By Jon Swartz
While Salesforce.com Inc. continues to build itself into a powerhouse with large acquisitions and a thunderous chief executive, a quieter rival believes it will eventually be the cloud company that defines enterprise software in the 21st century.
Salesforce’s /zigman2/quotes/200515854/composite CRM +0.07% billionaire CEO Marc Benioff is generating plenty of buzz following his company’s $27.7 billion acquisition of Slack Technologies Inc. /zigman2/quotes/212180539/composite WORK -0.07% on Tuesday, but ServiceNow /zigman2/quotes/202729495/composite NOW -0.59% CEO Bill McDermott is on a winning streak of his own, though he refuses to take a victory lap.
See also: Salesforce to acquire Slack in $27.7 billion deal, while results top Street estimates
In the year since he was named CEO after nearly two decades at SAP /zigman2/quotes/207905606/composite SAP +1.69% , McDermott’s new company continues to be one of the fastest-growing major cloud vendors. Its market value has doubled to $100 billion, and it joined the S&P 500 /zigman2/quotes/210599714/realtime SPX +0.36% index. Next up: market domination?
“We are well on our way to become the defining enterprise-software company of the 21st century,” McDermott told MarketWatch. “If you look at our position in the market today, we’re the only born-in-the-cloud software company to have reached $100 billion market cap without large-scale M&A.”
In its inexorable ascent, the plucky company whose automation software used to improve productivity at businesses is leading what is calls a “workflow revolution” while drawing comparisons to its much larger San Francisco neighbor, Salesforce, in a market pegged at $26 billion. (To underscore its growing competition, ServiceNow on Tuesday named Salesforce veteran John Ball to lead its Customer Workflow business unit, which represents the company’s fastest-growing business.)
ServiceNow has taken a different approach than Salesforce, however. It is focusing on partnerships and smaller acquisitions rather than mega-purchases as Salesforce just did with Slack and, before it, Tableau Software Inc. ( $15.3 billion ) and MuleSoft Inc. ( $6.5 billion ).
The quietly confident McDermott envisions an inevitable march forward, via partnerships and savvy acquisitions, to become the premiere cloud-software company. What COVID-19 fomented in the workplace — placing even more emphasis on digital tracking of employees and business systems — has played into ServiceNow’s strengths. And the tectonic shift is accelerating: By 2025, most of the millennial generation will work from home permanently, based on research reports cited by McDermott.
Where ServiceNow stands now is at the precipice of something truly big, though it admittedly has a ways to go: Although the company’s market value is roughly the same as International Business Machines Corp. /zigman2/quotes/203856914/composite IBM -0.03% , its expected revenue of $4.49 billion in fiscal 2020 is one-fifth that of Salesforce, one-sixth of SAP /zigman2/quotes/207905606/composite SAP +1.69% , one-ninth of Oracle Corp. /zigman2/quotes/202180826/composite ORCL +0.89% and one-16th of IBM, according to FactSet.
But ServiceNow is closing ground as corporations and government agencies pour billions of dollars into their digital infrastructures. So far, more than $3 trillion has been invested in digital transformation initiatives. Yet only 26% of the investments have delivered meaningful return on investment, according to market researcher IDC.
“This is fueling the workflow revolution, where ServiceNow is the missing link that can integrate systems, silos, departments and processes, all in simple, easy-to-use cross-enterprise workflows,” said McDermott, whose grandfather, Bobby McDermott , was inducted into the basketball hall of fame in 1988.
A spike in demand for “workflow automation” technology, sent into hyper-drive during the age of COVID-19, will help ServiceNow sustain 25%-plus revenue growth, Morgan Stanley analyst Keith Weiss said in a Nov. 12 note , in which he upgraded ServiceNow’s stock to overweight from neutral, and upped his price target to $652 from $559.
ServiceNow’s “inside-out” technology to solving enterprise problems is a “user-friendly” approach to automate operations to cut costs and improve workflow during tough economic times, Wendy Johansson, global vice president of digital business transformation company Publicis Sapient, told MarketWatch.
During its third-quarter earnings announcement on Oct. 28 , ServiceNow raised its full-year guidance after disclosing it has 1,012 customers with more than $1 million in annual contract value, up 25% year-over-year. That included 41 such transactions in the third quarter, with new customers such as the U.S. Senate and New York City’s Mount Sinai Hospital. ServiceNow raised guidance for the full year on subscription-revenue range to between $4.257 billion and $4.262 billion, up 31% year-over-year in constant currency.
If ServiceNow’s market forecast proves accurate, it has a chance to make a run at cloud-software leader Salesforce.com and achieve ServiceNow’s goal of $10 billion in annual sales. (McDermott declined to give a timeline on that goal.)
ServiceNow’s path to market dominance has been pock-marked with tech partnerships and savvy acquisitions.