Interview Transcript

Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

As an investor, I have looked at companies in the past that have tried to do what ServiceNow has been doing, and my interest is in you as a practitioner.

ServiceNow tells this story about workflows – that is their marketing lingo – but I would like to understand what that means to you. Why would you use ServiceNow over the competing solution? What is the value add from implementing ServiceNow and how pervasive is that with a new organization, in terms of applications that are delivered to internal or external end users?

There are two sides to this question, the first is ITOM or IT Operations Management focus, which is the early part of my career I was talking about; the discovery, mapping, CMDB and understanding your application and infrastructure landscape. ServiceNow plays in that space and have many tools, offerings and products that they try to solution for that side of the house. The second is the internal processes for employee support, which is what I have focused on at Wayfair and where I will go into many aspects of where the value is.

But first to touch on the ITOM side where they are also succeeding well. With ITOM, ServiceNow 10 years ago was focused on CMDB and having all your infrastructure cataloged and organized within the tool so that you could use it for other IT processes, such as raising a change request and understanding the infrastructure which could be impacted. If something goes wrong, you know how to stack trace it and say where did this change originate and how do we revert back to where we used to be so that things are working again while we resolve whatever broke our machinery? That is where they traditionally played and there wasn't much competition in that space at the time. There was competition but they weren't at the same value statement level that ServiceNow was delivering.

Competitors have caught up in that space and the CMDB has become less important in the landscape of ITOM, because of the surgence of other tools like Datadog, PagerDuty and even Jira in that space. The ITOM space has switched to a DevOps focus, which is less about infrastructure and more about how quickly I can speed up a developer's output. They focus on the individual developer and say they can push X lines of code every week which is their velocity. My velocity is 300 lines of code per week but how could I get them to push 600 by working more. They are succeeding in that space because of the implementation partners they have fostered.

The most critical part of ServiceNow's success is the community that they built around their tool. They have a forum where many participants talk about solutions they have built or problems they have. From that forum they have conferences, road shows and interactive workshops. They source from their community and build content around it for implementation partners. I know people who left Wayfair to become a ServiceNow implementation partner, and have become very successful and grown quickly in the DevOps space. There is a long runway for ServiceNow in the DevOps space because of the flexibility of the tool, integration capabilities with their APIs and configuration capabilities.

They rolled out a new tool called IntegrationHub which comes with pre-built spokes, which is simply a technical word for pre-built integrations. If you want to use IntegrationHub and you have WorkDay and ServiceNow, they give you these out-of-box integration so you no longer have to spend development time. That is the value they are building with the integration in the employee support space, but that also bleeds into the ITOM DevOps space. They integrate with Terraform, Datadog, SSCM and all the other configuration or alert management tools you can think of. They ensure they have relationships with the people and that those integrations are always ready for you to work on. The journey ServiceNow as a product is going on, is a low code, no code journey. Have you heard of that?

Yes.

That is not simply marketing, it is iterative releases of a product where they bring out new features which are very heavy on the code side and are less about the interface and configuration options. You need someone who understands both the back and front end to implement that technology. Several versions later, it will have a completely different interface and will be configurable requiring a system administrator with less skills and lower wages, and who can do the same thing a highly skilled worker did several years ago, in less time because they configure rather than code.

That code, low code, no code journey is very helpful when you are recruiting and trying to sell the tool. We have created a citizen developer contingent within Wayfair, which we didn't have at Dell EMC. We had programming-oriented people say they would like to control their destiny and not wait for timelines and build in ServiceNow, and we facilitated that at Dell. Wayfair have a citizen developer program where our developers moonlight as consultants part time, training computer science-oriented folks to build things in ServiceNow. That citizen developer program takes technically minded people and gives them all the tools. You can code, do configuration and do no code things, but it also allows us to go to organizations within the employee support space like our talent partners, who are traditionally not technically oriented, and push out the realm of responsibility for maintaining, which is the most cost sink.

When building products, maintaining a solution is where you put all your money after you build it and after the capex project cost, to support that tool. If you give that support to people who cost less than developers on the ServiceNow platform, you save money and shift responsibilities. ServiceNow gives you tools to monitor and control that experience with the roles and access a person has in the tool, all while sitting from behind this administrator wall and not worrying that the tool will be taken down from an errant keystroke from someone who doesn't know what they're doing. That journey is extremely powerful to help us push out responsibility from small to medium sized teams to our business partners, where they feel empowered to own their space and come up with new ideas to iterate on their user experience.

The hard thing about having a ServiceNow team is that you and your partner care about the user experience, but you may not be able to talk, understand or know the same things, and what you put into production is a combination. If you take out the person who builds it from being from a different team and you have all the knowledge of what the user experience is and what you want it to be and you can build it, our talent partners are happier with that. That way, they don't bug our engineering team to update a form which is small potatoes. Spend your own time doing that and we will spend a month training someone who will train their partners, and it is simple enough to understand.

That is an extremely powerful part of ServiceNow and Jira, which also has a footprint in Wayfair, where it is primarily used for DevOps. Wayfair chose not to go with ServiceNow for DevOps due to political reasons. Jira is configurable for the end user and is a strong competitor to ServiceNow in several ways. Jira is cheaper but you get what you pay for. If you are a small to medium shop, I could see you having a use case to buy Jira and dealing with all the issues and support costs, then grow out of it and move to ServiceNow as your company scales. Any Fortune 500 cannot use Jira for workflow management as it neither user configurable nor user friendly.

ServiceNow ties everything in with their service which is their Amazon store front for any internal services you want to consume. An example would be submitting a form and having the workflow do the work for getting that request to the teams to fulfill it. I would invest in Jira and ServiceNow because they both operate in the same space successfully. Jira is a lower cost option and is younger than ServiceNow, so it is not as polished. I would not recommend it for Wayfair because it simply does not scale. It is harder to administer, change and integrate, which is ServiceNow's main selling point as an administrator, because when you have a tool that grows in popularity, everyone wants to submit data to or take data from you. You only have to worry about the other tool because ServiceNow integrates with everything.

When you say that to people, they come back asking why they use this other tool and if there is an offering from ServiceNow which will replace their current tool. That is the journey happening at Wayfair with the immaturity we started at, going across the business partners identifying home grown tools, processes and third-party tools to integrate with ServiceNow, which is always working on taking ownership of the employee support space. An example of that is when Amazon sells a third-party coat, then develop a better coat and sell it for cheaper on their own store. That is what ServiceNow is doing. Nuvolo does facility space management so you can make desk reservations in an office and someone else can sit at that desk the next day if they reserve that space. They have functionality to handle space and work orders. If your refrigerator is broken you can scan a QR code and submit a work order.

ServiceNow evaluated and almost purchased Nuvolo. They invested in the company, started to see facilities management take off, in terms of revenue and market share, and are now developing their own option for facilities management. I am already offering it to my stakeholders even though I know we have a two-year contract with Nuvolo. ServiceNow is developing their own option and it will make it a lot easier if everything is already in one tool. I am selling Nuvolo because it's easier as an administrator and our business partners trust us. The fact that ServiceNow is branching out from its traditional ITSM landscape and going into tangential areas will help them sell because integrations are the largest cost for support and building. If you don't have to integrate with other tools because everything is within the same environment, you save money off the bat.

In six months when you ask me to cross this data with that data, it will only take me a week, versus three months when the tools are separated. The value compounds as you onboard more products, which is what Wayfair has realized and why the momentum of this tool has taken off on the employee support side. When I joined Wayfair three years ago, only IT were using it. Now we have talent, procurement, legal, facilities and finance, all using the product because we have convinced them of the value the engineering team can deliver and the product has in terms of the low code, no code.

This has been very helpful as an overview. I appreciate you talking about it because it has given me a good view of the capabilities of ServiceNow's platform. In the past, multiple tools were used within an organization and they were all disparate. There were attempts to connect them by companies like TIBCO and webMethods who made connectors, but those were the analogs for what ServiceNow did better later on. Those point-to-point connections between various systems often broke and were expensive to maintain. ServiceNow has created a scalable platform whereas those guys never did, and the scalability comes from it building integrations.

Correct me if I am wrong, I would love to hear your thoughts on why ServiceNow is more scalable and a better integration platform than the historical tools. I understand it is a combination of being based in the cloud, so you update your integrations with other platforms once, as they change or upgrade, rather than on a customer-by-customer basis upgrading the connectors between disparate systems. The entire value for ServiceNow comes from that IntegrationHub, which is hard to recreate for another solution because it takes time and scale. Once it is built out and has many customers using the solution, other systems are responsive to you because you have a large base of mutual customers. Does that sound right?

Yes, you hit the nail on the head. IntegrationHub is an attempt to mitigate bad communication that trickles down, from individual companies who produce the tools, to the teams who support them in-house. With IntegrationHub, you have a sense of control and with integrations you have a point A and B at the most simplest integration. You could have points C, D and E but between point A and B, an integration is a transfer of data via a structure. You build JSON structure which maps out the field structure, then parse that out on the other side, like reading book paragraphs; that is the paragraph structure of a JSON file, and you can parse that data between tools. That is an API and how integrations are based today.

The control that IntegrationHub gives you is about what you said, the relationships they have with the owners of these tools and the care they take to consistently update them for the end user. A current real-life integration we have is between ServiceNow and Greenhouse, which is an application tracking system for onboarding new hires to a company. Our integration pulls in new hires as soon as they accept their offer for Wayfair, populates them in a new hire table in ServiceNow and allows us to start our onboarding process for HR, IT and facilities. The manager orders the laptop, selects a desk for them and ensures all their HR docs are signed.

The tooling team who own that within Wayfair do not tell us when they upgrade to the latest version of Greenhouse, so our integration breaks and new hires stop flowing into ServiceNow. Then we create an incident which we resolve by meeting the team to understanding and implement the change on our side. All that costs time and money and is unnecessary because it is a result of bad communication from the tool to the other tool owners in your integration. The IntegrationHub avoids that by keeping that parity, so when a change happens in Greenhouse, it understands how it will affect the ServiceNow integration, so it will update the ServiceNow integration and push it out to the users as soon as it is available.

That way, if they upgrade Greenhouse, all they need to do is upgrade this integration so that it's consistent with the latest version of that tool. That gives you foresight and helps keep parity and avoid the bad communication problem. IntegrationHub is a powerful tool for that reason and we were easily able to sell the standard version internally, because even in a tech company like Wayfair, who pride themselves of being a tech company first and an ecommerce company second, integrations break frequently. People miscommunicate regularly so you cannot avoid that bad communication problem regardless of what structure or incentives you have. ServiceNow takes away that responsibility from administrators who are over worked, so this is one less thing for them to worry about. They can use their time more efficiently by purchasing IntegrationHub, which is simply layered on the base product. They are effectively separating out functionality and charging for those products, IntegrationHub being one of them.

They also scale it to different levels of service. We have the standard but are already being sold on the enterprise level two levels above. They are adding new tools and endpoints within all their service layers. We are eyeballing enterprise level for the WorkDay integrations because we have a talent use case which will cut down on our support costs over the long term. We are in with ServiceNow for the foreseeable future and have no plans to move away from it.

How difficult is it to move away if you wanted to and why would you?

We would move away from a tool if someone made a use case where we could spend less money and deliver the same quality of service. Jira tried to do that and we had a debate a year ago about Jira or ServiceNow in the DevOps space. The product lead for Jira claimed they could deliver it at a lower cost with the same quality, but we have learned over the past year that the cost was the same as ServiceNow because they elected the cheapest option, which is similar to flying with Ryanair or JetBlue. You don't get many of the bonus items or the things required to run the tool, which causes outages.

At Wayfair we have at least an outage every other month because we manage it on our own infrastructure. That never goes well so we will soon purchase the cloud option to get more consistency. It costs the same as ServiceNow, so that cheaper selling point proved false, but they did deliver a quality solution for the user at the end of the day. Jira has its merits, but the only reason someone would sell it over ServiceNow is that it could cost less. While ServiceNow are doing a good job breaking out their products and selling them, for people like me who have been with the company since the Berlin/Calgary days in 2013, it feels like nickel and diming, because we used to get new functionality at no charge.

When Bill McDermott arrived, they introduced a lite version of a product, then a standard version which we used to get for free, but they now charge for. ServiceNow is bloating their corporate spend with you, but at the end of the day, the value and compound interest I mentioned earlier, outweighs that bloating of cost because people realize the long-term cost of maintaining, supporting and engineering. The low code, no code journey counteracts the approach they are using to inflate their revenues.

At what point do customers get pissed off with pricing and look elsewhere? Are we far away from that or is it closer in style to someone like Oracle?

The cost is usually a turn off early in the journey when evaluating to use that tool. The sticker shock will make you choose another product earlier on rather than ServiceNow. Switching costs of getting off ServiceNow depends on your current implementation. If you only have IT implemented, you can look at a cheaper standalone tool, but if you have an implementation like we have at Wayfair, where we have seven different business units, you have to find seven different tools to replace ServiceNow and calculate the cost of maintaining those relationships and integrations. It is difficult to give a straight answer without having more information on the implementation.

For many years, I have heard both the low code, no code business users trading their own applications for something easier to build with no technical background; it was a pipe dream but it seems to be a reality with ServiceNow and its IntegrationHub. Is that what I am hearing from you?

The low code, no code players are thriving building dynamic forms to intake data. No longer do they have to use Google Sheets or spreadsheets or worry about permissioning; they can build a form that can intake data and put it to a queue or send an email notification of a new ticket. They can build reporting and dashboards for teams to check. We have a visual task board which helps move work between open, work in progress and done lanes. The latest offering ServiceNow pushed out was Flow Designer, an improvement on their Workflow Editor application, which was more of a code, low code approach. There are configuration options but most of it has to be done in JavaScript, to automate decisions within a particular process. That could be based on the form entry, sending different notifications based on form input, or it could kick off an automation process or update a table record.

Flow Designer is their approach to make that more low code, no code. It is brand new and there are some light bugs you would expect with any new product, but within five years, Flow Designer will allow administrators to push more responsibility to end users to automate their end-to-end process. Right now, they can only do the beginning and end of the process, which is build the form, take in the work, find and complete it. The in between stages where they meet with people on our team to translate the requirements into something a developer will automate for you, is something you will start to see shift towards business partners as Flow Designer becomes more user friendly. IntegrationHub came out two years ago, so those products are in their infancy and have yet to get to the point where business partners feel even more empowered to control their end-to-end process.

Is the back end of Flow Designer similar to robotic process automation where you use some intelligence in the back end which is aware of the systems the user is trying to interact with, then offers those up as pre-built options?

It is similar in the sense that you have an interface where you take in a trigger and configure an action to occur. The Flow Designer interface consists of drop downs so you are clicking around rather than coding, but you are still able to open and update records or send data through an integration. You can set up all those triggers and actions from Flow Designer. Have you ever used a workflow diagram like Mira or Lucid Charts for setting up a workflow and you have the diamond boxes for decisions and the circles for events, have you ever done that?

No, I have not.

What about on a whiteboard when you are talking about strategy?

Yes, I have done that.

It is similar in terms of you need an action to happen. There is a drop-down list of actions, such as create a notification for example, which you can drag to create a notification on the screen, tag who should be updated and do it when something happens. All of that is very achievable for someone intimate with the data, but not with developing in ServiceNow. If you know your data and are in the HR space, you can build your workflow with Flow Designer.

Obviously, the IT organization has to bring Flow Designer to the business partners because you need to configure the data sources behind it, or is automated because you may have IntegrationHub in the background?

I would not allow a citizen developer to build an integration unsupervised in the same way that I would a talent business partner. There are some tools on the platform for administrators and developers, but the developer would either have to bring the data locally via an integration or a data grab, or they would have to be part of that implementation within the flow, to set up the integration when they deemed it appropriate. You still cannot interact with data off platform withing Flow Designer, even with the advanced capabilities, unless you have access to that data. That definitely precludes working with Flow Designer.

This is a good segue into workflows because my view of how it all works may be too simplistic. I think of the core value of ServiceNow as being an enterprise bus which connects to different data sources and systems to generate records?

Yes.

They are often disparate systems, but here you have this bus that connects data sources, the value of which is not dealing with miscommunications between work groups and systems. On the other hand, when ServiceNow talks about the power of workflows, it is obvious to some degree but when you understand how it works, it feels like they are nickel and diming you for different pieces or modules which used to be included. I think of it as canned scripts which take advantage of IntegrationHub or the enterprise bus. Either your IT team can create workflows for onboarding or you can use a third party like Greenhouse, but eventually low code, no code allows business partners within your company to build workflows, but they still have to support and maintain it.

When I think about some of ServiceNow's workflow applications, it sounds to me like either you can build it in-house and support it or they can pre-build it for you and support it. These are used across many enterprises, but it leverages the integrations and the fact that the core platform is already in the customer's enterprise and connected. They are simply selling you canned workflow scripts instead of your IT development organization or business partners developing and maintaining them. That sounds like a very high ROI for ServiceNow to be building and selling to customers, because it doesn't take their R&D team a lot of resources to do that. Is that correct?

Yes, you are. The best example I can use is when the pandemic started, it took ServiceNow two months to push out new applications downloadable from their store, which deal with PPE storage and allocation and vaccine tracking. That is part of the ecosystem I spoke about and it will pay them dividends for years. They have a large community who can build their own apps and list them on the ServiceNow store. They also have implementation partners who build pre-built components that they support. Similar to the integration space, they always update it to have more functionality. ServiceNow is now on version Quebec and are about to go to Rome, then San Diego after that next year. Every release introduces new functionality which I use to sell internally, such as AI, chat bots or service portal functionality.

We get that free new functionality we use to cross-sell and grow the tool, and it includes iterations of new applications to help expedite implementation needs. ServiceNow have connected everything in the tool which is very dynamic. They have taken all their admin functionality, whether it be sending emails or Slacks in their notification section, ticket creation, record updates or their ability to flash information on the screen with a notice at the top or text under a field, and made it easy to access anywhere in the platform. Workflow will become a powerful tool because you can touch every part of the platform when building in ServiceNow. The workflow driver is about flexibility and responding to business needs.

The most common question I get is, can I fix a problem in ServiceNow, and 99% of the time I say yes. It is simply a conversation on time and scope, how fast do you need it and how big is it going to be? ServiceNow has fantastic integration capabilities. You can bring data on and off the platform very easily, and can use the workflow to manipulate or access that information and produce different results. The new stage ServiceNow are going after is the company intranet, which is what I am currently trying to sell Wayfair on. We should be using ServiceNow's employee center for onboarding and our employee intranet. We are getting some traction because of ServiceNow's ability to show you how quickly they can enhance an MVP product into a product which shows clear value, because Employee Service Center was a new product a couple years ago.

What is an MVP?

An MVP is a minimum viable product. How can they take an MVP to a product which shows promise and is not buggy? That journey is very quick. The requirements of an intranet are the flow of information and the ability to personalize that information based on location, language preference and role or extracurricular activities at the company. To provide information in one location you need to be good at integrations.

With the employee intranet play, I have folks asking for their to-dos, holiday calendars and Google Meet recordings to be there. All those elements have data originating from many systems of record. We have been competing against third parties and in-house teams. ServiceNow continues to have a leg up on the competition because of the functionality the service portal can entertain. You can build things quickly and flexibly.

When we talk about integration, it is always can you do this or that, and you get different answers from the folks we are competing against. For us, we can do that because it is an IntegrationHub spoke and will take us less time. When you want to get data to that one place, ServiceNow has the integrations but have also branched out to different product families, such as facilities, HR, procurement, finance and talent. Once you bring them in-house to the tool, my intranet discussions are now saying, if you want to surface this or that, the data is already in the ServiceNow platform so it is easy for me to put it there. The amount of integrations I need to do is lessened because of the ability for ServiceNow to play in these different areas.

I see, interesting.

It is the perfect storm to help me sell this employee intranet and then it becomes the backbone of your company. It is a place where everyone starts their day.

You mentioned you are competing; who are you competing against?

That is a structure of how Wayfair is run. Typically, at Dell EMC, you would have a large investment in a product and would stay with that product for several years, continuing to purchase because everyone had a budget. With Wayfair, no team has a budget so it is about the business case and strategy you can put forth. On one hand, you have to do cost and time, how long will it take you and how much will it cost. On the other hand, you have to say, based on the current application landscape, what makes sense for us strategically. Because we were able to grow so quickly with all these business units and this team has done a lot of hard work to ensure we have touched every business unit and convinced as many people as we could from the onset, we made them happy and they became very sticky. We didn't give them other options.

From there, we were able to strategically say that we had all the data in one place, so it makes sense for us to choose ServiceNow instead of a third-party application we would have to integrate with, which satisfies the requirements ServiceNow does but lacks security review. It is not already in the company and does not have disparate business units centralized within one company, so strategically it makes sense to keep building up in ServiceNow. We have that argument and the functionality never lets us down in terms of comparing it to ServiceNow.

That is why ServiceNow comes up as slightly more expensive, because it wins functionality battles especially with its core products. Some of the newer products take time to surpass their competitors. When I say competing, it is because we have teams who are empowered to purchase products. That means talent can buy a different product and discard ServiceNow. We also have a team of in-house developers who build custom because that was Wayfair's culture before I came around and third-party tools started to rise in terms of footprint. We saw how maintaining custom code, developers and tribal knowledge was such a problem, which is why everyone shifts over to third party tools.

We still have that in-house team who try to bid for things and they do a lot of work tied to our website in terms of financial system, but they also try to do work in the employee support space. ServiceNow is eating everyone's lunch in the employee support space and Jira is winning the ITOM space at Wayfair. Our customer team who build all our enterprise tools are focusing on fewer things because third party tools are starting to shift the work to them, versus our home-grown team.

While you have been at Wayfair and perhaps even at EMC where it sounded like you also had a ServiceNow implementation, can you talk about what the spend growth looked like and what drives that? Their IR presentation was a chart which showed cohorts of customers by year which were brought onto the platform, and what their spending growth was. I want to understand from a practitioner how growth works, we can talk about Wayfair or your previous experience as well, how you go from what the initial application is and how that grows over time and what that means for spending with ServiceNow?

With Dell and EMC, the growth I witnessed was additional to bottom line spend. It first started with the IT product, ITSM, then came discovery and service mapping, and at that point I had moved to Wayfair. With Wayfair, we set up ITSM, then discovery and facilities. Our spend had been increasing up to that point, but then our ITOM teams decided they wanted to go with a suite of tools instead of one, and went with PagerDuty, Jira and Datadog. Our ITOM teams deprecated discovery, so the spend went up and down. We informed the ServiceNow account execs about our political battles and tectonic shifts happening at the company and the deprecation of discovery was a $600,000 hit to our bottom line with them. We always told them we had to shrink and show value so that we could spend more.

We have since replaced that with our HR implementation and IntegrationHub and are planning the employee intranet portal as well as their virtual agent on the HR side. We are looking to increase our spend from here on out. The only reason ServiceNow would lose spend is if a business unit moves off the tool. Once you have a tool like IT service management, you continue to pay for that. We not only continue to pay for it, we upgraded to ITSM Pro, which gave us a new suite of functionality. We also bought HR and are going to upgrade to HR Pro. They have different service levels that they continue to build out which add more functionality. Once a customer buys, they only spend more. That is how contracts are done with ServiceNow; there is always an expectation of a certain percentage increase in spend year over year, whether that is in fees or if you purchase something new to offset that expected increase.

This was very helpful, thank you for speaking with me. I learned a lot of new things but you also helped me evaluate some of the ideas I had from a practitioner. Often times it is hard to translate marketing speak from management of companies, but a conversation like this helped to better understand what is real and what is not.

I 100% agree with you and am happy you found value, hopefully we can connect again at some point.