ServiceNow, Inc. (NYSE:NOW) BofA Securities 2024 Global Technology Conference Call June 4, 2024 3:30 PM ET
Company Participants
Chirantan Desai – President and Chief Operating Officer
Conference Call Participants
Bradley Sills – Bank of America Securities
Bradley Sills
Delighted to be welcoming ServiceNow to the conference. We are very fortunate to have COO, CJ Desai with us. Thank you, CJ, for joining us.
Chirantan Desai
Delighted to be here.
Bradley Sills
I’m Brad Sills, Senior Analyst on large cap software and looking forward to a great discussion.
Chirantan Desai
Sounds great.
Bradley Sills
Thanks again, CJ. Should we grab a seat? Always the best dressed software executive.
Chirantan Desai
Thank you.
Bradley Sills
Hands down. Yeah. Always looking good. Thanks for joining us, CJ.
Question-and-Answer Session
Q – Bradley Sills
Why don’t we just start out with some kind of high-level thoughts coming out of the conference. I guess, 3.5 weeks ago now, it seems like yesterday, but there was a lot announced. Are there any kind of key takeaways, key announcements here that you’d really like to highlight that you’re excited about?
Chirantan Desai
Yes. I would say our Knowledge 24 conference, we do this once a year. It’s our annual user conference, which was in first week of May in Las Vegas. First of all, it was oversubscribed, which is always a great sign for interest from our customers and prospects in ServiceNow. So when we see packed rooms packed expo sessions, our partners highlighting their solution. Overall, the energy, enthusiasm for ServiceNow and its platform were very, very high. So that’s number one. Number two, we laid out how specifically AI is in service of our use cases and how does it work end-to-end for our products, including we announced the road map for the next one year, we have been pretty aggressive on our AI road map. We shipped our first set of products in September of 2023 last year and consistently showed what else is coming. And then in terms of Bill McDermott’s keynote and my keynote, we showed how customers are leveraging the platform overall at an enterprise level, including endorsement of partnership, both from Satya Nadela at Microsoft on how our copilots work with each other, including Jensen, saying that, hey, ServiceNow is the first full AI stack enterprise software company, end-to-end, of course, built on NVIDIA, we had a long-term relationship. And the final thing is that when I saw the initial pipeline numbers, which is, of course, we care about because we highlight innovations. They look very, very promising on how much additional pipeline was built at the conference.
Bradley Sills
That’s great. That’s exciting. And a couple of announcements struck me, some of the new applications you announced. Manufacturing, commercial operations, finance and supply chain, this is not a new thing for ServiceNow. You’ve been expanding into the back office, middle kind of office, if you will, front office, just seems to me like you’re just going deeper into the back office. So if you just want to outline kind of the thinking there as to what was the rationale for launching these two applications and where is the opportunity?
Chirantan Desai
Yes. So we announced two specific applications, actually, three at our Financial Analyst Day. I would say sales and order management is the first time we announced it for our investors and for all of you. This is a net new TAM expansion where there are still in a B2B space, a lot of mid-office back-office workflows in the line of revenue. So we have always done things, we are ServiceNow, in the line of service, as in customer service, build service, partner service and so on. This is the first time we said that, hey, when you look at revenue workflows there are still a lot of things that happen in mid-office and back office that are manual pricing courts going back and forth, quantities being changed and the sales teams talking to the back office to create something new. So brand-new product that we launched in Washington, DC release, which was in March of this year. So that’s number one. On manufacturing, commercial operations, it’s very simple. Manufacturing industries, no matter what you manufacture when you have post-sales support, right, when you have post-sales support or whatever you are manufactured, say a distributor calls you back or warehouse as we didn’t receive this, on an end consumer says we didn’t receive this, the lines are blurry between the revenue operations and the service. And so ServiceNow is perfectly positioned to help out our customers on we have some of the iconic names who already use us in that capacity at a consumer product goods company for manufacturing commercial operations. So and last thing I know that we’ll touch on, is we are very excited about operational technology. That’s a huge opportunity for ServiceNow, not to confuse with IoT. IoT is a whole different thing. Operational technologies, think about manufacturing, at consumer product goods company and automotive company, including oil and gas, the number of OT assets, the number of OT assets are typically 3x of IT assets. And that industry is trying to digitize because of security concerns, critical infrastructure concerns and what we did for IT, we can do for OT now. So those were very meaningful announcements in terms of new products and new growth vectors for ServiceNow.
Bradley Sills
Very exciting. We look forward to seeing how those unfold. On that topic, when you think of ServiceNow at its core, it’s a malleable workflow engine, for automation. And you can take it any number of ways. You’ve executed really well over the years on expanding that into employee, customer, financial and back office increasingly. How do you think about it in ServiceNow? How are you rationalizing kind of where you take the platform next? Obviously, these are two — a couple of big installments here and a leap forward there.
Chirantan Desai
So one of the things that’s lost on ServiceNow over the years because of our first use case is that our founder and the founding team, they always had this vision that this platform, ServiceNow platform was created as a platform company about 19 years ago. So we are 19 years in business now. It can help solve workflow problems across any department in the enterprise. With that simple principle, this particular platform as in ServiceNow was created, and it should have full API access to be able to integrate with any systems that could exist in an enterprise, and it is 100% born in the cloud. Literally, those are the design principles that you can solve multiple use cases once you build on it using ServiceNow. So Fred created the company in such a manner in 2004. And I would say ITSM, which is what we are known for, of course, it’s our biggest product line. ITSM was the first killer use case that we started on in 2005. And then as you said, Brad, we have expanded to HR service, management, customer service, field service. We have also done things in the areas of anybody can build an app in a low code way on our platform for the processes that we have not productized, but the platform was always created with that design principle that you should be able to work flow anything for any department, and you can integrate with any system or any cloud. And that is what has allowed us to grow. I mean, when we reported in Q1, we were $2.52 billion, growing at 25%, all done organically on subscription revenue. And that is only possible because how the platform was created and how we productize the use cases.
Bradley Sills
It’s exciting. Great. Thank you so much, CJ. Why don’t we address the macro question? It’s on everybody’s mind. Last couple of weeks, we’ve seen some weaker results out of some big application vendors. You’ve been very consistently saying that the demand environment — the macro environment has been pretty consistent quarter-to-quarter really since Q2 of 2022. And we saw across the industry some headwinds from generally softening macro at that time. And since then, I think you keep saying very consistently that things haven’t changed. So I just would love to get an update from you on the demand environment. What are you seeing out there? Any color on that?
Chirantan Desai
Yes. I would say, Brad, you stated perfectly. Since 2022 Q2 we have seen and I think it was Bill McDermott first time said it on CNBC that, hey, we are seeing elongated long sales cycles, scrutiny and all that. Despite all of that, ServiceNow has always done outcome-based selling. We provide value in the service efficiency, automation, of course, now leveraging AI, you can have increased automation and digitization. So from our perspective, nothing has changed. We are still consistent. We guided for the year in April. I think Gina also raised our revenue guidance a little bit in April when we posted our earnings. And I’m not seeing where ServiceNow sits, right? Even you talked about 2022 and 2023, we have grown for both our new business as well as our subscription revenue, way ahead of IT budgets. And that is because we are in service of digitization and automation via efficiency. I mean, that’s literally it. So we have outexecuted in the macro backdrop since the Q2 of 2022 and we continue to do that. We consolidate point solutions. Many of our larger deals even in Q1 of this year was consolidation of point solution providers because we are a platform company. So that remains the same. So I’m not seeing anything different, Brad.
Bradley Sills
Wonderful. Thanks, CJ. Why don’t we shift to AI, a big, big topic these days with the paradigm shift. How is AI embedded into the platform here? Maybe we could just start with how did ServiceNow start here with data and AI? What are the beginnings of it? When did you see the impetus to kind of really go for it here with AI? Where have been the efforts and the focus is for the company? And you can talk a little bit about Pro Plus and road map there as well, please.
Chirantan Desai
Absolutely. So if I just, I would say it was around 2017 January, so now seven-plus years ago. We started with our first technology acquisition in machine learning space, and it was on supervised machine learning. So that was in 2017. And then over 2017, 2018, we consistently were working on really good based on the technologies available at that time in machine learning space, how that can benefit ServiceNow use cases like ITSM or customer service or HR service and we monetize that we are ITSM Pro, customer service Pro in 2018, Q3, September. So our journey, first of all, has been since 2017 based on whatever the technologies were available at that point in time. Then in 2022, with Generative AI advances and others, we were very fortunate because in 2020 fall, we got a call for this amazing team in Montreal, Canada, that was only doing AI, and there were somewhere around 175 plus great engineers, data scientists, researchers, and this was during COVID. So we pretty much did that entire transaction over Zoom for the first time. And that team, Brad, has been our unfair advantage because they have been showing us not only they have written some seminal papers on Generative AI, but they have been showing us how Generative AI can benefit ServiceNow platform, and that has allowed us to stay on the forefront of AI and that’s why we were able to release the Pro Plus features for ITSM, CSM creator in 2023 September. And this is not just, hey, there is a connection to open AI or connection to somebody else in a hyperscaler. We infused AI into our use cases. And one of the biggest advantages of ServiceNow architecture is for our customers, they get their own instance or own environment. So say a large bank like Bank of America’s data in ServiceNow. They get their own environment versus another bank in New York will get another environment. So customers’ data is protected, and we just run small language models. That’s because of the innovation from this team that runs in our cloud, the data doesn’t leave premise. We don’t need to train, it’s a zero-shot model and customers start seeing the benefit right away.
Bradley Sills
You mentioned small language models. That’s something we’re hearing increasingly. And I remember talking with you after the analyst session four weeks ago about this concept and this notion that LLMs can only do so much. The Fidelity isn’t as high as it would be in a small language model. Can you just articulate a little bit more on what you’re getting out there? And maybe it would also be helpful, I think, to just peel back a little bit and just help give us a sense for kind of the underpinnings for data and AI in the platform and?
Chirantan Desai
Yes. So when, if we just start with, say, a bank, right? Heavily regulated industries. Typically, most of the banks are heavily regulated, globally speaking. And when they use ServiceNow, most of the banks do use ServiceNow, their data is in ServiceNow Cloud and their data is not in some multi-tenant environment where there is a neighboring with another bank, they get their own instance, what we call it. We are a multi-instance architecture, not multi-tenant architecture. So every bank gets their own instance with their own data, which gives them a lot of confidence and every single bank has gone through security, privacy, regulatory concerns before and including data sovereignty before they sign up with ServiceNow. So that has gone really well over many years. And now most of the banks, if not all of them, at least the large ones, use ServiceNow. So one is you have all the data in ServiceNow. Now you run small language models. Why does that matter? Here is why it matters, okay. The reason it matters is if you have a large language model that can help, true story, my son do his history homework. I mean, that’s interesting, but not really in the context of ServiceNow. So because of this team from Element AI and our engineering team, what we said is, okay, the bank has all this data, workflow data, we have asset repository, all the things in ServiceNow instance. How about if we run a small model that is performance, it is trained for the type of data like ITSM use case and the data types. So when you run a small model for a use case, not only it runs fast, because sometimes these larger models they run slow. When you type in something, it takes a while for them to give the answer back. And that’s not a great experience for our end users. So when you have smaller models, it runs fast, it is definitely cost effective for us to run even though Jensen and the NVIDIA team would like us to continue to buy bigger gears we can run these smaller models on A100s. Sometimes we want to run faster so we may run it on H100, but our effectiveness of running that which helps our gross margin, and that’s why Gina guided to the number she did for the year despite the demand for Pro Plus is smaller models, better experience for end users, smaller model, better gross margins for ServiceNow, and smaller models are fine trained for the specific use case for the data and the data type.
Bradley Sills
So is that essentially that makes a lot of sense. So essentially, what you’re saying is that there’s a model for each module. Is that fair to?
Chirantan Desai
Sometimes we use a couple of models. Our big realization in the last 18 months is that models is not a competitive advantage, okay? Model is not a competitive advantage. I can tell you and bore you. We tried this model, that model. This was the efficacy for this use case versus that use case. What we realized is we take the open source models so that we don’t have to pay anyone. We take the open source model, foundational models, train them on our data and data types, and then we run it. Sometimes for a multitude of use cases we may run same mode or sometimes for a use case that is complex, we were on a couple of models, but there are always smaller models.
Bradley Sills
Understood. That’s great. You’ve alluded to how the Pro Plus cycle has been tracking ahead of where you were this time in the Pro cycle. So I think it would be helpful to kind of draw the analogy here even a little bit finer. What did the adoption ramp look like in the first couple of quarters two, three quarters for Pro? And what are some of the metrics you’re pointing to say, well, this is that you’re actually tracking ahead of where we were at this time in the Pro cycle.
Chirantan Desai
So first of all, from our Pro Plus, and this is true for all ServiceNow products. We are very obsessed in making sure that whatever technology that we are going to price, right? So Pro Plus is our AI offering, but whatever technology we are going to price, customers must get value. And that’s why you talked about the macro environment, macro environment was even tough last year, and we still sold Pro Plus in the first quarter, which was our Q4, and then again in Q1. So it is still outcome-based selling with a very clear ROIC on if you buy Pro Plus, here is what you would get for these type of users from productivity gains, efficiency, improving certain KPIs or customer service or whatever the case might be. So I’ll do that, that we only charge if we feel that customers are going to get value out of Pro Plus. Now you asked the comparison, so I’m just going to level set, we released our Pro offerings in 2018 September. And there was our standard offering. We said the price lift on Pro would be 50%, list price, okay? It has been now in market for 5.5 years. In 5.5 years, we have seen consistently 25% uplift because once you put enterprise discounts because we mainly work with Global 2000 and Fortune 500. So there is always enterprise discounts. So we have got a 25% uplift on Pro, okay? Over the last five years. And 45% of our installed base has migrated from standard to either Pro or a higher offering called Enterprise, okay? So that’s where you need to level set in terms of our Pro history. Pro Plus was released on September 29 of 2023, and we have been in market now for two quarters and two months. And in those two quarters and two months, Gina shared that, first of all, the price uplift is 30%. And the reason it’s called Pro Plus, this is an uplift on top of Pro. So you get a 25% uplift on Pro and then you get another 30% uplift we have Pro Plus. So that’s number one. Number two, is the time to value or what we call speed to value on Pro Plus is very fast. We have some of the largest companies going live on Pro Plus within two to four weeks, and that’s not an exaggeration. So getting fantastic feedback. Customer says, okay, I turned it on, which was one of the design principles from engineering that Pro Plus should not require a long implementation because I wanted our customers to get to value much faster. And finally, Brad, on what you asked, so if I compare growth Pro trajectory from September 18 through May 29, so basically, you look at those eight months versus September 23 to May 24, Pro Plus from a dollar volume perspective is still higher than Pro. But we are still always going to be cautious that we still have eight months of data. We want to make sure that this is consistent as the year progresses, how Pro progressed over five years. But the only thing that is encouraging you may say, okay, CJ, that’s fine, but you added so many new customers in the last five years. So that makes sense that you have higher dollars on Pro Plus versus Pro. The difference though is that when we launched Pro, it was applicable to the entire installed base versus when we launched Pro Plus, it was only applicable to 42% to 43% of installed base. So that’s why when you look at that economics, it’s still better that Pro Plus growth is high.
Bradley Sills
Understood. Thank you for that. And maybe just on that topic, when you think about pricing here, how are you thinking philosophically about pricing for value here? Are you thinking that if a firm generates X dollars of savings from the automation here behind Pro Plus, we’re going to extract a certain percentage of that?
Chirantan Desai
I’m still in the — on behalf of ServiceNow, we are still in the 10% to 20% range that we should charge 10% to 20% price for the value they get. So if they get dollar productivity gain, we can charge 10% to 15%. And most of the times, Brad, if not all the times, those are the conversations we are having in the sales cycle to say this is how because then if customers are not going to get the value, we’ll have another problem on the hand. So that’s how we are charging.
Bradley Sills
Understood. Thank you for that. Why don’t we pivot to industry solutions? It’s been an area of strength. You’ve called out certain verticals, in particular, recently telco, health care, in particular. Can you just help us understand what’s changing here, if anything, in terms of your strategy, your go-to-market, your product road map? How are you becoming more verticalized, more specialized for these verticals and are there any one or two that you’d point out that, well, these are kind of up and comers that we’re really getting our traction in?
Chirantan Desai
Yes. So I would say that, just in general, we feel that if we create, I’ll start with the products first. If we create vertical products, we can get higher ASP, okay? So that’s basically the theory of the case that if we can create vertical products, we can get higher ASP. We started the journey in 2018 to say we are going to focus on a couple of verticals initially. One was telco, so telco, media and tech. And the second one at that point in time was manufacturing. So those were the two verticals we started in 2018, that if we create vertical products, we get higher ASP and also expands our TAM at the end of the day, because then we can show them on why it matters to our customers. When we say vertical products, it is not some layer on the top, that is a UX layer. We go actually pretty deep. You have vertical data model, so say, for telco industry, you may have vertical workflows for telco and you will have vertical integrations for the telco industry, the integrations that matter. So when we say we are creating a vertical product, we go pretty deep in that vertical. So we are very careful about saying that we are going to invest in this particular vertical product. So that journey, we started in 2018, towards the late part of 2018, and then we over time, started shipping products. I would say right now, one of the biggest advantages of ServiceNow, when you asked a macro question that I’ll just outline, we are a very diverse business, right? We are not dependent on any vertical in a disproportionate percent of total. So whether you look at TMT or CMT, whatever you want to call it. So TMT is one vertical, financial services, of course, manufacturing, health care life sciences and then you have global public sector. These five verticals are the big verticals for us. And then we are emerging in retail, travel and entertainment types of things is after that. But these five pretty diverse portfolio. And then when you look at sub verticals, there is no concentration of ServiceNow in one particular subvertical. Like even in global public sector, we have disclosed to all of you that we have done and continue to do well with US Federal, but we are also very strong in UK federal. We are strong in Australia Federal. We are strong in state, we’re strong in local. We are strong in provinces in Canada. So it’s a very diverse base. So I would say TMT and public sector are definitely the shining stars. We have not only created products, but we have very specific go-to-market motion for those verticals. And Paul Smith and the team have continued to create that focus in large geographies where it’s industry organized that all the top telcos are served by people with telco experience, all top health care are served by health care.
Bradley Sills
Great. Thank you, CJ. Why don’t we dig in a little bit more in the federal vertical? You called out.
Chirantan Desai
US Federal?
Bradley Sills
US Federal.
Chirantan Desai
Okay.
Bradley Sills
It’s been an area of strength over the last few quarters, really the last 1.5 years. So just curious what’s behind that? What’s behind the momentum there? And do you feel like you’re getting to that kind of critical mass now in the federal vertical with that referenceable account base that more deals are coming. Just you’ve been very bullish on that vertical. So I am just curious to.
Chirantan Desai
So I do want to give credit to some of the early both go-to-market and product team members who said we are going to focus on US Federal subsector or sector among the global public sector and started investing both in go-to-market and certification and engineering investment. There are a lot of things you need to do to earn the right to sell to United States Federal government. So this work has been going on since, I want to say, 2012, in terms of having the right sales team, with the DoD background or US civilian background and so on. So that’s number one. And we continue to stay on the forefront of all the certifications that are required to sell into United States Federal. It’s not something you can just show up and say, hey, I have a great product. Do you want to buy it? And I know you know that, but that’s one thing I do want to outline. Even our federal forum that we just did this year, we had massive attendance at the Federal Forum. We do that in Washington, DC because many of them cannot come to our Las Vegas event that we just talked about that you were at in May, Brad. So overall, we have two architectural advantages. One is we have created government cloud for our US Federal and most of our customers run in government cloud. But ServiceNow because of its multi-instance architecture, you can also use ServiceNow in an on-prem fashion. So think about certain scenarios for certain customers where you may want to run ServiceNow on-prem, and we can do that and put ServiceNow in a box or a CD, however you’re going to call it, and give it to the customer and they run it themselves. So that advantage has allowed us to grow significantly across our US Federal business. We are mission critical, the way our platform is designed. If you think about a federal agency that does import, export processes. There is no off-the-shelf software. You don’t need a CRM or HCM for that. You need ServiceNow for all those complex workflows on import approvals and permits and so on. And that has allowed us to be the mission-critical platform because you can modify ServiceNow platform coming back to our founder, for any use case you want in DoD or federal government. And then you think about digitization in US Federal government, that is something that was focused on the previous administration, the current administration. We don’t expect that to change. So we still have a lot of runway when we think about US Federal civilian market, US Federal DoD, US Intelligence community because of our architectural advantages. And I would say, I know that Steve Walters was there at our Investor Day and he outlined it pretty well that we are nowhere being done but we are also very well positioned to capture more and more digitization effort as well as security efforts among others.
Bradley Sills
Wonderful. Why don’t we shift to kind of go-to-market focus. Paul Smith at the analyst session, he talked about the focus on marquee accounts as an increasing focus as he’s been there, I think, two years now?
Chirantan Desai
Yes.
Bradley Sills
And he’s really.
Chirantan Desai
Yes, two years as a Chief Revenue Officer. Correct.
Bradley Sills
Right. And so it seems like it’s been a big focus for him.
Chirantan Desai
Yes.
Bradley Sills
At the Analyst Day, he mentioned 55 accounts that are — have greater than 20 million ACV and he’s identified 500 more that he thinks he can get there. So maybe just to start on kind of what’s behind that effort?, What does it take to for a customer to get to that level of spend? And how are you helping customers kind of move along that next cohort of customers to move along into that level?
Chirantan Desai
Yes, Brad. So I think it was Paul who created, I want to say about now 1.5 years or maybe close to two years ago, what we call some folks in our space, call it, strategic accounts, we call it marquee accounts. These are basically top 250 accounts where we feel that the size of the prize is north of $50 million ACV. I just want you to think about that. The size of the prize is north of $50 million ACV. Why do we believe that? So we have now a telecommunications company that spends north of $60 million for us. We have a hardware company that produces hardware and some software that spends north of $75 million a year with us. We have a care in health care, a company that spends north of $35 million with us, right? And these are flagship corporations, very big names who have gone wall to wall on ServiceNow started with maybe ITSM, moved to customer service, did some HR, did some procurement and links that. So what we have seen is our TAM in the top 100 telcos or even if you pick up 15 telcos or top 25 telcos is still immense. If we do the same thing with payers, still immense based on what we have seen in a couple of payers and same thing with some public sector customers, some hardware companies, software companies, some manufacturing companies are north of $50 million ACV for ServiceNow. So we know what great looks like. And if you then say, okay, what were the recipe of success for the customer using our products and for us to sell them those products, how can we now replicate that other 15 telcos? Even if we just took 15, what would it take? And that’s where our focus is. That here is what a great telecommunications company, a global company that uses ServiceNow and currently spending, say, $70 million a year, how can we get the other, even if you take T9, remaining nine telecommunications company, we know they can spend the same based on the use cases we have. So Paul and the team for this marquee accounts, top 250, there is an immense focus on how we serve them, how we sell to them, how we are strategic with them. how do we even nurture relationship at C-level to make sure that they understand the value ServiceNow provides efficiency automation, but it is a big focus. And we are seeing, as we revealed in our Q1, when you see that our $5 million deals, $10 million deals for new business continue to go up, including in our Q4, we had some very impressive numbers is because of those efforts.
Bradley Sills
And how much of this is a result of also the focus that you’ve all had in recent years on the SI channel. Global SIs have been increased focus here. I think seven of the top 10, you’ve talked about I think, multibillion dollar pipeline at this point. So how instrumental are they in this effort to really move customers into that kind of level of spend and identify the next areas to go for ServiceNow?
Chirantan Desai
I had one of the SIs tell me, Brad, at our Knowledge Conference that the opportunity because we do infrastructure and IT all the way to customer service or HR service and now ERP-related workflow around finance and supply chain. They are like, CJ, the opportunity we see for ServiceNow as the enterprise-wide workflow platform, whether it’s for telco, whether it’s for a health care company, whether it’s for a large public sector customers, say, in Australia, you have the early signs of becoming next Microsoft, given how pervasive this platform can expand into an enterprise. So SIs play a big role. We do not do — we do less than 6% to 7% of our own implementations. 93% of implementations are done by our SI community. And when they bring in ServiceNow, think about it, it’s very simple that if we are growing at 25%, they are all looking for growth. And when we sell $1 of license they can get $3, $4, sometimes $5 for implementation services. So ServiceNow is definitely growing organically on a single platform, very clean story. Once you understand how to implement one product, you know how to implement other products as well. and that is absolutely helping us our partner and channel ecosystem.
Bradley Sills
That’s great. It’s exciting. Thanks, CJ. Why don’t we, I guess, while we’re on the topic of go-to-market and partner channel, I know international has been an increased focus as well under Paul. So if you could talk a little bit about the effort there and what are you excited about in kind of the international geographies.
Chirantan Desai
Yes. So if I start at the core of it. ServiceNow still, and we are very focused on what we call when we say a number of customers, it’s customers’ headquarters. So we don’t count a subsidiary or wholly owned entity, all that rolls up to one headquarters, and we’ll just count that. So we have 8,000 plus customers, okay? We’ve 8,000 plus customers and our strike zone or comfort level, where it is worth selling to we have very simple parameters. So one, we do not do business in China. So we are currently international, but we don’t do business in China. Number two, we go after customers that are at least $100 million in revenue and 1,000 employees. So once you put that filter that you exclude China, $100 million in revenue, 1,000 employees, our TAM is somewhere around 30,000 customers. And we are currently in 8,000 plus. So first of all, we have 24,000 customers that can still become ServiceNow customers for the first time. And if you look at our cohort analysis, our IR team does a great job once we get a customer, whether we get it for $130,000, $150,000, $200,000 for a steal, they grow very, very nicely. And you will see that on our IR presentation consistently. So when you think about those numbers, 30,000, 8,000, not only we have opportunity for new logos, what we call new logos as in new accounts. Internationally, as well as still in Americas, including Canada and Latin America, we still have enough white space to go after new logos. And Paul has spent a lot of efforts to say how we can accelerate, which he touched on a little bit in the Financial Analyst Day to get higher number of new logos. And then second, our international accounts, yes, we do have some accounts in Europe in Germany, say, that are north of $25 million now. So how can we — coming back to the marquee point? And internationally, there are a lot more 10 million-plus accounts in the United States than they are in, say, Germany or UK versus, say, Australia. So we want to replicate that same rhythm we had in the United States for the last 10 years. Now also in Europe as well as in Australia. So we have been investing in our go-to-market efforts, our events in international.
Bradley Sills
That’s great. Why don’t we pivot to customer and employee. As you’ve expanded the platform outside of IT, we’ve seen the net new ACV as a percentage for customer and employee increase as a percentage of the new. Why don’t we just talk about just the key growth drivers. Those two categories are so broad and you’ve added so many different modules and applications over the years. Can you just help provide a little color on where are you seeing areas of strength within customer and then we could maybe dive into employee as well?
Chirantan Desai
Yes. So I would say ServiceNow, we have four key workflows by which we report to all of you in the investor community, which is technology workflow, employee workflow, customer workflow and creator workflow. The good news [Technical Difficulty] grow at 25% on this, is that every single workflow is growing in double-digits. So that is a great problem to have for somebody like me who decides with my team on where to invest in R&D and where we still see the TAM and expansion opportunities and so on. So I don’t have this issue, Brad, you’re very familiar with it. Oh, this particular thing has become a cash cow, let me take out R&D dollars and put in here. All four workflows continue to grow in double-digits, which is fantastic. Our technology workflow is still our core of the core. That’s where we started with ITSM. We crossed $1 billion many years ago and still growing. ITOM crossed $1 billion, still growing in double-digits. Customer service we announced it last year that crossed $1 billion. We announced Creator cross billion. So if you think about that, this organic innovation, that has crossed. Like just to put this in perspective, our customer service product line in 2016 was $10 million ARR. And in 2023, it crossed $1 billion. In seven years, organically grown product line with a very focused go-to-market that we had to build to sell to Chief Customer Officer in a competitive space. Yes, it has a large TAM, but seven years from $10 million to multiple orders of magnitude and still growing in double-digits. So the story of innovation and execution across this workflow is great. My point is on customer service, we are definitely seeing heavy traction in TMT, so telco, media tech, we are on the business-to-business side, we are on business-to-consumer side. We have started now breaking into insurance industry where we are in the claims process underwriting process where our workflows can be used for customer service. Our field service product is growing incredibly fast. And it’s not field service just for like a think about our telco, technician or your home cable and somebody comes in to fix your cable services. But even in health care, in manufacturing, our field service, even in retail, some of the customers are using our field service product. And we have created vertical flavors for our customer service product in global public sector, some of the large states in the United States, there is one state in the United States that has crossed $30 million of ACV with ServiceNow. I can imagine if we can do that even with 15 states here, right? And there are some states which are already north of $10 million for besides IT, direct to citizen. So one is US Federal, but there are 50-plus states, you look at Canada provinces, Australia states and so on in the UK, that’s where we see massive opportunity for customer service, field service. And for employees, we are the system of action. We work with all the HCMs that are out there. When we created that product line, a lot of people said, HCM is not going to allow you to be the system of engagement layer. And we said that’s fine, but we have a great system of engagement layer, and we do a lot of workflows because HCM at the end of the day is a system of record, not system of action. And now we are multi-hundred million dollar business just alongside of HCM providers, and still growing that business, HCM, what we call our HR service delivery. HR service delivery business is growing faster than all the HCM vendors and much faster than the entire HCM market. That’s because of the value we add.
Bradley Sills
That’s great. Well, maybe last one, since we haven’t touched on Creator, if you want to elaborate a little bit on where you see the opportunity there with some of the new offerings.
Chirantan Desai
Yes. I would say Creator and finance and supply chain workflow, we put in one bucket. Creator just a low-code platform that allows you to create any apps, and we only sell to the CIO. We don’t say I’m going to go to a department and you can create your own little app and this and that, we are more on governance and providing a low-code platform, I will never say no-code, low-code platform to create apps. That business, Creator, we have published our numbers strong double-digit growth on our creator business north of $1 billion and continue to grow. And on our finance and supply chain workflow, it’s a smaller product that we just released two years ago, we do procurement, specifically case management, procurement operations, supplier life cycle management. We just released accounts payable operation. So now we are trying to sell to the CFO and Chief Operating Officer and Chief Procurement Officer. That product line is growing in triple digits, albeit small numbers. But I’m confident that someday that also will become a $1 billion product line.
Bradley Sills
Awesome. We look forward to seeing how that unfolds. CJ, thank you so much. for joining us. Great discussion as always.
Chirantan Desai
Thank you. Appreciate it, Brad.