I don't think there's ever been a better time. I agree. Seriously. Outstanding. Thank you everyone for joining us. My name is Keith Weiss. I run the U.S. Software Research Franchise here at Morgan Stanley, and really pleased to have with us, CEO of ServiceNow, Bill McDermott. Bill, thank you for joining us. Thank you, Keith. Before we get started, for important disclosures, please see the Morgan Stanley Resource Disclosure website at www.morganstanley.com/researchdisclosures. As we were just chatting about, really fascinating time in software right now, and not to give you any pressure, but we had a best ideas panel on Monday, and I picked ServiceNow as my best idea. Right. You gotta, you gotta help me out here to make sure that we have some follow-through on that. I started out saying, like, "This is my 20th TMT conference, and I've never been more excited about software." It seems like you share the same view. Maybe you could talk to us about that big picture, what's getting you excited about this moment in time in software, and maybe bring us down to what you're seeing in the IT spending environment today and sort of the outlook for 2023. I think the big picture is software is the only way forward. It's the deflationary force, it's the only way to retool a company and do so in an environment where you're expected to have less head count, not more, and it's the only way to rethink experiences. Okay. Whether those experiences are with your employees or your customers, this is the elixir for getting there. The one big change that I would just tell you is the move is not so much for operating systems or databases or obviously on-premise software, even if it's being co-located in someone else's cloud. I think it's really time for end-to-end digital transformation. If we were your big idea, Keith, I think that's probably because you know it's a platform game now. To have an intelligent platform for end-to-end digital transformation is the big idea. We built it organically. It's one platform, one architecture, one data model, and so the productivity and the speed and the complex things we can handle are pretty unique. Right. There's multiple reasons it was my best idea, and we're gonna go through some of them. Part of it's the business model. Sure. ServiceNow has been great. Part of it is you've been able to sustain demand really well, even through a tough environment. There's definitely a part of it that I think there's a interesting play for AI. Right. And generative AI. You guys have made some significant investments here. You've made some acquisitions. Could you just talk to us about how AI is playing out in your portfolio today, and then as we sort of look forward to what's going on in generative AI and some of these large language models, how that's gonna further extend what you're doing? We're big on AI. We're big on generative AI. We do think this is a transformational moment. I know the hype cycle is high right now, but it's absolutely a transformational moment. When you think about, you know, Netflix as an example, getting its first million users in 3.5 years, and Twitter doing it in two years, and ChatGPT doing it in five days, you know, something's going on out there. The question is, what can we do at ServiceNow in the enterprise to completely rethink the enterprise? Right. We're making a release on March 22nd. We call it our Utah release, and already we're big innovators in AI. If you think about process optimization built into the platform, if you think about search, if you think about Virtual Agent, if you think about transforming the employee experience or the customer experience or even the creator experience, where you can go from text to code or text to workflow, these are all areas in which ServiceNow intends to completely transform enterprise business. Right. One of the concerns I hear from investors when it comes to generative AI is, as more and more of this gets automated. Mm. ServiceNow has traditionally been a seat-based business. If the process of IT helpdesk and ITSM becomes more and more automated, is that gonna mean less seats and make it harder for you guys to monetize? Not at all. I mean, first of all, you have to deal with everything as it relates to the cycle of innovation. We're in the early days. The CEO meeting now with the CTO right next to her is all about, how do I get more margin performance and more leverage out of my business model? My shareholders are expecting me to perform well, even though I might be, depending on the industry, in an environment with scarce revenue. Okay. Difficulties in supply chains, and you know all the capital market structures they're dealing with. They're looking for answers. That's why our business is so exciting right now. They need us. Right now, they're basically saying, "How do I not add head count," or, "How do I reduce head count but still get more productivity. Okay. Out of my human capital. In there lies the power of the Now Platform. It also drives AI. For a long time, you're not gonna have any issues on a seat-based pricing basis. Also, don't forget, you can look at this as a Pro SKU. The more AI innovation that you put into the platform. Keep in mind, this platform has RPA, it has process mining, it has machine learning, it has AI. The more you put into the platform, the more pricing power that you have, especially when you think about our Pro SKUs. Together, we're thinking about new innovations and new pricing models, and it might be an entirely different SKU, which gives you yet a net new opportunity to make even more money for the shareholders. That is all on the table as we speak. Got it. I think that's one of the concerns for investors that, particularly in terms of the hype cycle, that AI has been infusing applications for a long time. Right. I would say the bear case is almost like Einstein from Salesforce or Sensei from Adobe, where it's just part of the functionality, doesn't get priced separately. Yeah. You guys have been successful of actually being able to monetize those AI innovations. Yeah, I think the reason is, you know, again, I go back to the platform. You know, what is the big story with the platform? You know, if you look at the, you know, the era of, let's say, you know, 2008. You all remember, you know, that financial crisis. That is when the SaaS platform rage took off because now people had to do more with less, and they were optimizing at a line of business level, and the CEO basically said, "If you're the HR, You're the head of HR, just take care of the people, and if you can rent it in the cloud, do it," because OpEx was plentiful and CapEx was real tight. The environment that we're in now is IT spending is predicted to go up 5% this year, software spending, software as a service spending, is predicted to go up 15%. Within the realm of SaaS players, there's only one that has an end-to-end platform that's intelligent for digital transformation. End-to-end, what does that mean? That means the IT backbone has now become the driver of the company strategy. Why is that? Because you have to manage your assets, you have to manage your operations, you have to think about risk, you have to think about security, and you have to basically service the business. Well, what is the business? The business is composed of a lot of people, and they're working in a hybrid world. By the way, that's not a debate on whether you come back to the office or you don't. You have to service the employee no matter where they are under any conditions. Yeah. Especially coming out of a three-year COVID cycle, companies have to be digitized with the employee experience, so they're all fighting for that. Look, if you're the employee, you wanna be able to search things, you wanna be able to work with a Virtual Agent, you want all your services on the mobile. You don't have to call up the HR department and wait on an 800 line. Those days are gone. Yeah. The employee experience is something from our recruiting, onboarding, training, providing all the services, and doing it at an exemplar level that we're world-class at. That's a platform game. I took the IT backbone, and now I transform the employee relationship. Let's not stop there. Let's now talk about the customer and how you're going to service the customer. If you look at any large retailer today, anyone, their direct to consumer business is all that's on their mind. That's where the margins are, that's where the customer sat is, that's where the best buying behavior is, that's where they want to be. We do that at an exemplar level. You think about, "Well, wait a minute, man. What about the mid-office and the back office?". I gotta get a right product at the right price and the right form factor, and if something goes awry, I have to, in the workflow, be able to automate returns or all the things that drive customer satisfaction and loyalty. Who's gonna do that? People, and they're in call centers, and they're working the phones, and they're doing a lot to make sure that promise that was made at the point- of- sale is kept. You have to transform that, and the way to do that is to fully automate it. Why are we competitively advantaged? We know the whole life cycle of that customer relationship because we have the IT backbone. Now I can go into not only the front office, but I can go into the mid-office and the office and the back office to create customer satisfaction, loyalty, and growth. Finally, and keep this in mind, yesterday I was working with one of the largest logistics companies in the world, and in this conversation, we got into all the complexities of that business. The places where ServiceNow was with ITSM, we're already optimizing the process. We're already doing the things I just said. There's other parts of their core business where we're not. Yeah. I can take the Now Platform, throw it at non-ServiceNow places, use the process optimization and the AI today to basically tell them, "This is where the process is broken. This is where we can automate the workflow. This is where you can take cost out, and we're ready to hit the ground running." We don't need six months of a consultant study to figure it out. It takes about six minutes with a business analyst. That's the difference, and it's all on the same platform. It's an amazing expanse of sort of the opportunity that has been built out of ServiceNow. What's so fascinating to me is I remember, like, over a decade ago, sitting in Fred Luddy's office. Yeah. And he's talking to me about, "Listen, this isn't ITSM. This is a broader kind of workflow solution. We're going to automate the entire enterprise." I'm looking at my notes, I mean, what's he talking about? This isn't like an ITSM play. What was it about that core technology? What was it about that platform that gives you entree across the entire organization? Yeah. Fred, first of all, you know, you gotta give it to Fred. We're so proud to have our great founder also on our board, and such a great friend of mine personally and our company's. It's just an honor to work with him. His broad vision was there day one. Yeah. It just so happened that the technical people understood it and the business people didn't yet, because it's not easy to explain that you can completely reinvent the business processes of an enterprise on one platform, and you can do it seamlessly by composing workflows that enable people to do their job better, make their life a little bit easier, give them a little bit more productivity. Back in that day, you know, you were coming off of, like, the heavy enterprise resource planning kind of apps. Right. To have something that's so lightweight, in the cloud, so easy to use, at a consumer grade, it took a while for people to digest it. I can actually remember, you know, working for another software company, being in a boardroom once, and someone saying, is it CRM? I don't know if it's CRM. Is it like HR? No, I don't know if it's HR. We know it's IT. I heard people write apps on it. No kidding. It does all that? It was, like, this thing that just got into these enterprises, and people started building on it. They were reinventing the employee experience. They were doing different things for the customer relationship. The IT was well known and obviously expanded. It was just growing because it's a platform that people love to use and innovate on, and it was a well-kept secret for a long time. You know, in my former job, it wasn't a well-kept secret to me because I knew I needed to transform the way I was running my IT operations across an entire 100,000 person company, and I used it. You know, I paid for it 'cause I knew it was gonna give me a big ROI. It really works. Yeah. You, you got a great advocate in the CIO in these organizations, and that's one of the things that always came through in the ServiceNow story is how strong of a advocate the CIO was and their ability to expand you out. I wanna dig into some of the individual kind of product categories and starting with IT workflows and really from, I would say, day one, like, after the IPO, people were worried about is ITSM fully penetrated? Is there still more room to go? You guys have been able to expand that category, and now you've really expanded the vision of what you're looking to do in IT workflows. Can you talk a little bit about sort of what the acquisitions of, like, Lightstep and Era Software bring to the equation and really expanding out what you guys can do in those IT workflows? Yeah, sure. If you look at IT workflows, first of all, there's huge growth left in IT workflows, and I think a lot of people didn't realize when they first looked at ServiceNow when it first went public that the TAM was a $200 billion TAM. Nobody would've told you that then. They would've told you it was a substantially smaller TAM. Again, the IT strategy has become the business strategy, and the expansion of IT is amazing. If you look at asset management, operations management, security, risk, governance, all the things that we do on an end-to-end basis play also in this observability space. Right. What we did with Lightstep, and obviously the tuck-in that we did into Lightstep, was always designed to take metrics, traces, and logs and compose it into the workflow automation platform of ServiceNow so you could have an end-to-end experience. If there's an issue that a customer needs to be mindful of, they have one user experience across the whole platform, and you can use AI and all the trigger points of our workflow automation to immediately zero in on what the problem is. What's cool about it is you have our platform as the control tower for digital transformation. It doesn't mean you don't have other solutions in the enterprise, but there's so much clunkiness, data challenges, and user experience problems that one dashboard with one control tower is now becoming a prevailing theme, and that's stretching IT to totally new dimensions. Keith, one thing, if I may, if you think about the ERP space, there's many companies now using ServiceNow to conquer some of the problems that have really been problematic in the ERP space for a long time. Think about procurement. Think about accounting. Think about financial management. Think about risk and security and controls and governance and ESG. These are all things we're doing on the platform. We have one very large manufacturing company that is actually using ServiceNow as the front end for all their accounting globally, and that doesn't mean they're never gonna upgrade their ERP, and even if they do upgrade the ERP, they're still gonna use us as that standard user interface for all their accounting procedures, and they're taking huge costs out of the business. Same thing could be true with supply chain. Right. Reorienting supply chains on the fly in 100 days instead of five years. All this is happening in ServiceNow, and people are like, "I didn't know you did that. You do that?" I was at an unbelievable conference in Laguna Beach, California, where I was on stage with another executive who runs a huge pharmaceutical company, and we were speaking at the Black Corporate Conference in Laguna Beach. I explained that we're very intentional with our procurement procedures, and we think minority and women-owned businesses are extremely important to the sustenance of a great company. We moved our spend to 16% of our entire spend almost overnight. "How did you do that? The average company is 2%-3%. How'd you go to 16?" We did it with the Now Platform. If I tried to change all that messy complexity, I would've never got anything done. That's why we run the whole company on ServiceNow. I can then tailor the ecosystem I wanna do business with and the procurement rules that I put into the workflow the way I wanna do it because of the outcome I'm trying to get. That's the way well-run businesses are moving now. They don't have time for the drawn-out, long, time-consuming, risky, expensive game anymore. Okay. It kinda comes down to the principle. If you, if you wanna manage something, if you wanna optimize something, you have to have the data about it, and that data now exists in the Now Platform. Exactly. If the data exists somewhere else, you can put it into the Now Platform and utilize that for the purpose that you intend the data to be used for. It's your data. Right. It's the customer's data. Got it. Two more tactical questions on IT workflows. One on the premium SKU. Mm-hmm. Can you remind us where we are in terms of penetration of premium SKUs and kind of where can that go over time? How much of a latent opportunity or, 'cause it's further opportunity is that? Yeah, I mean, if you look at the IT world alone, you're probably 25% penetrated in the IT world on it, you got another 75% there. On the employee, the customer, the creator, we're just getting started. Okay. It's de minimis what we have compared to what we will have. The more innovation you put into the platform, the more value you bring to the customer, the more value-based outcome you drive, the more legitimate pricing power that you have, because you're just taking a piece of the action. There's plenty of action. Right. The focus of ServiceNow for a long time has been large enterprises, G2K type customers. How do you think about the opportunity in the mid-market? Does the value proposition of ServiceNow resonate as well in the mid-market? Is it as differentiator? Do you compete as effectively in that mid-market space? Yeah. I think that's a real opportunity for us because we haven't really focused outside the top 2,000 companies in the world the way we can. I would say there's two things that we're doing about that. One, we're actually doubling down on the Global 2000 because there's so much left to go for ServiceNow in all the domains that I explained today. By the way, that's geographically, that's by industry, that's by persona. Much room to run. In the lower, or mid-market, I wouldn't spend too much time on that, but the upper mid-market, where you have, let's say, 500, 1,000 employees to 5,000, we're working on lightweight models, also initiating our partners, especially by industry, to compose ready-to-run solutions where you can actually use inside sales, self-service, and you can really make it easy for customers to consume the innovation, the value of the Now Platform. So it's not like the Platform doesn't serve mid-market customers. It does. It's just that we didn't have to dig deep in the past, and still, we wouldn't have to achieve our goals, but it's upside. Okay. Got it. I wanna switch gears to customer and employee workflows, and really a go-to-market question for you. Yeah. You have a tremendously effective sales motion and sales force that sells into the IT department. Right. Has tremendous domain expertise on organizing that IT department. Like, isn't it an add-on sales force to get into customer workflows and another sales force to get into GRC, or is it leverageable? Like, how do you expand and be able to sell effectively into all these different parts of the business? Yeah. It's absolutely expandable. The reason it's expandable is 'cause we're a platform company. We didn't have one thing, and then we bought a whole bunch of companies to compose different things, and those things are so specialized that the generalists would never get it. We're not that, and we can be very lightweight on the specialization of these high-value employee-customer service or creator kinds of things because they're not that complicated on the Now Platform. The ratios that we would have of experts to generalists is much lower than any other company. As we more and more educate and teach and role model and certify our own workforce and our customers and our partners, I think the lightweight nature of our sales force will be a sensation. We came up with this concept of RiseUp with ServiceNow to initiate 1 million fully trained, capable, certified people in the ecosystem of ServiceNow. We're up to 225,000 since we announced it, by the way. The idea here is to expand the brand and the platform worldwide with people that are beholden to the platform and can make their livelihood on the platform because they're experts. That education is the key to unlocking productivity and the upside of less labor in the sales and marketing cost line to get you more revenue, and we're working on it. Okay. Can I push you a little bit on that one? Sure. One of the concerns is, within sort of the IT workflows, you went after some legacy vendors who just were really flat-footed, right? Yeah. They didn't respond very effectively. Now you're going into CRM, right? Salesforce is a cloud-based company, and they're effective, and you're going into HR onboarding, and Workday, they're pretty effective in that space. Like, it would seem like the cost to book has got to be higher. Like, the margin profile going into these adjacencies that are more competitive has got to put some pressure on operating margins. First of all, we have no quarrel with any of these companies that you mentioned, Keith. On the contrary, these systems of record will all work a lot better, and their sales, customer satisfaction, and loyalty will increase by a factor of a lot by just partnering with ServiceNow and recognizing that you're not gonna stop ServiceNow because the experience ServiceNow gives is the one the customer wants. We can team up with any of these systems of record. We are not trying to replace them. On the contrary, we understand them, we integrate well with them, and we can make them look good, and our go-in position is not to replace any of them, and that's the unique part of ServiceNow. We're not against anybody. We're for the customer, and that experience at a consumer-grade level is what differentiates us. You're still gonna need to do payroll on one of those HR systems. Cool. You should do it. When you wanna recruit, hire, onboard, train, provide all the services at the touch of a button, have Virtual Agents and search that's AI-enabled at a GPT level, you're gonna want ServiceNow. On a customer service side, you know, maybe if you wanna upsell and cross-sell and do marketing 360 on an existing customer, that game's already been played, and maybe there's somebody you'd rather do business with, or you've already done business with them. That's great. Your big problem is your mid-office and your back office. We just had one customer go live with 55,000 agents. Who would have thought that ServiceNow was running call centers with 55,000 agents? I saw the CEO at one of the conferences in New York City last week. I said, "Hey, you know, we were in a boardroom a couple of weeks ago, and you went live with 55,000 of your agents on our platform." I was watching it as the board meeting was going on, and I was like, "You guys better get this right." You know, text and calls and everything, and they go light, everything is green. CEO goes to me, "Bill, I didn't even know it." I said, "That's right. You should never know it. You could go after these opportunities without any compressive impacts on the margins? Absolutely. Got it. The reason for that is if you look at our Customer Service Management in one respect, the competitor that you mentioned that's well-known in that category, their former platform leader is at ServiceNow. Their top apps guy is at ServiceNow. Their top AI guy is at ServiceNow. We knew we had a good thing, but what you learn is the best technical people in the world that understand the winning formula, they're at ServiceNow. We didn't have to recruit them. That's super cool for our customers because they can come to an EBC and meet with executives or engineers. They don't have to wait for the AE to come in with the busload of specialists to tell them about 40 different things that we picked up. Whether we paid too much for them or not, we bought them, 'cause we built it all. If we did do a tuck-in, we recoded it to the Now Platform, so there was never any tech debt in the first place. Okay. That's our brand promise. Got it. I wanna shift gears and talk a little bit about go-to-market and particularly sort of the partner build that happened. I remember, like, this was pre-COVID, probably 2019. I was at a competitor's conference and talking to Accenture, right? Right. The guy who's in charge of his big cloud bets. Yeah We have five cloud bets. There's Microsoft, SAP, and Oracle, Workday, and Salesforce. Right. I asked him, "Where's ServiceNow? Like, why is ServiceNow not on that list?" He said, "They're an IT play. It's not an enterprise-wide play." You came in and changed. Is he still there? You let me know. You came in and changed that. From the get-go, you pointed that out as one of the opportunities, to get the global systems integrators more on board. If you could talk about, like, one, how you did that, and two, what are the impacts of sort of that initiative? Yeah, I mean, it was really easy because when I'm here four years now. I don't know where that went. In year four, I first came in and wanted to meet the top 100 customers globally, so I went on a 100-day roadshow, and I met 100 different customers globally. I met every single employee in the company face to face and met every partner. Every big partner was very kind. They mostly came to Santa Clara, where we're headquartered. They would come in the room with a whole bunch of people, and they'd sit down at the table, and they'd say, "Yeah, you know, we're gonna go get 'em, tiger, and, you know, we think we can get, like, you know, an incremental $100 million over the next 20 years." I'm like, "You know, I just wanna help you out here. Like, just lose those slides because they don't have enough zeros on them." What we're gonna do is be the defining enterprise software company in the 21st century, and we're not gonna do it at the expense of any of your other practices. You're entitled to all those good relationships, and they should make money on all those relationships, and those customers do need to be serviced, and I hope those practices grow, too. We're talking about an entirely different concept of intelligent end-to-end digital transformation, and it starts with IT, but it expands to all these other personas, and it goes across all these industries, and there's so many untapped geographies for ServiceNow that I kindly ask you to rethink this and come back with a billion-dollar plan because we wanna make big bets with big partners that wanna talk billions, not millions. Now we have nine out of 10 of the biggest partners in the world with a $1 billion or more plan, and some of them up to $5 billion. That's what I mean about the breadth and depth of the defining enterprise software company of the 21st century. We can't do it all alone, and I don't wanna waste my time telling people they didn't do a good decision with the participants in the marketplace. I wanna make those decisions work better for them. That's why we don't compete against them. I don't wanna replace them. I don't even wanna say bad things or get into the old skirmishes of the 90s because it doesn't matter anymore. Intelligent digital transformation has superseded the importance of what those things are doing. We need to be talking about helping these companies to new frontiers. Outstanding. Unfortunately, that takes us to the end of our allotted time slot. Bill, thank you so much for joining me. That went fast. It went super fast. Wow. I loved being with you. I hope you learned a little bit about ServiceNow. Thank you very much. Take care. Thank you, team. Okay. Appreciate you coming.