Morningstar | ServiceNow Has Seized a Leading Position in ITSM
ServiceNow has followed the successful software paradigm of introducing a single, mission-critical product in a market vertical and expanding from that beachhead into other niches, providing ample upsell and cross-sell opportunities. ServiceNow created a SaaS IT service management, or ITSM, product, a cloud ticketing tool designed to track internal IT issues. The firm disrupted on-premise incumbents such as BMC, CA, and HP to become the market's leader. We believe these rivals neglected the user experience as IT assets became increasingly tied to workforce productivity, and ServiceNow capitalized on the opportunity by offering scalable and customizable products. ServiceNow has since entered IT operations management, or ITOM, IT business management, or ITBM, HR, CSM, and security verticals.ServiceNow has seized a leading position in ITSM, eclipsing BMC, with a simple, easy-to-integrate, easy-to-use solution. The firm has penetrated 42% of the Global 2000 customer base, while continually increasing annualized contract value per customer through upsells. While legacy competitors are expected to build comparable cloud-based products (such as BMC's Remedy tool), we expect ServiceNow to continue to generate growth and further market share gains in this space.As ServiceNow enters new verticals, such as IT operations management, or ITOM, emerging opportunities (HR, CSM, and Security), and the Now Platform, we see significant cross-sell opportunities amongst large, sprawling enterprises. Roughly 76% of ServiceNow's customers now use more than one product, up from 35% back in 2014. This, coupled with ServiceNow's unparalleled retention of 97%, gives us faith in our wide moat rating.Longer term, the firm aims to be the encompassing system behind an employee's work life, handling on-boarding, 401(k) signups, payroll questions, issues with SaaS applications, and hardware problems from desktop and mobile apps. Increasingly, the analytics and algorithms generated from these interactions allows clients to measure efficiency and flag problems. We expect blistering expansion for ServiceNow both in and outside of the six overarching verticals that we see today.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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