ServiceNow CEO Bill McDermott joined Yahoo Finance Live to discuss the company’s earnings, the state of the software market, and the outlook for digital business.
Video Transcript
BRIAN SOZZI: ServiceNow topped the estimates for the first quarter and expects subscription revenue growth throughout the year. Joining us today for a deeper dive into this growth is ServiceNow CEO Bill McDermott. Bill, it’s always nice to be here with you. What recession? I don’t see it in your numbers.
BILL MCDERMOTT: Well, this is because if you look at the situation in the world with rising rates, inflation, and supply chain dislocations, the war in Ukraine, all these issues are true. And the big businesses we serve, because we are the leader in the enterprise software market in the cloud, they need our services now more than ever to get through this turbulent water and grow their business, protect their customers, and inspire their employees. So we are right behind the mainstream business movement.
And, you know, I think one of the leaders I talked to was summary well, Brian. You know, and that’s why the business is so stable today. If we slow down investment in the short term, we will lose ground in the midterm. And we’re not going to be business in the long run. That is almost the state of affairs.
BRIAN SOZZI: You’ve been in the Bill software industry for quite some time. Were you surprised how the sector performed in terms of stock performance, given, really, the strong results for the space for the first quarter?
BILL MCDERMOTT: Well, you know, everything is fixed on the basis of the PE ratio based on the environment in which we operate. But fortunately, business software market leaders like ServiceNow have done very well compared to the relative peer group. But with that said, I think they will all do better soon because the only deflationary fighting force left in this economy is software, because you have to do more with less. You need to create great experiences for your employees, especially to fight the tough talent war that involves everyone.
And the customer is completely digital now. Two years ago, 1/3 of revenue for customers was digital, now it’s 2/3. And in another two years, it will be almost 90%. So you need to switch to digital. And I think the only way forward is for all technology companies to become software companies. One of the statistics, Brian, that I think is really significant is, there will be 750 million new applications developed in businesses for businesses. So they have to develop their own software.
And the question then becomes, are there enough engineers in the world to do that? And the answer is no. So they have to do it themselves. And they do it on low code platforms like ServiceNow. So if you can integrate digital change into the IT employee experience directly with the consumer, and then the citizen developer workflow level, you can really do a lot. And that’s why I think ServiceNow is the most specific company of this generation.
JULIE HYMAN: Hey, Bill, Julie is here. At the same time, you know, we see that companies need to cut some costs, right? I’m looking at Amazon right now, and there’s a good example of a company that will need to pull that lever, and certainly there are others. Do you think the business spending cycle will be smooth next year to support the software industry?
BILL MCDERMOTT: I think it’s because they need to cut costs, Julie. They need to do things better. They need to do things more effectively. There is no choice but to invest. And the only place, really, to invest where you can actually streamline your operations, get more productivity with every employee you have, face the incredibly good resignation that everyone is dealing with, so, you know, you have fewer people available for the jobs you really need. And, you know, the gap filler for all that is software.
So I think there will be reductions. I don’t think it’s in the field of digital transformation. Here is the digital business to stay. This is the time for digital business. And I think the market -leading software companies that get it will do very well because customers have nowhere else to go.
BRIAN SOZZI: You know, a lot of people, Bill, outside of technology, when you talk to other leaders around the world, what are some of their biggest concerns right now at this point in the economic cycle?
BILL MCDERMOTT: There’s no boardroom right now that doesn’t deal with the incredible war for talent. They’re seeing turnover they haven’t seen before. They already have literally, in many cases, large companies, thousands and thousands of jobs that they need to fill. They are all digital jobs because of the digital and digital business paradigm. And then the question is, how do I recruit, hire, onboard– really critical because people work from everywhere– train, and manage services from my employees so they have well, good experience, and they love my company, even when they are not in the office?
And that’s the biggest issue of all. This is an economic issue of the people today. And the second thing is, the buyer will not approach you like before. So you need to go to the buyer and give them a great experience. And 20th century software did an OK job of customer interaction, but that’s not enough. You can’t just engage them. You need to combine your mid and back office operations so that you fulfill in a way that will delight the customer and keep them coming back for more at the direct consumer level. These issues are enormous.
And then the third thing I will put there are the supply chain issues. You know, a lot of global supply chains have now formed in the region. And now they are moving locally to combat some of the tough issues we see in the global economy. All of these changes are force multipliers for the demand for digital enterprise software.