How Does ServiceNow Make Money? ServiceNow Business Model In A Nutshell

  • ServiceNow is an American cloud-computing platform designed to manage digital workflows for enterprise operations. The company was founded as Glidesoft in 2003 by Fred Luddy.
  • ServiceNow makes approximately 95% of its revenue through subscription fees, with the exact fee a client has to pay dependent upon the features they require and the level of customization.
  • ServiceNow makes money from professional services, defined as any activity the company performs to help clients maximize platform value. ServiceNow also makes money by offering customer training.

Origin story

ServiceNow is an American cloud-computing platform designed to manage digital workflows for enterprise operations.

The company was founded as Glidesoft in 2003 by Fred Luddy.

Luddy was the former CTO of software management company Peregrine Systems, which employed several fraudulent methods to inflate its revenue numbers and stock price over a two-year period.

When these practices were unearthed, Luddy avoided a prison sentence but his $35 million stake in the company disappeared overnight.

Rather than feel sorry for himself, Luddy hunkered down in his San Diego home and started work on a product that would become ServiceNow.

He started selling IT management services designed for the average office worker on a subscription basis, becoming one of the earliest software-as-a-service (Saas) companies in the process. 

Luddy then hired younger brother Rob in 2005 as the company’s first sales representative.

Together, the brothers took the product to market but only received a lukewarm response.

In response, they tweaked the sales pitch to demonstrate that it was an IT-support product and the market started to take notice.

ServiceNow landed its first client in late 2005, an offshore gambling platform called WagerWorks.

The company became cash-flow positive in July 2009 with a Series D funding round and secured clients such as Intel, McDonald’s, and Deutsche Bank.

Sensing he was out of his depth, Luddy stepped down as CEO and appointed Frank Slootman, who focused on expanding the sales team and tailoring the product to larger customers with similarly large budgets. 

Today, ServiceNow has a market cap of approximately $120 billion with subscription revenue totaling $1.512 billion for the third quarter of 2021

ServiceNow revenue generation

ServiceNow makes money via subscription fees and professional services. 

Subscription fees

Approximately 95% of the total company venue is derived from subscription fees These are charged for both the self-hosted and cloud-based offerings and include revenue arising from related and enhanced customer support and updates.

Although ServiceNow is a single platform, there are three core facets:

  1. The Nonstop Cloud – the name given to ServiceNow’s cloud infrastructure that, as the name suggests, is always active. The Nonstop Cloud is compliant with global regulations and is secure, stable, and customizable to suit specific client needs.
  2. The Now Platform – an out-of-the-box solution with multiple capabilities and reusable elements across cloud services and custom apps. Web services on the Now Platform include automated testing frameworks, performance analytics and reporting, edge encryption, and an intelligent automation engine. There are also more advanced levels of functionality for clients desiring more customization.
  3. Cloud services – these are split into five categories: business apps, security, customer service, HR, and IT. Each category, in turn, comprises various sub-functions such as agile development, incident response, customer satisfaction, employee satisfaction, and project portfolio management.

The above three facets are encapsulated more generally into three core offerings:

Pricing for this subscription service is difficult to ascertain since the ServiceNow platform is extremely customizable.

However, software development company ScienceSoft estimated that the cost of the Standard ITSM package for a 200 employee healthcare company would be approximately $30,000

Professional services and other revenues

The company also makes a less significant amount of money from professional services on a time and materials basis. 

These services may be charged monthly or based on the actual hours and expenses incurred, with most focused on helping the customer maximize the value of their investment in the ServiceNow platform.

Examples include process design, implementation, architecture, and configuration services.

Other revenues are mostly comprised of fees charged for customer training that is delivered on-site or via publicly available classes.

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Connected Business Models

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The software-as-a-service (SaaS) industry has become among the largest tech industries today. Software-as-a-service describes any cloud-based application delivery and consumption business model where companies charge users a subscription fee depending on their desired level of functionality.

PaaS Business Model

PaaS stands for platform as a service. Together with other “as-a-service” models, this model’s basic premise is to offer a solution to the final customer without hosting it on-premise, with complex implementations and large overhead. The PaaS model is a form of evolved cloud computing. The provider, together with virtualization, storage, network, and servers, provides middleware and runtime to the user/customer, which only handles data and applications.

IaaS Business Model

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CaaS Business Model

Cloud as a service is a business model that combines the cloud infrastructure delivered to customers as a subscription-based service, where the customer can access a cloud infrastructure without running it on-premise. Therefore, the whole premise of the cloud as a service business model is to offer a more agile cloud infrastructure at a fraction of the costs compared to on-premise software, which can be scaled up according to the need of the business.

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Palantir Business Model

Palantir is a software company offering intelligence services to governments, institutions, and large commercial organizations. The company’s two main platforms, Gotham and Foundry, are integrated at an enterprise level. Its business model follows three phases: Acquire, Expand, and Scale. The company bears the pilot costs in the acquire and expand phases and runs at a loss. Where in the scale phase, the customers’ contribution margins become positive.

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