Morningstar | ServiceNow: Differentiated Software Drives Share Consolidation and Expanding TAM
ServiceNow has been successful thus far in executing on a classic land and expand strategy. First, it built a best-of-breed SaaS solution for IT Service Management (ITSM) based on being modular and flexible, having a superior familiar user interface, offering a way to automate a wide variety of workflow processes, and becoming a platform to serve as a single system of record for the IT function within the enterprise. Having established itself with a rapid rise to 40% market share in ITSM, ServiceNow then expanded into the much larger IT operations management (ITOM) market by incorporating additional features onto the platform or by offering add-on solutions. The same set of product design features and technologies has allowed ServiceNow to bring its process automation approach to areas of the enterprise beyond the IT function, notably, HR service delivery and customer service. ServiceNow’s success has been rapid and impressive. The company already offers what are considered to be high-end solutions and boasts elite level customer retention of 98%. ServiceNow counts 883 of the largest 2,000 (G2K) enterprises in the world as its customers, and these customers continue to renew for larger contracts, with the average annual contract value doubling in just the last three years. Further, customers overall are re-upping for more than one solution, as more than 75% of customers are multi-product purchasers. We believe that having the IT function within an enterprise as the initial landing pad is fortunate, as it provides a built-in advocate for software (an IT responsibility) for other functional areas of the enterprise. ServiceNow will continue to use its position to land new IT-driven customers and upsell ITOM features on the platform, but we believe the company will increasingly cross-sell emerging products in HR and customer service, along with the platform as a service (PaaS) offering. In our view, product strength, market presence, and a strong sales push into areas outside of IT, will drive robust growth.ServiceNow provides enterprise cloud computing services that define, structure, manage and automate digital workflows for global enterprises. The company markets its services to enterprises in a variety of industries, including consumer products, education, financial services, government, health care, information technology (IT) services and technology. The company sells its subscription services through direct sales and, to a lesser extent, through indirect channel sales. The company also provides a portfolio of personnel and other services, both directly and through its network of partners. The company's products include IT service management, IT operations management, IT business management, and security operations.
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Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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