>> Announcer: From Orlando, Florida, it's theCUBE, covering ServiceNow, Knowledge17, brought to you by ServiceNow. (upbeat music) >> 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 that 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 as they started 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. >> Just look at that. 14, 15, 16, 17. Fourth or fifth. (laughing) >> Fourth or, no. 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 Slootman. In six years his company has exploded to 1.4 billion dollars. They're on a path to do 4 billion dollars of revenue by 2020. They've got a 17 billion dollar market cap. If you look at software companies over a billion dollars, 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%. So they are incomparable in terms of comparing to other software companies. They're on a tear, the stock prices are up. Lo and behold Frank Slootman, the CEO, is getting out at the top. Bringing in a new CEO, John Donahoe. I feel like it's you know, an NFL quarterback, It's Bill Walsh handing the reins over to George Seifert. Maybe, and as I say, 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, pretty amazing transformation in this company. >> It is a pretty amazing transformation. We talk a lot about big data, and we talk a lot about cloud in many of the shows we go to but what we probably don't talk about enough, and we are going to for the next three days, is the success of SASS apps. And, as I always like to joke, there's a 60 storey building going up in San Francisco that Salesforce is completing to show you the power of SASS apps. And I think, with the ServiceNow story, 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 in a SASS application, letting people get work done easier. And it's pretty interesting, Because now, as you look around, day of 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 the enterprise. >> From a company perspective, this story here is about execution. The 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 asking them, what was your deal size when you first started with ServiceNow? They were like, it was small, it was like 60,000 contracts. Now they have many, many customers, well over a million dollars, several customers over five million dollars, so this is a company that is largely focused on large organizations, but also governments and mid-sized companies. Not small businesses, yet, Jeff. 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 larger companies to try, you know, get their feet wet before they really jump all in. So, we are still waiting for that day, but in the meantime, ServiceNow has a lot to do. As they 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 of the early days of Salesforce, they've got this platform you can develop on this platform, you know, call it paths, or whatever you want to call it. But, we at the time said they were 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, though, two markets coming together. >> Right, right. >> People really, you 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, and 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, that was four or five years ago. The companies that you saw there are much different than what you see today. >> But the passion is still the same, and that's why we've loved coming to this thing for so many years. It's because it's one of the companies that has a real passion. There was a shout-out to Fred, which is where it all started you know, I think Frank did a great job continuing that, and now clearly John is a really polished guy. Did his time at Bane, 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 on-boarding process, to highlight all the departments that are taught. Securities, 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 talk to customers today, many more, just anecdotally, have adopted the CMDB. What that gives the customer and ServiceNow, is tons of leverage. Because you essentially have that single source of 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 onto, maybe, IT operations management. And you're automating those tasks. Then might you move onto HR. You might move onto logistics, or marketing. You're now dealing with security. The perfect example they often give is on-boarding. When you on-board 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 got to order your laptop, you got to get a phone, you've got to get your office, you've got to get on-boarded to HR. All of these things that have to occur, that are generally separate phone calls, or you're walking down the hall. ServiceNow when you on-board, 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. And 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 when there weren't as many experts in ServiceNow. So it used to take a couple years to implement this. Second is your price is too high. You know, you hear that a lot. If that's your biggest hurdle, you're in good shape. What ServiceNow has to do in my view, Jeff, is two things. One, is got to tap the ecosystem. And you've seen companies like CSX now, DX Technology, and Accenture, KPMG, EY, join the fray. I always joke that 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 in 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 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 HPE for this much, or IBM's got versions of that. Or, other competitors in this space. ServiceNow has essentially, their pricing has been compared to them. What they have to do is shift the conversation from cost, and price, to the value of the delivery. >> Biggest surprise. You got to spend a little day, kind of, behind the curtain in the analyst day. Biggest surprise that came out of that, for you? >> I don't know if it's a shocker, but it was certainly underscored, is the actual amount of upside that this company has, because they have, you know, penetrated the Global 2000 pretty substantially. But what struck me was their ability to add new capabilities, and add, expand their TAM. You know, I think I wrote a piece in 2013 basically sizing the TAM. When ServiceNow first IPOed, Gartner came out and said this is a dead market, help desk is an 8 billion dollar market, where are they going? I followed that up with a piece that said you know, this TAM is quite large, it's probably about 30 million. 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, Fred Luddy said when we first interviewed him, it's a platform. I took it out there and said here it is. >> Right. >> And the VC said what can you do with it? And he said anything! >> Revolutionized platforms. >> And they said, well, we're not going to fund it. Right, and so what they've been doing now is adding modules, and one of the ones I'm most excited about is security. And it's not competing with the FireEyes, and the Palo Alto Networks and the McAfees. 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, right, no one's going to give it up. And if the efficiencies are so much better, no one's going to give it up. I just, like, it does other huge categories of software, right? There's CRM which they're playing a little bit into not coming at it from kind of a sales perspective, but kind of 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 experiences, 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 phones. So I think they're in a pretty good position. >> TSM is the core. Everything stems from that. That's sort of the main-spring. And really, IT are their peeps, as Frank Slootman used to say. (laughing) 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. HR they've been at it for a while, we've talked to Jen Straud 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 MNA, we haven't talked about MNA. 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 more prominent companies that ServiceNow acquired was DX Continuum. It's sort of an intelligent AI, machine-learning system. 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. So much of AI is fuzzy. So much of deep learning and machine learning is like how is that applied? Well, predictive analytics, to say OK this component is going to fail, replace it. Or, move the work off of that server. That's a real tangible use of AI. So we've seen ServiceNow use MNA. So what it does when it acquires a company, it has to go through cycles of re-platforming. ServiceNow doesn't just bolt on third-party products. We basically rebuild them from scratch on the platform. >> Right, right, ease into the platform. Which is what you have to do. Which is, kind of partner what SASS is all about, and in the early days of SASS there was a lot of push-back, because everybody thought they needed customization. Well, you 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. And 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. Again, interesting change of management. We're going to talk to John, really look forward to it, fresh new energy. I think they're off to, off to the races, they've been racing for a while. (laughing) >> Some of the other things, let's talk about customers for a minute. So, some of the other things I get from customers when I talk to them is, and again, CMDB, and service catalog, those are two critical. If you want to get the value out of ServiceNow, 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 SASS companies will do, and we know this, as a customer of a lot of SASS companies, they say new upgrade coming, beware. And boom, the function hits, or often times hits, with a price increase. What ServiceNow claims is that because you're in a multi-instance, as opposed to a multi-tenet 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 will try to take ServiceNow function out of the box. The desirability of that is when a new upgrade comes, you don't have to worry about the modifications you've made. However, it's not always that simple. I talked to a customer this morning on the way over here, they're a big SAP user, and they're doing a lot of custom-mods with their implementation. And 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, IN4 customers. You frankly hear it a lot from Oracle customers, trying to avoid the modifications. Mods can drive value for your business, but in the cloud world, the cloud era, they can really create problems for you. >> And everyone thinks that they're special, but the reality is that a lot of processes are repeatable across businesses. And actually if you're sitting as a SASS offer 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 you said, you can get yourself in serious trouble. And not really take full advantage. 'Cause 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 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 this new-age application. >> So we're here for three days, theCUBE, Knowledge17, #know17, 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 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 keynotes. Keep right there everybody. This is theCUBE, we're at Knowledge17, be right back.