By Dick Stark
“Our customers are actually frustrated because it’s tough to negotiate with a vendor who doesn’t have much competition”
— ServiceNow CEO Frank Slootman, reported in The Street, August 2, 2013
ServiceNow (SNOW) is on a roll and is gaining market share from long time ITSM market leaders BMC, HP, and CA. In a short amount of time, SNOW has risen to the #3 marketshare ITSM position behind BMC and HP. In its latest earnings statement just last month, SNOW reported that it has more than 1800 customers, and will do more than $400M in revenue in calendar year 2013, a one year growth rate of 68%. Since the market is growing at a single digit rate, this is an amazing accomplishment.
How is this possible? What’s even more remarkable, is that this momentum exists arguably despite Remedy’s technical superiority as compared to SNOW. The Gartner Magic Quadrant still rates BMC higher, and ITSM University, an independent ITSM “think tank” rates BMC Remedy considerably higher across a wide range of categories such as functionality, architecture, and pricing. Perception is reality, and this is where SNOW really shines. Mike Scarpelli, SNOW CFO discussed this in an analyst conference on September 4. He said that one reason SNOW is so successful is due to their emphasis on sales. He pointed out that SNOW started 2013 with 350 people in sales and marketing and will end the year with more than 600. That’s mind-boggling in a market space that is not growing that rapidly.
SNOW has also excelled because of its SaaS based architecture which is becoming a defacto standard among CIOs. CA, HP, and BMC have all struggled to keep up. BMC offers Remedy onDemand and Remedyforce which despite the common name are very different offerings. Remedy onDemand has more than 100 customers and Remedyforce, BMC’s fastest growing product line, has more than 500.
SNOW is “making hay” with this perceived SaaS competitor weakness. For example, Mike Scarpelli, when asked about Remedyforce, remarked that BMC would be hard pressed to point to one single enterprise Remedyforce customer, implying Remedyforce is for smaller organizations only. Had Mike asked us, we could have directed him to Samsung, where we are rolling out a large enterprise Remedyforce call center or Cliffs Natural Resources, a Fortune 500 customer, where we implemented a large BMC service assurance and automation system. Rather than Remedy, Cliff’s choice was Remedyforce. Indeed, we’re also working on a new rollout of Remedyforce for a very large government agency.
Let’s not forget that SaaS ITSM offerings only make up 25% of the market today, with a jump to 50% predicted by 2015. An ex-Salesforce executive confided to me that with a 90%+ customer retention rate SaaS is addicting and expensive, just like cocaine. And it is true that customers will spend much more money with software vendors like Salesforce and SNOW over a product lifetime than they would with a comparable on-premise software offering. SNOW has to make a profit eventually, so look for price hikes and up-sell offerings later.
My bet is that the glow around SNOW is not sustainable forever. In the short term, look for Remedyforce and FootPrints version 12 as the next up-and comers. And don’t count Remedy or Remedy on-Demand out yet. The usability and performance improvements in Remedy version 8 provide a significant improvement over past versions and a strong counter to SNOW’s perceived claim that its software is much easier to use than Remedy.
