Wed. Nov 20th, 2019

New ServiceNow CEO Bill McDermott hinted that he won’t chase as many acquisitions as he did leading SAP — and said that the goal is still $10 billion in revenue (NOW, SAP)

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New ServiceNow CEO Bill McDermott hinted that he won’t chase as many acquisitions as he did leading SAP — and said that the goal is still $10 billion in revenue (NOW, SAP)

  • Incoming ServiceNow CEO Bill McDermott vowed to complete outgoing CEO John Donahoe’s vision of taking the cloud software giant to $10 billion in revenue: “I look forward to achieving it.”
  • McDermott just stepped down as CEO of software giant SAP.
  • Donahoe, who has agreed to become Nike’s CEO, introduced McDermott to financial analysts during ServiceNow’s third-quarter earnings call. 
  • McDermott said ServiceNow has an impressive and “pristine” platform with plenty of room for growth. “This is a native, born-in-the-cloud company. It’s a company with a great platform and enormously successful products.”
  • That’s a strong indicator that McDermott won’t chase the same acquisition-heavy strategy as he did at SAP. 
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Bill McDermott, ServiceNow’s incoming CEO, vowed to complete his predecessor John Donahoe’s vision of taking the cloud software behemoth to $10 billion in annual revenue.

Donahoe, who is stepping down to become CEO of Nike, had set this goal after he took over in 2017. McDermott, who stepped down as SAPs CEO two weeks ago, affirmed that goal after Donahoe introduced him to analysts on the ServiceNow’s earnings call.

“I completely stand by it, and look forward to achieving it,” McDermott said.

He said ServiceNow, with a market cap of $41 billion, had an impressive and “pristine” platform with plenty of room to grow organically, in a strong suggestion that acquisitions would not be a key part of the company’s strategy as it had been during his tenure leading SAP.

‘A native, born-in-the-cloud company’

“This is a native, born-in-the-cloud company,” he told analysts on ServiceNow’s quarterly earnings call after he was introduced by Donahoe. “It’s a company with a great platform and enormously successful product.”

ServiceNow is one of the pioneers of the cloud-based applications, also referred to as software-as-a-service, which allow businesses to access applications through web-based applications, typically based on subscription fees based on the number of users. This disrupted the traditional enterprise software industry, including giants like SAP.

SAP is the third largest vendor in the $22 billion service management software market with 8.5% share, according to IDC. Microsoft leads the segment with 9.6%,followed by BMC with 8.7%. ServiceNow also competes with Salesforce in customer service applications, and with Workday in human capital management systems.

Cautious view of M&A

SAP is a dominant player in the market for enterprise applications installed in private data centers. Like other traditional software makers, such as Oracle and IBM, it has struggled to compete in the fast-growing cloud market, often acquiring players to boost their market presence.

Over the past year alone, SAP has bought several cloud companies, such as Qualtrics, Callidus Software and Coresystems, in sometimes-pricey deals that could unsettle Wall Street.

But McDermott told analysts that he would proceed with caution about using the same playbook at ServiceNow.

“I would be very careful with it,” he said, noting that M&A routine involves integration which can sometimes be disruptive. “It should not affect the pristine nature of this platform.”

Besides, he says he believes ServiceNow can still grow organically, including by expanding internationally.

“This is a juggernaut waiting to happen,” he said. “This is an organic growth story.”

Donahoe’s legacy at ServiceNow

Donahoe told analysts he was leaving ServiceNow to pursue “a calling I had to pursue.”  He became CEO of eBay after Meg Whitman stepped down in 2008. He left seven years later PayPal was spun off. He took time off to travel, meditate and watch Van Morrison concerts, he’s said. 

Donahoe had faced criticism during his time at ServiceNow for his limited background in enterprise tech. In fact, he himself that he has had to adapt to a new segment of the tech industry with its language.

“Enterprise uses a set of complicated language that most people outside of enterprise don’t understand,” he told Business Insider in June

He cited one example, “orchestration,” which is enterprise-speak for coordinating the roll out of a product or initiative. “It was my first week here,” he said, and he found himself asking, “What are all these words?” “I’m still learning ‘enterprise,” he said. “And I have all the humility in the world to learn.”

ServiceNow posted solid growth under Donahoe, but the view of some analysts that he was not a good fit at the enterprise cloud software company lingered.

“He’s only been CEO at ServiceNow for less than three years and clearly did not take on the role with an intention to be in it as a short-term assignment,” Gartner analyst Kenneth Gonzalez told Business Insider. 

McDermott could be the right fit

Analyst Ray Wang of Constellation Research told Business Insider, “ServiceNow is at a point where they need an enterprise class CEO.”

The early consensus is that McDermott, a veteran of the enterprise software market, was a good choice for ServiceNow.

Gonzalez said that based on SAP’s performance under McDermott, “many will probably be happy to see that ServiceNow is picking up an experienced tech CEO, given where the company is in its lifecycle.”

IDC President Crawford Del Prete echoed this view.

“Great move,”  he told Business Insider. “He knows how to grow software businesses and how to build ecosystems. He has a wide vision with respect to the combined  power of software and data in today’s business environment.”

ServiceNow shares rallied 4% in late trades. The company reported a third quarter income of $40.6 billion, or 21 cents a share, on revenue of $885.8 billion. Adjusted income was 99 cents a share. Analysts were expecting a profit of 88 cents a share on revenue of $885 million.

Got a tip about ServiceNow, SAP or another tech company? Contact this reporter via email at bpimentel@businessinsider.com, message him on Twitter @benpimentel. You can also contact Business Insider securely via SecureDrop.

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