As the AI monetization wave gains momentum across the software sector, ServiceNow (NOW) is poised to be a major beneficiary.
ServiceNow’s generative AI capabilities—powered by the company’s enterprise-grade, domain-specific large language models (LLMs)—are being infused into all of the company’s workflow offerings. The AI advancements will help customers alleviate repetitive work, improve productivity and generally score a higher ROI.
Ahead of its big AI push starting next month, ServiceNow is already seeing positive results from early advanced automation pilot programs with customers. In the second quarter, the IT service management (ITSM) Pro product (introduced in September 2018) saw its strongest growth since 2020, driven by up-sells from the standard version and seat expansions. Customer Service Management (CSM) in Q2 had its best net new annual contract value (ACV) growth in three years, fueled by the CSM Pro offering.
As part of the Now Platform Vancouver release set for September, ServiceNow will roll out premium Pro Plus SKUs with greater AI capabilities for the ITSM, CSM and HR Service Delivery products. These new Pro Plus offerings will sit on top of their respective Pro versions, with pricing premiums estimated to be 60%. While enterprise volume discounts will reduce the actual pricing uplift, ServiceNow has clearly carved out a path to robust AI monetization.
Case summarization and text-to-code are two new generative AI capabilities recently made available to a limited set of ServiceNow customers. Both features will be open to all customers as part of the Vancouver release. In deploying these new capabilities, organizations will be able to drastically reduce the amount of time it takes for employees to do their work. With simplified processes, employees are better able to solve problems quickly and easily.
Case summarization uses generative AI technology to first read and distill all kinds of information across IT, HR and customer service cases—including incident details, previous interactions, actions taken by involved parties and the eventual resolution. The offering then uses all of this information to create case summary notes in seconds. The endgame is a faster handoff between internal teams and more streamlined resolutions for both customers and employees.
Text-to-code assists developers that face the repetitive and time-consuming work of creating the same code for routine commandments. With this new offering, developers are able to write plain, natural language text descriptions of the code they want to use. The generative AI technology within the Now Platform converts the text into high-quality code suggestions or even complete code in some cases, creating a seamless coding experience and boosting productivity.
These new offerings join ServiceNow’s growing family of AI features, including Now Assist for Virtual Agent, which maximizes productivity by eliminating time spent searching for information. Now Assist for Virtual Agent was designed to create real-world conversational experiences to drive more intelligent self-service. When users ask a question, this solution uses generative AI to craft a straightforward answer that immediately provides needed information.
Even with limited AI capabilities on the Now Platform today and a challenging macro environment, ServiceNow’s business continues to perform well. In late July, the company reported that Q2 revenue rose 23% to $2.15 billion, topping the consensus estimate. Operating margin of 25% beat the guide by 200 basis points. ServiceNow saw free cash flow (FCF) of $451 million, with a FCF margin of 21%. Per-share earnings of $2.38 came in 33 cents above the consensus.
There was plenty to like in the June quarter. ServiceNow continues to close more large, multi-product deals in various industry verticals. This shows that it remains a play on the broad themes of vendor consolidation and software platform adoption. In Q2, 19 of the company’s top 20 deals included five or more products, with nine of these deals including 10 or more products. ServiceNow closed 70 deals with over $1 million in net new ACV, a gain of 30% year over year.
The number of customers with ACV over $1 million rose 18% to 1,724. At the very upper end, there are now 45 large customers with ACV over $20 million, up 55% year over year. Solid execution at the largest accounts augurs well for future generative AI product uptake.
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