jeff Frick and myself, we are going to be right back with John Donahoe, the new CEO of ServiceNow coming fresh off the keynote. So keep right there everybody. This is theCUBE. We're at knowledge 17 right back.