Enterprise

Pitchman and prophet: Why Bill McDermott could lead ServiceNow to the promised land

Bill McDermott is one of the software industry’s best salesmen. At ServiceNow, he’s hoping to add yet another win to his track record.

Bill McDermott

CEO Bill McDermott wants to make ServiceNow the “defining enterprise software company of the 21st century.”

Photo: Uwe Anspach/picture alliance via Getty Images

LAS VEGAS, Nev. — It’s common in the wild world of enterprise software for CEOs to make outlandish claims about the power of their technology or embellish the prospects that lie ahead for their businesses. But no one embodies the salesman spirit quite like ServiceNow CEO Bill McDermott.

The difference between McDermott and someone like Larry Ellison, however, is that McDermott has a much better track record in recent years of backing up his lofty proclamations with real results — whether it’s taking a struggling division in Xerox to the top-selling unit in the company or scaling one of the world’s largest software firms from $14.8 billion to $29 billion in revenue over a decade.

Now, McDermott has a new goal: to make ServiceNow the “defining enterprise software company of the 21st century.”

“I feel very confident that this will be a moment in time when people will look back and say: ‘They said it, they did it, they are who they said they were,’” McDermott told Protocol in a sit-down interview at the company’s recent Knowledge 2022 conference in Las Vegas.

Regardless of one’s views on whether or not that prediction will come to pass, it’s hard to argue with the reality that whatever moment ServiceNow is in, McDermott is the perfect CEO to lead it.

Despite touting a message of simplicity while serving as the former CEO of SAP, McDermott’s main goal in that role was to sell companies a bunch of shiny new applications to manage processes like expense reporting. Now, he’s preaching the capabilities of ServiceNow to fix a bloated software stack caused by too many shiny new applications from SAP and other vendors.

But that’s why ServiceNow has been so successful. It’s becoming a proven solution to a long-standing IT problem: too many systems don’t work well with one another.

ServiceNow ServiceNow's sales continue to exceed expectations.Photo: Smith Collection/Gado/Getty Images

“A lot of the things that have happened in the enterprise over the last half-century need to be fixed,” said McDermott. “The problems we’re solving are 21st century problems. The 20th century architectures did a great job of solving 20th century problems.”

That fix — at least, according to McDermott — is ServiceNow. And the message is resonating with investors and customers.

After a chaotic few years for enterprise tech stocks, which saw high-flying vendors like Zoom quickly crash to the surface during the first half of this year, ServiceNow was also hit: Its stock fell 29% this year. Still, sales continue to exceed expectations. In the three months through March, revenue rose 27% to $1.7 billion. The company updated its long-term sales guidance at the Las Vegas event, pronouncing that it would hit $11 billion by 2024, a $1 billion bump from the prior forecast. And when ServiceNow reports earnings in July, analysts expect revenue to rise 29% to $1.8 billion.

He's a killer weapon the company has in this war for enterprise software supremacy.

And amid an increasingly dour outlook for the software industry, which has forced startups and sector giants alike to slow hiring and cut costs, ServiceNow has not put any hiring freezes in place. It has shifted some internal investments to reflect changing economic dynamics, including currency fluctuations, according to a spokesperson.

Many analysts remain bullish on ServiceNow’s future under McDermott.

“He’s a killer weapon the company has in this war for enterprise software supremacy,” said Wolfe Research analyst Alex Zukin. “He just has an incredible history of scale and has built ridiculously strong relationships with a lot of [top executives].”

The customer mindset

While ServiceNow has grown steadily for years, it’s clear that, in under three years, McDermott’s personality and business acumen is taking the company to a new level — for which, as the third highest-paid CEO in 2021, he’s been richly rewarded.

From wooing analysts and investors on a private stage one day to talking with developers on the conference floor the next, McDermott was able to do it all at ServiceNow’s recent annual conference with the awkward ease usually reserved for a politician canvassing for votes and donations — perhaps not surprising for a man who was once rumored to be considering a presidential run.

It’s part of what sets McDermott apart from other industry leaders. Unlike Hasso Plattner, Diane Greene and Ellison, who put blood, sweat and tears into actually developing the product they ultimately sold, McDermott is a hired gun — albeit one with a long track record of success.

Bill McDermott, right, with Hasso Plattner, Chairman of the Supervisory Board of SAP, on stage at SAP's 2019 annual general meeting. Photo: Wolfram Scheible/SAP SE

While Ellison and co-founders were developing the first relational database in the late 1970s and early ‘80s, McDermott was attending college and running a local deli he bought for $7,000 at the ripe age of 16. When Oracle and SAP were battling it out for dominance in the early 1990s, McDermott was trying to turn around a struggling division of an aging technology powerhouse known as Xerox.

But what McDermott might lack in deep technical knowledge, he makes up for in bravado and salesmanship — which, in enterprise software, might actually matter more than the nuts and bolts of the product.

As a result, he doesn’t appear to have the same emotional connection to the underlying technology. Instead, McDermott is a leader who is much more inclined to adapt ServiceNow’s technology to a customer problem than preach the virtues of the software and the need for customers to adjust their own processes: a key characteristic that analysts say make McDermott (and ServiceNow) so irresistible to many of the Fortune 500 CEOs he has a close relationship with.

“He is always thinking about how to solve customer problems and putting the customer problems together with the solution,” Verizon CEO Hans Vestberg said. “I never talked to ServiceNow before. I talked to ServiceNow when he came in.”

But as McDermott looks to once again work his magic, the company faces a fair share of skeptics who question whether ServiceNow can stay true to its in-house development roots in amid aggressive product expansion, not to mention the looming impact of increased competition from larger rivals like Salesforce and the ever-present hurdle of maintaining a self-described “unique” culture amid an ambitious growth plan that could see the company catapult to 35,000 employees in the next several years.

Welcome to the Bill show

To appreciate McDermott, you have to see him in person. Listening to him speak, it’s hard to not feel like you’re being sold something — or at least, to question the jump between selling workflow automation software and “changing the world,” as McDermott likes to describe the role of ServiceNow employees. Ask most tech execs to describe McDermott in one word, and chances are they’ll say “salesman.”

The Inside View with Bill McDermott www.youtube.com

But it’s easy to see how people get lost in the show. Like the best politicians and salespeople, McDermott has the uncanny ability to say nothing beyond the talking points, but in such a polished and passionate manner that it rallies even the most unwitting participants into believing the cause.

McDermott is at his best with a crowd. He started off his keynote address with his trademark high energy: pumping his fists and riling up the audience. “We've got a great show for you!” he declared. He spent the rest of the time waxing poetically about making dreams a reality, winning in the market and ServiceNow’s grand purpose. “The promise of the real-time business was so elusive for so long — and now the dream is a reality,” he said.

Leaving that event, several attendees told Protocol that McDermott is the perfect CEO to lead ServiceNow right now, singling out his evident emotion when talking about the company — only to later admit this is the first time they had ever heard him speak, seen him in person or even heard his name.

It’s perhaps no surprise that McDermott is rumored to have considered a run for office during the fateful 2016 election, won by a businessman with no political experience. For McDermott, however, such a move might not be a huge stretch.

Walking around ServiceNow’s CreatorCon, trailed by at least four different handlers, McDermott schmoozed with developers and customers. He was as at ease among that audience as presidential hopefuls are at the Iowa State Fair, a corn dog in their hand. While the press team tried to shuffle him out of the event after a respectable 30 minutes, McDermott lingered, taking pictures with employees and fielding on-the-fly questions from analysts.

“You’ve got to be with the people and let the people know you love them,” McDermott said following CreatorCon.

Jumping up the stack

Bill McDermott At Knowledge 2022, McDermott made conversation with the ease of a politician.Photo: Joe Williams/Protocol

For another, very different audience later that week in Las Vegas? Same McDermott.

In front of a room of investors, analysts and other industry watchers, he proudly unveiled the new sales targets — a well-planned announcement that sent a message to Wall Street that the problems facing others in the software industry were not applicable to ServiceNow. McDermott and his executive team remained adamant that worsening economic conditions ahead wouldn’t impact ServiceNow’s growth potential: at least, for the next several months.

Still, the strategy the company is taking to reach those revenue milestones is not unique. Hooking customers with an initial product and then quickly releasing services based around that product to convince them to spend more and increase their overall average contract value is a tried-and-true strategy in software. But ServiceNow seems to be perfecting it. It took 10 years for the average customer who joined in 2013 to reach a contract value of $10 million or above, according to a slide shown at a recent investor day; clients who purchased its software in 2019 are reaching that same amount in as little as four years, indicating just how quickly new customers are growing their ServiceNow footprint.

And the pace at which ServiceNow is releasing new products is blistering — as many as seven rollouts a year — especially for a company that still swears it will grow to $16 billion without the need to acquire another company for revenue or substantial bits of technology. In the past two years, ServiceNow has announced expansions into manufacturing, customer support, low-code application development and procurement, among other areas.

And in a sign of how aggressively it’s upselling customers, Impact, a fast-growing new product that helps clients get more value out of their existing ServiceNow tools, is included in deals as a separate SKU number, according to Zukin. In other words, if a customer wants to upgrade their professional support from ServiceNow, they have to buy yet another product from its portfolio.

But outside of the products itself, ServiceNow operates in an enviable area of the tech stack.

For decades, companies spent billions of dollars propping up so-called “systems of record,” or databases that stored the most valuable corporate data. The theory was admirable: one repository to rule them all. It would make analyses easy, which meant better insights and, ultimately, more money saved or earned.

But it didn’t work like that. Instead, companies wound up using several different programs to oversee the same function, like HR, making even the simplest questions (“How many employees do I have?”) impossible to answer quickly.

It also made tracking business workflows more difficult, as employees were using many different systems to accomplish the same tasks. That forced companies to spend hefty sums on consultants that could, theoretically, dissect the problem and fix it: a solution that, again, sounds better in theory. In reality, many of those bungled processes remained.

Perhaps no one knows this better than McDermott, who spent nearly 18 years at SAP, including nearly a decade as CEO. For many businesses, software like SAP is essential. Still, the German software vendor is about as famous as Oracle for dumping huge packages of software on customers that are difficult to implement. And under McDermott, the product portfolio exploded as a result of more than 35 acquisitions.

In a perfect world, that would have helped SAP capture critical workloads like expense reports with its $8.3 billion purchase of Concur. Instead, when McDermott departed in October 2019, the company was left with a leadership vacuum and a huge amount of distinct products it will probably never be able to fully integrate into SAP’s core portfolio. Still, similar to ServiceNow, SAP has gone all in on “workflows,” promising to help alleviate pain points in areas like supply chain.

Once McDermott got to ServiceNow, his support for that strategy went out the window. Instead, he now constantly mentions talking points like “one data model,” a nod to the idea that ServiceNow information can pass cleanly through all of its different programs, and “the platform of platforms,” a reflection of ServiceNow’s residence above programs from SAP, Oracle and others.

ServiceNow’s software plugs into those systems, extracts the data and runs analyses or functions. It allowed oddly complicated tasks in corporate America — like getting an employee a new laptop or onboarding a new hire — to be automated because ServiceNow’s systems were agnostic to the underlying software used to manage the tasks before, breaking down the proverbial application silos that are prevalent in most corporate IT tech stacks. Essentially, the message is: “Work in the way that’s best for you, and ServiceNow can figure it out.”

It’s a powerful proposition. Corporate leaders and IT professionals have long struggled to get their employees to work the way the software vendors thought they would when they designed their products. That resistance among employees to change long-held processes — which, for most tech vendors, means pushing customers to consolidate their application sprawl to a single provider — was once a major point of vendor frustration expressed by Ellison against those who criticized Oracle’s software.

But however hard it is to deploy enterprise software, it’s even harder to get employees to change how they work every day.

It’s why McDermott has suggested that acquisitions that would get ServiceNow deeper into the application layer — like, say, procurement software provider Coupa, which analysts flagged as a long-shot possibility — are off the table. In his view, the company doesn’t need the headache that comes with running a system of record when it can simply handle the increasingly more vital tasks for businesses: automation, low-code application development and more insightful analytics.

There’s a bit of irony here: In the span of just a year, McDermott went from urging customers to consolidate on SAP to solve IT complexity to arguing that the proliferation of applications from SAP and others are hindering the success of the business. Such a pivot, however, is common in the industry as executives and employees alike jump to rivals.

Still, it’s yet another example of McDermott as the consummate businessman. And the opportunity ahead for ServiceNow appears immense.

In McDermott’s mind, everything is fair game, including the most basic processes (like getting new employees laptops) as well as more complicated workflows, like procurement. Areas beyond procurement are suddenly on the product road map, which will push ServiceNow deeper into ERP. The new customer opportunity is equally as expansive — anyone who uses an ERP system, which is basically every large and medium-sized company, is up for grabs — and it’s sitting on a warchest of $5.5 billion in the event McDermott changes his mind on large acquisitions.

The company was interested in process mining company Celonis, but ultimately couldn’t reach a deal given the high price tag and Celonis’ desire to remain independent, sources previously told Protocol. However, while McDermott mentioned the desire to remain standalone and the likely high price tag associated with a deal, he denied ever extending a formal offer.

“In the current situation, I will not be buying Celonis,” he said. “The last private valuation was $12 billion. And I'm not in the business right now of large-scale M&A.”

The two, however, remain close partners: “It's early days. We need to make sure that there's an incremental benefit to ServiceNow, based upon Celonis’ ability to execute on the go to market,” McDermott added.

Ultimately, McDermott doesn’t seem as eager to undertake the pain-staking integrations that would be necessary with a big acquisition in order to maintain that “one data” model.

“Even if I could, I wouldn't want anything to stand in the way of that pure play platform,” he said. “And that's why even if we did a tiny tuck in, we would recode it to the ServiceNow platform.”

It’s a departure from his past reputation as a dealmaker. One could assume it was the decision to buy so many companies at SAP — which current CEO Christian Klein was largely left to clean up — that makes him nervous to pull the trigger on a larger merger. McDermott, however, sees the two situations as vastly different.

SAP CEO Christian Klein SAP CEO Christian Klein has been left to handle acquisitions made during McDermott's tenure. Photo: SAP

“We can have different opinions on whether SAP should be focused on integrations. Different company, different model. That platform is different,” he said. “We had a different plan then. It was to use that SAP cloud platform as an API integration … it didn’t have to be hardline integrations. You could have run those as separate companies.”

Intangible assets

The nice user interface and the ability to float on top of ERP systems are small things in ServiceNow’s favor that add up to more than the sum of their parts, but that won’t be enough to propel the company to its $16 billion vision.

In enterprise software, passing the $10 billion revenue mark is already difficult — getting there organically, and with a pure-play software approach, will be even harder. If ServiceNow is to succeed in growing rapidly without M&A, it will have to continue innovating and building new products quickly. Everything will have to come from within.

As the company scales, McDermott feels it will be important for sales teams to be close to engineering so that products can be built based on what customers actually want and need, said Chief Operating Officer CJ Desai.

That’s why in many ways ServiceNow is hyper-focused on the seedbeds of innovation and new product development: talent and culture. But there is the age-old conundrum that as businesses scale, they innovate less: They become less nimble, more bureaucratic and more risk-averse.

As ServiceNow pushes into new markets such as Korea, India and Latin America to find customers, those challenges will only be exacerbated. Culture is notoriously difficult to maintain as a company scales, and ServiceNow is making a $16 billion bet it can do so.

Bill McDermott, ServiceNow CEO A key goal for McDermott is “consumerizing” the ServiceNow brand.Photo: ServiceNow

A lot of that work will fall to Chief People Officer Jacqui Canney, who was hired just under a year ago to help double ServiceNow’s headcount.

A key goal for McDermott is “consumerizing” the brand, a tough battle for a company that sells business software, but not impossible. Salesforce, with its comical mascots, pricey advertising campaigns and its own charismatic salesman in Marc Benioff, is one of the few that has been able to obtain some notoriety outside the business world.

There’s also the hurdle of maintaining ServiceNow’s existing culture while evolving it to accommodate the additional 17,000 or so employees it hopes to hire in the coming years.

If culture is a key ingredient for ServiceNow’s growth, then McDermott’s own vision and values may make or break the company’s ambitions. The secret to keeping culture intact as a company grows is having a “CEO whose purpose aligns to the company’s purpose,” said Canney.

Whatever may be said about Bill McDermott, it’s hard not to believe he’s sincere in his passion for ServiceNow. In a moment of reflection, he drew comparisons to Ted Kennedy’s presidential campaign, paraphrasing: “To all those whose cares are our concern: The cause endures, the hope still lives and the dream will never die.”

Kennedy said that to close out his 1980 presidential campaign — perhaps not the best allusion for ServiceNow’s future. But McDermott’s campaign to make ServiceNow a lasting part of his legacy continues. And it’s clear that his ambitions are broader than technology, or even business. To McDermott, they’re spiritual.

“There’s living poetry in our lives going on right around us,” he mused, “and if you're a spiritual person, and if you really feel things in a way that other people can feel that you feel them, you can accomplish a lot of things. I think that’s really what it’s all about.”

If McDermott can manage to infect his colleagues, employees and customers with that same sense of passion, he might just succeed in his ambitions for ServiceNow.

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