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

Value Proposition:

  • Workflow Management: ServiceNow offers a comprehensive platform for managing digital workflows across different departments, improving operational efficiency and reducing manual tasks.
  • Customization: The platform’s flexibility allows organizations to tailor it to their specific needs, ensuring it aligns with their unique business processes and requirements.
  • Cloud-Based: Being cloud-based, ServiceNow ensures accessibility and scalability, making it suitable for businesses of all sizes.
  • Integration: ServiceNow integrates with various systems and applications, allowing seamless data exchange and ensuring it fits within the existing IT landscape.
  • Automation: By automating routine tasks and workflows, ServiceNow frees up employees’ time, allowing them to focus on more strategic and creative activities.

Customer Segments:

  • Enterprises: Large organizations across various industries benefit from ServiceNow’s capabilities in managing complex workflows, IT operations, and customer service processes.
  • Government Agencies: Government entities use ServiceNow to enhance service delivery, streamline operations, and improve citizen interactions.
  • IT Departments: IT departments within organizations leverage ServiceNow for IT service management, optimizing their processes and enhancing support.
  • Customer Support Teams: Customer support teams utilize ServiceNow’s tools to provide efficient and responsive customer service.

Distribution Strategy:

  • Online Platform: ServiceNow primarily delivers its services through its cloud-based platform. Customers can access and use the platform remotely via web browsers and mobile devices.
  • Sales Teams: ServiceNow maintains sales teams and representatives responsible for engaging with potential customers, understanding their needs, and facilitating the adoption of ServiceNow solutions.
  • Partner Ecosystem: ServiceNow partners with various technology and consulting firms to extend its reach and enhance its solutions. These partners often provide implementation, integration, and consulting services.
  • Customer Training: ServiceNow offers customer training programs, both on-site and through publicly available classes, to ensure users can maximize the value of the platform.

Marketing Strategy:

  • Product Customization: Emphasizing the platform’s flexibility and customization features, showcasing how it can adapt to various business needs and processes.
  • Industry-Specific Solutions: Tailoring marketing efforts to specific industries and highlighting how ServiceNow can address sector-specific challenges and workflows.
  • Customer Success Stories: Sharing case studies and success stories of organizations that have benefited from ServiceNow’s solutions, demonstrating real-world results.
  • Partner Promotion: Collaborating with partner organizations and promoting joint solutions and services that enhance the ServiceNow ecosystem.
  • Online Content: Providing valuable content through blogs, whitepapers, webinars, and videos to educate potential customers about workflow management and automation benefits.
  • Sales and Demos: Offering product demonstrations and engaging with potential customers through sales teams and representatives to showcase the platform’s capabilities.

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:

  • IT service management (ITSM).
  • IT business management (ITBM), and
  • IT operations management (ITOM). 

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.

Key Takeaways

  • Origin story:
    • Founded in 2003 as Glidesoft by Fred Luddy.
    • Started selling IT management services on a subscription basis.
    • Shifted focus to IT-support product, gaining traction with clients like WagerWorks.
  • Market Cap and Revenue:
    • Market cap of approximately $120 billion.
    • Subscription revenue totaled $1.512 billion in Q3 2021.
  • Revenue Generation:
    • Approximately 95% of revenue from subscription fees.
    • Three core facets: Nonstop Cloud, Now Platform, and Cloud Services.
    • Core offerings: ITSM, ITBM, and ITOM.
  • Subscription Fees:
    • Pricing varies due to high customization options.
    • Standard ITSM package for a 200-employee healthcare company estimated at $30,000.
  • Professional Services:
    • Earns revenue through time and materials-based services.
    • Services include process design, implementation, and configuration.
  • Customer Training:
    • Generates revenue from fees charged for on-site or publicly available training classes.
Value PropositionServiceNow offers a compelling value proposition for its customers, including: – Digital Transformation: Enabling organizations to digitally transform their operations and workflows. – Unified Platform: Providing a unified platform for IT, HR, customer service, and other departments. – Efficiency and Productivity: Improving operational efficiency and employee productivity through automation. – User-Friendly Interfaces: Offering user-friendly interfaces for building and managing workflows. – Scalability: Supporting businesses of all sizes, from small enterprises to large corporations. – Flexibility: Adapting to diverse industry needs and customizing workflows to specific requirements. – Integration Capabilities: Seamlessly integrating with various third-party applications and systems. – AI and Analytics: Leveraging AI and analytics to drive data-driven insights and decision-making. – Service Management: Enhancing customer service and support capabilities. – Compliance and Security: Ensuring compliance and security in workflow and data handling.
Core Products/ServicesServiceNow’s core products and services encompass: – ServiceNow Platform: Offering a comprehensive platform for building, automating, and managing workflows and processes. – IT Service Management (ITSM): Streamlining IT service delivery and support processes. – IT Operations Management (ITOM): Optimizing IT operations through automation and visibility. – IT Business Management (ITBM): Enabling IT portfolio and project management. – HR Service Delivery: Enhancing HR operations and employee experiences. – Customer Service Management (CSM): Improving customer service and support functions. – Security Operations: Providing security incident response and management. – Asset Management: Managing and optimizing assets and resources. – Integration Hub: Facilitating seamless integration with third-party applications and data sources. – AI and Analytics: Leveraging AI and analytics for insights and predictive capabilities. – Mobile and App Engine: Offering mobile access and app development capabilities. – Now Platform App Engine: Allowing developers to create custom applications on the platform.
Customer SegmentsServiceNow serves a range of customer segments, including: – Enterprises: Catering to large enterprises with complex workflow and service management needs. – Mid-Market Companies: Offering solutions scaled for mid-sized organizations seeking digital transformation. – Public Sector: Providing services to government agencies for improved public service delivery. – Healthcare: Supporting healthcare institutions in optimizing patient care and operations. – Financial Services: Addressing the needs of financial institutions for compliance and efficiency. – Manufacturing: Enhancing manufacturing operations and supply chain management. – Telecommunications: Supporting telecom companies in managing network operations and customer service. – Retail: Improving retail operations and customer experiences. – Technology: Serving technology companies for IT operations and product development. – Education: Facilitating educational institutions in managing administrative processes. – Service Providers: Assisting service providers in offering ServiceNow-based services to their clients.
Revenue StreamsServiceNow generates revenue through various revenue streams: – Subscription Fees: Earning recurring revenue from subscription fees for platform and product usage. – Professional Services: Providing consulting, implementation, and training services to customers. – ServiceNow Store: Earning fees from the ServiceNow Store for third-party applications and integrations. – Upgrades and Add-ons: Generating additional revenue from upgrades and add-on modules for existing customers. – Support and Maintenance: Offering support and maintenance contracts with associated fees. – Managed Services: Providing managed services for ongoing platform management and optimization. – AI and Analytics: Offering advanced AI and analytics capabilities as premium services. – Custom Development: Charging for custom application development on the platform. – Certification and Training: Offering certification and training programs for customers and partners. – International Expansion: Expanding services to international markets and generating revenue from global customers. – Strategic Partnerships: Collaborating with strategic partners for joint solution development and revenue-sharing agreements.
Distribution StrategyServiceNow employs a strategic distribution strategy to reach customers: – Direct Sales: Engaging in direct sales efforts to target large enterprises and strategic accounts. – Channel Partners: Partnering with a network of resellers, VARs (Value-Added Resellers), and system integrators to extend market reach. – Service Providers: Collaborating with service providers to offer ServiceNow-based managed services. – Online Platform: Operating an online platform for customer interaction, support, and access to resources. – Customer Community: Nurturing a customer community for knowledge sharing and peer support. – Developer Community: Building a developer community to encourage application development on the platform. – Global Presence: Maintaining a global presence with regional offices and data centers. – Education and Certification: Providing education and certification programs for customers and partners. – Strategic Alliances: Establishing strategic alliances with technology partners for joint solutions. – User Conferences: Hosting user conferences and events for customer engagement and networking.

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