There we go. Our President and CEO to come and say a few words about Mike's departure.
Thank you, Lisa.
So as Lisa mentioned, you saw last week, Mike announced he was going to be moving on. And I just wanted to say a couple of things upfront. First and foremost,
I want to thank Mike.
What many of you may not know is when I was considering joining Service Now, I asked to meet with Mike because I knew from my prior experience how important that CEO CFO relationship was. And Mike and I met in Menlo Park down at the Jaffa Ridge Offices and Mike said to me, John, my passion is taking small companies and growing them. ServiceNow is the largest company I've ever worked for at this stage. But if you'll have me, I'm all in to partner with you during the transition and during the succession. And I wouldn't have joined ServiceNow without that.
And over the last couple of years, Mike has been phenomenal with me, but even more importantly, over the last how many years, Mike?
8 years.
8 years. He is a world class CFO who has produced results that I think are almost unmatched. Someone was just out there saying that it's 12 times increase since the company went public. And so Mike, I want you to know, I deeply appreciate everything you've done for ServiceNow over the 8 years and for me personally over 2 years. By Mike saying, it allowed me to spend more time with customers and more time with our employees, which I think has been a win win and we're going to miss you terribly.
But Mike last year said to me, you know what, John, let's begin to think about over the next year or 2, I want to get back to doing what I love. So when he came a couple of weeks ago and said, I've got this opportunity to rejoin Frank at Snowflake, my first question was, can I invest? And we'll miss you. And so I just want to ask all of you to join me in just recognizing Mike For those of you that don't know Mike well, he hates attention. But seriously, you've been phenomenal.
And then just three quick things. This is going to be an orderly transition. We are the luxury. Mike, as Lisa mentioned, will stay through the summer. I will do an external search.
I'm highly confident we can get a world class successor to Mike, who is as excited about the next stage of our growth as Mike's been about the stage to date. The other thing most of you may not know is Mike has built a world class team. Lisa Banks is one of our top finance executives. She was the Head of FP and A. She has worked closely with every one of our senior leaders and over the last several years in setting budgets and now through our rotation program, she'll be our Head of Investor Relations.
Dom Phillips, who you know is our Head of Investor Relations is now Head of FP and A. Many of you may not have met Andrew Casey. Is Andrew here somewhere? Andrew is here, part of Mike's team runs all of sales operations and pricing and so many other things working with Dave. And then Fei Hsieh Yen, who many of you may not have met, is just coming off of a rotation in Europe where she'll be our Chief Accounting Officer.
So in addition to being a great CFO, Mike's built a really strong finance team underneath him and having the characteristics of strength that we're rotating their positions and growing several future CFOs. The other thing I want to say is, for the rest of the team, there's no change. Dave Schneider is not going anywhere. He's all in. He'll talk to you about that.
Kevin Haverty in our senior sales team, C. J, Dan Rogers. For everyone else, it's business as usual and making sure that we're driving forward and taking advantage of this opportunity. So the last thing I'll just say is our goal for today and then for those of you that can stay this week is to share that opportunity. To be honest, it's one of the biggest opportunities I've seen in my business career, the opportunity ServiceNow has.
I think we've got the right team and the right plan. We clearly have some strong momentum and you should know day in, day out everybody is focused on execution. And so Lisa will go through the agenda. You're going to get a great chance to hear from several of our leaders. And then Mike and I and Dave and CJ will be back up at the end.
We'll take any or all of your questions. Okay. So with that, Lisa, why don't you tell us about the rest of the agenda?
So ServiceNow put your workflows in the cloud, Mhmm. Your employees must love you.
Thank you.
You could say that.
I love you. ServiceNow works for you.
Could you hand me those files?
Yeah, of course.
What is going on, guys?
Oh, hey, ServiceNow frees us up
to do the work we want to do,
so we're digging out from all the work we don't
want to do.
Getting rid of so much paperwork.
Oh. Doug.
I didn't know you still worked here.
I called for help, but no one came. Okay. Carry on.
Yep.
Can you call my wife?
I've just shared with you 2 of my favorite commercials from our recent brand campaign and I laugh every time I watch them. I am left with a feeling that work is fun. That as an executive using ServiceNow, I can make my employees' lives better by allowing them to focus on more meaningful work. In my 20 year career, and yes, I'm dating myself, I have never been so close to the launch of a new brand campaign. And I'm very excited to see the impact it will have on ServiceNow.
As we've shared with you, this investment is important for two reasons. 1, elevating our story to the C Suite and the second is retaining and attracting talent. It's early days, but we've received positive feedback from our employees and many of our customers. And several employees have shared with me that they have an enhanced sense of pride knowing that we are that our brands and our products will become well known. Our brand investment is one of many investments that are critical to our growth.
Today, we want you to walk away with an understanding of our strategic priorities, our key growth drivers and our investments that will take us to our next phase of growth. CJ Desai, our Chief Product Officer, will kick it off. Product investment strategy, as well as his thoughts around product innovation. David Schneider, our newly appointed President's Global Customer Operations, is going to talk through some of the steps we're taking to continue to unlock the large market opportunity ahead of us. We have the pleasure of Andrew Wilson, the Chief Information Officer at Accenture joining us today.
And Dave and Andrew are going to have a conversation about how ServiceNow's strategic platform is enabling CIOs around the world to run their business. After the break, Mike Scarpelli, our CFO, will talk about our key financial priorities, some of our key growth drivers, as well as share with you how we are thinking about the financial model. Finally, John will close it out and he will give an update on what he's hearing from customers and the progress we're making against our strategic priorities. And we will end the session with executive Q and A. With that, an exciting part of the agenda, I'm going to share with you something you already know.
We may make forward looking statements. These statements may include risks, uncertainties and assumptions. Information on factors that could affect our financial results can be found in our most recent 10 Q. We will also be posting this deck on our Investor Relations website at the close of the program. With that, I would like to bring up CJ Desai, our Chief Product Officer.
It's been a great pleasure working with CJ for the last couple of years, and he is a great leader. He builds outstanding products and something you may not know about CJ is he's incredibly funny. Please welcome our world class Chief Product Officer, CJ Desai.
And others as well as some upcoming products. I discussed this even last year, and we are following the exact same principle. Our goal by end of 2020 is to get to 70, 20, 10, right? So we need to Can you hear me? That was not part of being funny agenda.
It just worked out that way. Thank you, John.
All right.
So the strategic priorities on the markets we play and the adjacencies we look at, we have just 2 highest priorities for us as an organization in products. 1 is continue to innovate in Now Platform, okay. This is super critical for us that we'll continue to innovate in the NOW platform. And number 2, make sure that our product innovation is moving at a very rapid pace. So those are our two priorities.
That's how we decide the investments, and that's how we inform our road map by working with our customers and partners. So now Platform. Here's what I'll tell you. This is truly a privilege that we are a single platform company, okay. It's a single code base with a single data model used by all of our products.
This is definitely very rare for the size that we are at, for the growth that we are driving in our customers' environments to have a single cloud based platform with a single data model. This data model acts as a single source of truth for our customers for their assets, for their knowledge base and for their services. And this is the reason Dave's team, which does a phenomenal job in working with our customers, are able to sell additional products on top of the initial win because it makes it easier when you have just a single platform with single data model for all of the products. And our customers understand that and they leverage this data model. And what it makes it easier for us in the product teams is that when the products or the workflows have to work with each other or you may have an enterprise wide workflow, having that single data model across all our products makes it easier for our customers to consume our products.
Now what do you see here? Over last three quarters in the IR deck, you have seen this consistently that the number of customers who are leveraging multiple products from us continue to rise. And this is a cause and effect because it's a single data model, it's easier for them to absorb our products and most importantly, there are use cases that we are focused on, which are interdependent with each other. So that's the reason we continue to have traction with some of our largest customers when they use multiple products from us. Now this platform, this single platform that we have powers all of our workflows.
Even though these workflows are interdependent, we have just grouped them in 3 buckets: the IT workflow bucket, the employee workflow bucket and customer workflow bucket. And the reason we have bucketed them in this manner is these are the key stakeholders that we are serving for that specific workflow. So what that means is, if we think about the IT products here, whether it's IT Service Management or IT Business Management and others, we first think of which stakeholders this product serve, which is the IT department, and we ensure that we are making life easier for the IT department, both from a productivity standpoint and their experience and our solutions and our solutions that span across these products because as I said, we have a single data model. The other thing we are seeing, you saw that our customers are adopting multiple products from us. So what happens is when they are looking at ServiceNow, not just for IT, right?
IT is something that people understand, hey, ServiceNow plays really well in IT. It is our core competency for most of the IT source of truth or IT system of record, ServiceNow is typically the answer for all of our customers. But most importantly, ServiceNow is now used more and more for enterprise wide platform. It is used more and more for enterprise wide platform and that is across the silos. I just met with a federal prospect a couple of hours ago and they said even though it's a large federal agency that they still have multiple systems just within IT, but they are also thinking of how to make life easier for their agents and their end customers and currently considering ServiceNow to be that enterprise wide platform.
So we work across silos. We work across systems of record. We are the system of record for IT, but we are also becoming an enterprise wide platform. The other thing we do, if our customers are using Microsoft Teams or G Suite or whatever the case might be, we provide integration both in this chart on the top and at the bottom. So it is our goal.
This is an ongoing thing. We invest a lot in it. We want to make sure that we have best in class integration with, say, SAP SuccessFactors or we have best in class integration with a collaboration software in a particular case. But our goal is to continue, if we are going to be an enterprise platform, which we are becoming, integration becomes a critical priority, and we do a lot of investment in integration technologies. When I visit customers, it is really interesting to see the kind of applications that they develop on ServiceNow platform.
So besides the applications or the products that we ship, I will find some amazing examples. Some people are doing time and expense management. Some people will be doing visitor registration, sales proposal, mobile usage and things of that nature. So customers are using the ServiceNow platform to create really, really cool applications. And what this does is that we are now investing even more to make it an enterprise wide platform on which you can build applications easily, right?
Because customer says, hey, this platform is really powerful for workflows that cuts across the enterprise. And C. J, can you give us tools so that we can have distributed environment, distributed development, and we can build great products on top of it. Now the most important thing that we have heard from our customers is we need to invest a lot more in user experiences. And we need to make it very easy If a customer is defining a service, regardless of the stakeholder it serves, it could serve their employees, it could serve their IT department or it could potentially serve their customers, make it easy for us to build great products on ServiceNow.
So we have invested heavily in the past 2 years. In October of 2017, we bought a company called Skyjiraffe, which was a mobile studio to create an enterprise app. What we did is for next year and a half all the way through March 2019, we made that entire entire technology native in our platform. And now what happens is if you want to create a native mobile app, whether it's on Android or iOS, you can build it on ServiceNow platform. This is truly groundbreaking.
It is a huge competitive advantage. We are at the beginning of the mobile journey in enterprise. But what I said earlier that making this technologies native in our platform, this code, really sharp engineers, was written in C, and we asked them to change their religion. Don't worry. It was from C to Java, and they wrote the entire code in Java so that it can leverage all the ServiceNow platform data structures and objects and so our customers benefit from it.
So that's number 1. Now we have mobile studio in ServiceNow where you can create enterprise class apps that are native on iOS and Android for any objects, any application, any custom application available in Madrid, which was released 2 months ago. Second thing is service portal and workspace. To deliver consumerized experiences for knowledge workers, We continue to evolve our technologies on browsers and making sure that for knowledge workers, they can get done things really, really fast. So that's the 2nd investment area.
And the 3rd investment area from a UX standpoint, where we are investing significantly, industry may call it chatbots, they may call it virtual agents. Again, the idea is you can define the conversations in ServiceNow platform. We have a conversational designer. And then via mobile, you can have very easy to understand chat language that can interact with ServiceNow platform. So you can drive any platform action from mobile using ServiceNow platform.
So this is truly an area that we have invested significantly And you will continue to see in tomorrow's keynote and rest of the day many, many cool innovations that we are going to deliver using our UX technologies. There is definitely a lot of talk about artificial intelligence. And artificial intelligence is an overloaded term. Everybody interprets it differently. From my standpoint, there are 4 areas that we are focused on.
Area number 1 is machine learning, what we call it supervised machine learning. We have all this data of our largest customers. Can we use that data to create models and make it easy for our customers to get their job done? Okay. So that's number 1.
Number 2, I would say when it comes to virtual agents or chatbots and natural language understanding, which will be a 3rd category, we again want to make it easy from a self-service standpoint to for our customers to just take advantage of these capabilities without calling it a dead scientist's name or some fancy other name, just don't want to do that. We want to make it easy. And this applied artificial intelligence should be used daily by our customers, and we don't want to make a big deal out of it. So what we have done is we have made predictions easier, recommendations easier, categorization easier, and we will continue to do more and more in this area. And in the New York release that is upcoming in next 3 months, you will see significant advances across these technologies.
And where it makes sense, we will partner with Google or Microsoft or Amazon to leverage their technologies. I spoke about integration a little bit. So one of the technologies that we have invested heavily and is our currently focus is making sure that whether it's standard software or a proprietary software, it is easy to integrate with ServiceNow. So this is specifically integration with ServiceNow. And in today's world, you cannot create a digital workflow or a process without integrating with a particular system in customers' environment.
So what customers are asking us is saying, hey, CJ and the team, please give us low code integration tools so that we can start creating integration for digital workflows. So as I said earlier, this is a huge area of investment. We will continue to provide integration for the standard software when you look at collaboration software and other. And by end of this year, we will have 400 plus integrations for standard software used by our customers as just part of the product. The other thing that Dave Schneider and the team asked us is about our geographic footprint and our coverage model.
So we continue to expand in the territories. We just introduced Germany data centers. We will be launching Japan sometimes in middle of this year, around June time frame. And we continue to expand our footprint globally for whatever data sovereignty or other requirements our customers may have, which gives us full global coverage from Santa Clara all the way to Sydney. Our uptime has been truly, truly world class so far, and I jinx myself sometimes, but we have done a really good job to making sure our cloud is always up and running and secure.
And now we have close to 100,000 instances under our management across test, dev and production. In terms of just the volume that ServiceNow platform is transacting is that production instances, so this is specifically our production customers. It is going up as fast as Dave and the team sell to our new customers is 8,500. We have daily active users close to 3,000,000 and most importantly, billions of customer transactions per month. We have actually close to 300,000,000 users registered in ServiceNow platform, so and 3,000,000 unique active daily users.
So that was a wrap on the platform. Just again, a single platform with single data model and technologies like mobile, chatbots, machine learning, all in the foundational layer so that all the products can take advantage of that platform. Now let's talk about products. We have been busy hiring, and Mike allows us to hire to keep up or stay ahead of the innovation curve. Over the last two years, our engineering team has scaled significantly across our engineering centers.
Talent is a topmost priority for all of us, and we go wherever we can find great talent, especially in the products organization. 2nd is in terms of products and program managers, as we're expanding the feature set or creating new products, We continue to invest heavily in our product management, bench and program management. And the most important one when I talked about user experience, our UX Engineering or Design Engineering and the design teams, we have not invested heavily around 2017, and we have now invested significantly from an R and D standpoint in UX Engineering. So just to tell you, if I need to round it up, currently from an R and D capacity standpoint, 20% of the R and D capacity is on UX Engineering and UX Design teams. That's how much serious we have taken to make it easier for our customers to deploy our products and use our products.
Our road map continues to be every 6 months we do these releases. So we have 2 releases per year. And beginning this year, we have actually started something very new. We are now making interim releases available via our store. So if you decide, if our customers decide, hey, CJ, I cannot wait, we have customers who are on the other extreme, where they say, even 2 release is a lot, just give us one major release a year, because it requires us to do a lot of change management, we own a test, We are rolling it out to 400,000 employees or whatever the case might be.
And on the other extreme, we have some customers who would say for emerging products, can you start shipping it? Technically, we can do this all day long. There is no technical reason why we cannot ship the products on a daily basis. We are a SaaS company. But to minimize the change management on our customer side, we have currently, after doing an extensive survey of our installed base, agreed on 2 releases per year.
And for certain emerging products, we are doing much more frequent releases to see if our customers can absorb them. In terms of the road map, every 6 months, every single product line continues to innovate based on the features or the functions that we deliver via the platform. So if it's ITSM, we want to provide as much automation as possible, as much self-service as possible, and we will continue to raise the bar on self-service by providing things like chatbot, things like machine learning, because in our mind, the best IT service is a fully automated service. It's that simple. The best IT service, if you are doing self-service, that's great.
If you're running a cloud, it should be lights out clouds operations, but the best IT service is a fully automated service. And we continue to invest in our road map, both in the platform and the products, so it's easier for our customers to absorb these services. HR is a product that we launched few years ago. We have seen phenomenal success as you have heard from John and Mike. And again, we want to make it easier and easier for employees to have self-service options when they deal with their HR department And during the most important transition moments or critical moments, we want to help them out, including things such as onboarding without pain.
And customer service management, so this product was launched about 3 years ago. We have now close to 900 enterprise customers on our CSM product because customer service is a team sport and just taking the calls or taking the inbound request is not enough without employees and the operations department behind the scene working together to proactively resolve the customer issues is becoming critical. And us being a great workflow company, we are able to tie the inbound customer escalations or requests with the back end processes by integrating with the right set of technologies in customers' environment so that customers get a great experience. So you will see our investment. This is just 3 example investments, but our investments continue to accelerate in each of our key product lines, and we'll do that for every single release.
Last year, when I was here, I announced a product that we are working on, which is called DevOps. And our viewpoint on DevOps is we are in the enterprise DevOps space. And you have developers who are constantly creating many products. They may use a planning software. They may use a configuration management software and few other software.
But you have multiple DevOps projects going on. The DevOps tool chain is extremely fragmented, and ServiceNow provides that visibility layer across your DevOps tool chain by right set of integrations into the DevOps technologies so that you have better control over change management and release management. What I hear from customers, some of the largest banks, some of the e commerce companies and others is that we want to leverage service management concepts, which ServiceNow is really, really good at, to ensure that when we propagate the change, if we have an e commerce website, we want to propagate a change, We want to make sure that ServiceNow provides us the visibility and the control required so that our website is always up and running in the case of e commerce. So we have launched this product this year. We are currently released it via store in April.
And as you see that this idea here is we will integrate across the tool chain, DevOps tool chain and make it easier for banks, e commerce companies, retail and others so that they can still take advantage of DevOps flexibility, but ensuring that things don't break when they propagate change. Second thing, last year, this is an internal code name. Last year, we created a unit, we call it NAVX internally. And the idea behind NAVX is we have so many incoming requests that are coming in to build products on our platform. So this is the area where customer may have created a product and they say, CJ, this was a good use case on your platform.
You and your team should build a commercially viable product, hire the domain experts and so on. Similarly, when we use ServiceNow internally, we also get a lot of requests, hey, we are using ServiceNow for this legal application or for this finance application. So we created this unit in beginning of 2018 and the goal was that beginning 2019, we will ship at least 1 or 2 products. We get lots and lots of ideas. We will validate some of those ideas.
We will then work with some of the design partners, which is our customers, who are willing to address that pain point using ServiceNow. And this team, which is led by Karl Vanderpold, who has been with ServiceNow for a while, His company was acquired a few years ago. They have done a nice job taking care of that pipeline of the ideas that come in. They come from employees. Sometimes they come from customers, sometimes they come from partners.
And the 4 areas that I feel comfortable sharing here is 1, around finance, which I'll touch in a second. 2nd is around enterprise risk management. So this is around business continuity, disaster recovery and how ServiceNow can help automate a lot of processes. 3rd is smart maintenance and IoT. And 4th, industry verticals.
So we are looking at couple of industry verticals working with Dave Schneider's team. They have prioritized couple of verticals. And then we said, okay, can we create product for those areas that we can continue to deliver through NAVX? And what I'm really pleased to announce is that in New York release, which is the next release in September, from NAVAX that we formed last year, we are for the first time announcing a product that is for the finance organization. So monthly closed process in every finance department is still error prone.
There is still a lot of manual work that goes on. And just to be very clear, we work with system of record. We have no aspirations to be a system of record in finance, okay? So I was on the Oracle Financials team many, many years ago, and that's a lot of work. Our goal is still to be system of action, working with the best in class system of record like an Oracle or SAP and provide that system of action or a workflow tool so that it makes it easier to roll out financial close.
So financial close happens every month. And with this product, you can have a reliable financial close process, you increase the team satisfaction and accelerate the process. Our new leader, Amir Jafari, comes with a finance background, and he's running that product line and really pleased that we will be launching this tomorrow in front of our customers. And one of our design partners was PayPal, and we worked with both PayPal and Deloitte to ensure that this is a pain point that PayPal wanted to solve using ServiceNow, and they did and got really, really good outcomes. And similarly, this was the use case that our finance department, Mike Scarpelli and the team used it internally, ServiceNow, to particularly solve this pain point.
So really excited about NowX and the product innovation pipeline on which we will be delivering every year 1 or 2 new products. And the last thing I would say is that I feel pretty good about our portfolio. When we look at the industry analysts and look at on the left side, we continue to be a market leader in the Magic Quadrant for IT Service Management, IRM, which is our GRC product line and our enterprise PaaS. And even for the newly shipped products, So Software Asset Management was shipped in 2017 and CSM was shipped in 2016. Even though these products have been relatively new, the industry analysts have recognized and said that ServiceNow is a true visionary when it comes to these two product lines.
So overall, I feel pretty good about our product portfolio. We continue to drive innovation in our platform. Having a single platform with a single data model for all of our products is a competitive advantage for us, and our product teams are working really hard to make sure that our customers can absorb our innovations and we want to make their life easier by giving them great experiences and making them productive. Thank you. And I would like to introduce my partner in crime.
We sit next to each other every day in solving for our customers, Dave Schneider.
Thank you. Thanks, C. J. And he's actually quite accurate. We actually do sit in the office right next to each other, and we solve customer opportunities on a daily basis.
A great day for me is actually partnering with the executive team at ServiceNow, making sure that we're planning for the future and engaging with customers on a regular basis. And there's no one better to strategize on that than CJ DeSci. So what I want to do today is give you a perspective on how we're going to capture the opportunity in front of us. And I want to make sure that people understand my unique perspective. I've been with the company 8 years.
It was actually acknowledged in 2011 when Fred invited me to come to the event, and I fell in love with the opportunity and the customers. And it was at that time where I was sitting at a little round table and people from it was a group of customers from Atlanta. They started telling me that they were using the platform far outside a narrow IT service management opportunity. And it was also at the time where I recognized that they truly were appreciative of the opportunity that stood in front of them by using the platform. So we've had a little bit of growth in that time.
And one of the things that I try to do is look around the corners. So think out 3 years about what we need to do to make sure that we're partnering with our customers so that we earn their business at every phase of the journey. Obviously, one of the things that I think has everybody's attention is the number of large relationships that we've been able to drive in the last few years moving from 20 or fewer than 20 to over $675,000,000 customers. That is an outcome of doing the right thing by our customers. And what you've seen from our investor deck in the past is it is super important for us on that first experience with a client that we listen really carefully to the business problems that they have and that whatever and wherever we start with them that we deliver real business outcomes and value from those initial projects because when we make our customers successful, that drives everything else.
So I know some people ask what's your initial deal size or how long is the sales cycle. It is about getting in there, improving value, making sure that no matter if the time is 3 months or 8 years we just closed a deal that had an 8 year sales cycle, they're going to be a customer for 20 plus years with ServiceNow. So the $1,000,000 customers have grown 160% in the time or just since 2015. Again, we sometimes will land a $1,000,000 customer. People often ask which products are responsible for those $1,000,000 sales.
I'll say all of them. One nice thing about customer service in the commercial segment, we are doing big giant land deals in commercial. So they can be a customer of less than 5,000 people. That's our definition of commercial. And a customer service project may be double, threex the size of an IT service management project in those environments.
So it's a really good place for customer service to land in that space. It's also an incredibly well suited product at the large enterprise and very large enterprise space. Another thing is the $5,000,000 customers. That relationship has grown. Couple or last year, we talked about our investment in customer success.
That investment in customer success is what's driving these larger relationships. Historically, we used to show up just like we did with regional accounts. A big account in a region, We'd have one salesperson on 5, 10, 20 accounts. Now you'll see us go to market where we have one rep on a single account with a whole team of people surrounding that opportunity to make sure that we're having the strategic conversations with them. The more time we spend in these large accounts, the more opportunity we continue to find.
And we'll talk about that more as we talk about vertical markets and our interest in going after them. Now I am probably sharing a little bit too much with our potential competitors or people that want to follow what we do at ServiceNow. The secret to our success is, in fact, our journey that we take customers on. Sure, we want to get somebody excited about using ServiceNow. And this event, at Knowledge, with 20 plus 1,000 people is a great way to get people excited.
But really, what we're trying to do is make sure that they're ready and they understand the transformation that they need to drive. And this is where our partner community comes in so important to us and our doubling down or expansion to our partner network is so important. We will actually tell customers you're not ready yet because it's so important for us for them to be successful. Then we'll sign an initial contract and begin the relationship, the financial relationship with them, focusing on getting them to some value right away. I want to highlight the importance of value selling in this process.
When we work with a client or a prospect, we're trying to understand what the potential business value is of the technology investment they're going to make. Why do we want to do that? They've got to go ask for money from somebody inside that organization. They're being asked about a business justification. If they have an ROI, it's more likely that it's going to get approved by somebody like Mike Scarpelli.
Then we're being held accountable to deliver on that ROI. When we do, we open up the aperture of other business opportunities for us within the relationship. It's this value selling. Again, if you're going to have long term relationships with organizations in a SaaS model, super important for us to continue to practice. And we're always just looking for a fair exchange of value with a client to make sure that we're creating an opportunity for mutual success.
The final piece here is we're keeping them engaged. And again, this event absolutely about keeping our customers and our prospects aware of all the innovation that's going on so that they're ready to take the next step with us because and it and I just want to highlight, it's possible in a large account that there's many of these cycles running all at once, okay? So for all you startup companies that are out there watching, just do this and you too could have the kind of success. I have to be a teacher as part of my journey. The other thing that we have recognized is the importance of the partner community in that process.
Our business partners, the Accentures, the Deloittes, they're involved with customers at different levels and having different kinds of conversations than we are. So we're actively engaged with our global business partners to build really robust relationships to support our customers. Now we hired David Parsons just a few months ago or about 2 quarters ago out of VMware, who had built many of these relationships in the past. So all of the global partners have joint business plans, joint investment plans. We're holding each other accountable.
We have quarterly top to top meetings. And the investments are massive that are going on. You'll hear from Andrew Wilson and Accenture in a little bit. Additionally, we took that base of relationships and we're adding to it on a global basis. So there's a group of other organizations that we're now managing to build great relationships with.
And these range from focused on IT products to customer service or the whole umbrella of opportunity. The one thing I always have to answer is why is the services line not increasing faster? And it's really purposeful. One, we want to create an opportunity for our business partners to be profitable and have great success. The other is it is not as accretive to the business as the subscription revenue, so it's mutually beneficial.
The services revenue will continue to grow. And one of the things that we continue to look at is what is our role and relationship in a customer environment. ServiceNow provides the innovation and the expert services with our services personnel in lockstep with a partner community. We want to be doing joint deployments rather than we lead and nobody else from a partner community there. The reason is our partners are really good at business process transformation and change management.
That's not our expertise. So we want to make sure we're leveraging them in support of the customer. There are times where the customers will do a little bit more of each of these things, but absolutely critical to our success is their sponsorship. So this is really important. John and I spend a lot of time with C level people growth, it creates another opportunity.
We're creating thousands and thousands of jobs, but we need to educate and train thousands and thousands of people to be competent in the ServiceNow environment. So we just had our 1st class of 24 newly certified minted senior level architects graduate. These are the top of the tops. These are the ones that customers love to have. And we're going to be investing even more at the very top end of the pyramid of skills as well as adding depth to it.
One of the areas, again, you'll ask about is why are your margins down in PS? Part of that is the amount of money we're spending to create this ecosystem, and that has a very big benefit to us and our customers in the future. Next, we looked at how are we going to market from an investment perspective. We focus our attention in a primary eight market basis, so 8 critical markets and a 50 city strategy. So we think about these 8 markets.
This is our path to $10,000,000,000 We know that if we do the right things in these markets, we can secure our future. Additionally, there's 50 cities where there's a lot of excitement going on and a lot of corporate headquarters, and we want to be there with marketing events and support events and partner education. And so we're continuing to do that. Now we're doubling down our investment in Japan and also in Germany, where we had underinvested in past years. So that's a big spike of investment for us.
You'll see things from us in those markets as well as evaluating new markets all the time for entry. This year, we're starting we will start to experiment with South Korea. South Korea was a market we did not have local data centers nor local personnel or localized language support. This is a market that we think has huge opportunity for us in the future. We wanted to be cautious until we were ready and had enough skill set to apply to the problem.
The next question people often ask is what about China? Not in China. So we have like 0 exposure to China, which may be good news given geopolitical events from day to day. But we have made a decision based on cloud governance models, geopolitical risk to not focus on China. It would be a distraction for us right now.
Vertical opportunity is a massive opportunity for ServiceNow. A few years ago, actually many years ago, we started our federal vertical practice. This was taking a horizontal product and adding vertical security needs and controls to allow us to do business with that sector. And over this past quarter, you saw some of the great results we had in our U. S.
Federal market, and that's still early, early innings for us. Of that expertise that we're building in U. S. Federal, we're going to apply to those other 8 key markets so that we can go after that market. Additional is not just about the U.
S. Federal. We've organized ourselves in the U. S. To handle state and local government, so all government automation, another massive opportunity well suited for our platform in the medical provider space, the people that have hospitals or beds where they're doing service.
That sub language of conversation from my go to market sellers, even with a horizontal product, we're seeing good lift in doing. But now unlocking the future opportunity, thinking about not just organizing our sellers, but building products with a specific vertical focus. And so in financial services, which will be one of our first markets, we're really talking about large banks. We're identifying a number of what we call mid office workflow activities where we could get significant return on investment for our customers. And these are things that stand between various silos of products that exist today that repeat from one bank to another bank to another bank, whether it's on boarding new big clients or managing security risks specific for that sector.
These are all things that lend itself to a ServiceNow environment. Additionally, in the communications telecommunications companies, they're going through a massive change, whether it's distributing new 5 gs devices and the Internet of Things and the explosion of IP addresses that they're going to have to manage to the new software defined networks. The tools of yesterday are not the appropriate tools for tomorrow, and our platform is well suited to meet the needs in those customers. So we think that there's huge potential. We are going to be very cautious about organizing our sellers too fast until we have products.
There's nothing worse than moving around too many sellers at once to create nonproductive experiences. So again, patience. We've been through this. I've led these types of organizations through change here at ServiceNow and other places, but we see the opportunity. And when it's right, we'll take full advantage of it.
Okay. I think I need chairs. Sorry. So as these nice gentlemen are doing the chairs, I want to give a little background for our next speaker. I get the opportunity to travel extensively and meet with customers.
And I hate to say it, I stack rank them all, not just on how much money they spend with us, but how advanced their use is of the technology and how much I'm learning from them on a daily basis because our best customers are our best teachers. And there's probably no better teacher than I've had over the last few years and a better customer who's implemented our products than Andrew Wilson, the CIO of Accenture. So with that? Wait, I would hug, but I don't want to have a microphone problem.
It's better than a water malfunction.
And if you thought our commercials weren't telling the truth, it's not uncommon when we get together, the first thing we do is hug one another and celebrate success and I appreciate it. I'd like to claim
rights on the ad that we saw. I thought that was going to commercial.
You can claim it. So Andrew, you're what people may not know is what is the role of a CIO at Accenture? What's your remit? And give us some perspective on you.
Well, a CIO is responsible for running the technology of a business. Now Accenture happens to be a technology business with over 500,000 people all over the world, serving clients in every industry, in every geography. We have our own technology needs. And so my number one job is to provide a technology base, which can keep 500,000 digital workers and 5 key businesses across 5 key industries working hyper productively all the time in a very happy way. But of course, because I'm a technology business, it's really important that I can demonstrate that our technology posture actually is what we practice with our clients in market.
And so I need to be out there. I need to be in cloud. I need to be powered by platforms, and I need to be seen to be practicing the characteristics that we believe are characteristic of modern digital IT. And I'm sure with those 500,000 people, none
of them have a strong opinion about what great looks like.
They all want to be the CIO. There's a long line. But no, I mean, we CJ's diagram, I think, said it well. The modern IT posture is cloud first and it's powered by platforms. So I happen to run the largest implementation of Microsoft on the planet.
I run S4HANA from SAP. I run Adobe. I run Salesforce. And of course, I run ServiceNow. And my IT posture has to be reflective of what modern IT is.
I'm 95% in the cloud. I run on the 3 cloud providers. I can point to what modern IT is. So my main job is to be that practitioner. But along the way, of course, I've grown very close to you guys because ServiceNow plays a critical role in that platform posture, both as that platform of action and experience, but also integrating and coexisting with the other platforms.
Because as I think one of the other slides showed very effectively, the platforms exist, and yes, you commercially construct and contract with them, but then they coexist in the modern IT posture. And a job of a CIO now is to constantly ideate and to use agile techniques and sprints to bring new experiences, new actions to bear to empower business and to attract and retain employees.
So you've been CIO in the current role for 6 years?
6 years. And so I'm always I've known you for longer.
I know. Yes. Well, we met when you were running the outsourced business for Accenture when I was trying to earn that business, which we did. But one of the interesting things is you talk about platforms versus products.
How do you see the differentiation between a platform and a product? Well, a product is a set of SKUs. It's licenses. It's inputs, and you're left to have to navigate, build services, design, build, run and create IT very much in the old way. And I think that's where our relationship started.
But I've been pleased to see the ServiceNow platform mature. So you're no longer a software provider, you're a platform provider, and there's a huge amount under that to unpack. A platform is a set of robust integrated services. A platform is something you trust for high availability. A platform is something that, as C.
J. Said, can a consumer with 500,000 people take 2 releases or more a year? Absolutely, yes. I would challenge that scale is not a barrier to pace. We've good automated test models, We take every release of ServiceNow and I do that to prove that it's possible as an organization.
I also do it because there's richness and functionality there. When you take a platform, you get all of the benefits of the innovation that this company is building into that platform, which I could never build Across all of those platforms, all of those roadmaps, there's no way a single IT shop could ever invest that much. So I'm riding the wave of platforms, enjoying the innovation that comes along and then I choose how to deliver that with my particular business.
And one of the things that I'm highly aware of in an organization that's as fluid as yours, You're 500,000 people, but it's a different group of 500,000 over a couple of years on boarding changing that out. One of the things that I always remember is you said your role isn't really just a CIO. It's much more than that. It includes experiences. Why don't you talk about that a little bit and our role potentially as one of the platforms that helps you to drive those experiences?
I think that being a Chief Experience Officer, although I'm not allowed to use the acronym, I don't know why. I think that that's what modern IT is all about and orchestrating and brokering and delivering experiences and outcomes that aren't a function of an individual corporate function. They aren't associated with a single data silo or a platform. So I think you have to think about experiences, experiences for the employee, whether that's joining a company, whether that's leaving a company. I mean, we have 50,000 people that temporarily leave Accenture every year.
Why do I want to make that process so great? Well, that requires touching almost every corporate function in the back office. I don't want an employee to have to think like that. I want a great experience. I want a single destination.
I want a great outcome for them. They'll come back, and that's what we see. So employees have to have a rich, sticky experience, very much like consumer. We all know pervasive IT and consumer life is setting the bar very high as to what a technology experience is. A CIO has to deliver that in the enterprise.
But it's not just about employee experience, it's the experience of the business. The business has to be very effective as well. So whether that's contracting and contract setup, whether that's invoicing and automated invoicing. And so when C. J.
Said, don't think about where the data is and the system of record, think about the system of action, the platform of action, he's absolutely right. And so we will have complex workflow that's elegantly delivered for business functions that then ultimately just update the platform of record underneath. And that's very much the structure I see it working every day.
So if it wasn't clear to you, they use ServiceNow as that platform of action to help move the things through Accenture
Action and experience.
Action and experience.
Because the ServiceNow platform, I think, avoids stereotypical typecasting. I think you come from an ITS background, very effective. You've moved through and our consumption reflects it. Destination, single destination for action and self-service portals, now into things like assets and change and security, and then ultimately these experience and outcomes, breadth and breadth of relevance across the enterprise and not aligned as certain platforms are to a specific transformation area or business
function. So like I get a chance to talk to a lot of customers, one of your roles at Accenture is to highlight the innovation you're making internally and then the interface externally. What are the major topic areas you're seeing the CIOs have the most interest in that you're interfacing with?
Can a platform provider be trusted with MyIT service? And if so, how? Because the days of owning the data center in the network have gone, cloud and the Internet have replaced all of the assets we used to use. So you look at a platform provided differently to someone selling new software licenses. Will that high availability be there?
What is the culture of leadership in the organization? Because this isn't a transaction. How does that organization deliver innovation? How are they looking after my interests? And are they clear on where they exist in the ecosystem and also where they compete in the ecosystem?
Not these platforms don't fit together perfectly, but they fit together far more than they compete. And so a platform organization that can help the CIO navigate that and is open or authentic about that will have more relevance when it comes to delivering services. And then is there evidence of innovation? Can I consume more service? And CIOs aren't making a single transaction decision.
They're making a decision around this platform is going to be here for years, as you said. And can I consume it? And will it coexist and coexist coherently with other platforms? ServiceNow does.
So one of the other elements, again, we've been on a journey together. We've made a lot of investments in our customer facing organization and customer success. Are we on the right path with you and in the marketplace, the reputation we have with your customers?
I think you are. I think, I mean, I'm excited because I consume you as a customer, but I have 2 other key relationships with ServiceNow, which I'm delighted because I think it helps the overall agenda for us. We put ServiceNow into the heart of some Accenture products. And so some of our services are powered by ServiceNow that feed out to market. And then we're your largest partner out in the market, and we're proud to be that.
We're proud to be more than double the size of the next one. Thousands of trained and certified ServiceNow professionals that can drive that change agenda. And I see huge relevance in the market, a market that needs maturity of platform, a market that needs to see a platform that can bring I think, industry alignment and industry specification. And indeed, Accenture's business, which is primarily structured around industry verticals, I think with compliance regimes, with the different characteristics of repeatable processes, that you see in different industry areas, what better platform that consumer goods and that patterns there as well I think.
Yes. And I think again one of the benefits we see is these embedded offerings. Your team goes to market with solutions to business problems. Having ServiceNow inside of that sometimes the customers don't even know. And when they are a customer of ours they're like, oh, of course that makes even more sense.
So there's nice leverage. But again, when we look at the vertical market opportunity, we see doing it with partners like Accenture is a massive accelerator to us. So we appreciate the partnership there. So I want to switch a little bit to the external facing world Accenture as a provider of services to your customers. Give us a perception on the practice growth levels, how it compares to some of the other things in the portfolio you've had experience with.
So Accenture, like the ecosystem, is structured largely around platforms. And so my own IT posture, where we see Microsoft and SAP and Oracle and others, we have go to market that's structured in the same way. And we're typically the largest integration partner in many of those cases. We see a history of what it takes to get to a $1,000,000,000 business and beyond. So my belief is that ServiceNow that's not yet at that level can get there in half the speed in half the time.
Why do I think that? Because I see a lot of the good bedrock characteristics that the market needs, which not all platforms have brought to bear as quickly as I think you have it here. And I'm not just saying it is true. So and we've heard it here today, single code base, single data model, speed and agility with which change can be consumed by the organization, high availability, clear distinct fit with ecosystem and alignment with certain platforms, pre existing integration with platforms. That's what the market needs.
And then when you add in that industry relevance as well, the practice that I represent can be out there, and it's not a cold sell. It's here's it's working, here's an industry it's working in. How can you, CIO or Business C Suite, move at the speed of new I. T, you need to bring platforms. And that message is working.
Well, and to be fair, the thing I've enjoyed is your investment in the business has both been organic and non organic. You've acquired certain companies to kick start different practice areas, but the amount of training you're doing in different markets has been phenomenal. In our investment in that training resource, what's that meant to Accenture?
I think some of the things I've just listed about something that can move the speed of IT, those new architects that you've mentioned, that isn't going to drop the ball when you arrive at a client in a fast moving situation. When you need to deploy more than 1, the best team available, you need that scale. And CIOs are searching out there in industry to be relevant to their Board at a time when all of the tool sets changed. And so they're searching for what success is. They need to be able to trust an organization that isn't going to be operating on cynical old sales values, on old licensing approaches.
We've done something recently, which I think is really exciting, and I think we're a little bit ahead. The way we buy from you, now at times
You did us a favor. You taught us a few things.
Well, at times, these guys can be a little bit complicated to buy from. And we've seen that because the range of products and then you add in our scale. But I think we've got the solution to it because we've reimagined and reevaluated how we consume contract and consume services from ServiceNow. And it's simpler, and it's more elegant, and it's encouraging a different behavior in me as the customer. Now rather than being concerned with license volumes and cost of ownership, I'm actually encouraged to experiment and innovate, particularly before production, because these guys want me to prove the wider breadth of the platform's capabilities and to test and then to see whether it happens at scale, because if it can happen in my IT shop, it's pretty likely we can make it happen anywhere.
You don't want me hiding behind old fashioned commercial. So I think we've been ideating together. And why would I hold that as an example publicly here? It's an illustration of the depth of the maturity of the relationship. If you can look at a platform provider in that lens and then you can look alongside other platform providers, which are probably not rotating into the new as fast as that.
And so our relationship with ServiceNow has got a maturity and a growing scale that is at least as mature as some of our most mature partnerships and is growing faster than some of our more scaled partnerships have grown in the past, but it has a characteristic of newness about it that I think will mean we've got continued momentum.
Yes. One of the things I know that this community of people is aware of is our pricing reflects all the different products we've ever distributed. There are probably 24 different pricing meters that exist around our products and we're simplifying those down to really 3 primary meters and then creating agreements with customers who are interested in being able to experiment to be able to do a bigger volume transformation work with our clients. We still find that customers who are brand new to ServiceNow as a product category want to buy for a specific use case. But quickly the light bulbs start going on and they want to take us on the journey.
The partnership with Accenture goes beyond just implementation. They were one of the design partners for our new pricing thought process with Andrew Casey and our team and Rocky Bonecutter. They have a person on their team. Actually, his name is Rocky Bonecutter and he negotiates contracts. So if you want to know what it's like to work with Accenture, go meet Rocky.
We're hoping to eventually employ someone with a name that's suitable to every role on the leadership team,
but perhaps some way to go. So I'm interested in your perspective. And I'll ask a question that's probably dangerous. What should we do better?
I think you have to improve, I think, going forward on keep going on industry specialization. I think the role of the platform in relation to artificial intelligence and cloud orchestration, I think you've got some bold steps to come there. Because a CIO that's fully in the cloud and only in the cloud, the game changes on where your compute is that's outside of software as a service. And so the old role of ITOM and operations management changes completely when you've got now alongside the cloud. And I think you're going to have to bring more to bear there.
You've got a stronger message, I think, to come, and you're well placed for that. The curation of intelligence, if I'm the Chief HR Officer for the non human workforce with tens of thousands of full time equivalents of automation, how do I look after them? How do I give them an employee ID? How do I give them a performance appraisal? When do they get promoted?
Are they allowed to work on more than one client arrangement at once? When should they retire? And they is AI. And by the way, AI, you can't code, put on the shelf and it will run for 40 years like a reservation system. It changes and learns.
You have to revisit everything every year. And by the way, the half life of services in the cloud is reducing every month. So things that we created as brand new 3 years ago are now seen as legacy. The orchestration, brokering, asset management and intelligence capture that as a potential is there, you've got a huge opportunity and that's the next 20 releases of ServiceNow, I'm sure.
Great. Again, thank you. Thank you, Andrew, for being here. Appreciate it very much. Truly incredible partnership and we really appreciate you.
Thank you. We appreciate you. Thank you. So I think we're taking a break. Okay.
We're going to take a short break. Be back shortly. How long do you want to back here?
Ladies and gentlemen, we'll take a short 15 minute break. We'll see you back here a little after 2:30. Ladies and gentlemen, if you could make your way back into the room, the program will begin shortly.
Here we go again.
Please welcome back Vice President, Investor Relations from ServiceNow, Lisa Banks.
Thank you, John. Okay. Welcome back, everybody. I'd like now to introduce you to the man you've all been waiting to hear from, Mike Scarpelli, our CFO. I've had the pleasure of working with Mike over the last 4 years, and I'm very lucky to say that I had the opportunity to learn from one of the best CFOs out there.
Mike, we will miss your leadership, your transparency and your dedication to our customers. Without further ado, Mike Scarpelli.
Good afternoon, everyone. So this is my 7th Analyst Day for ServiceNow. It's hard to believe that time has flown by so fast. I remember back when we were first going out with our 1st Analyst Day, people were still really questioning the market opportunity for ServiceNow. And if people remember back when we were going public, you had Gartner saying it was a 1.4 to 1.6.
And back in 2013, we threw out a market size. And I think at that time, we were only saying it was like $10,000,000,000 or something. And everyone still shit all over us and didn't believe that it was that big. And so we're going to update that a little bit today. We're going to talk about market size because people have started talking about that.
But it's really going to talk about investing for growth. And I have to tell you nothing has really changed at ServiceNow. There's been a few new things since John came on board and we're calling it something different, but it really hasn't changed at ServiceNow. It's all about and for some reason this slide is not working, this page here. I don't know why.
So I won't look at it. So I may look here too, so I can see what slides are there. But it's all about consistent execution. That was the number one thing. When we're looking at taking ServiceNow public, our Board and Frank, it was all about if you feel confident that you can consistently execute, that's the time to go out.
And we've been pretty consistent quarter after quarter with our execution. And it's all about maintaining high growth. If you look at most of the people in here, you guys are growth investors. That's 1st and foremost. Growth was always our number one focus and it still is, but it's not growth at all costs.
It's growth with making efficient investments in your business so you can sustain that growth. And so we've continued to deliver very high subscription revenue growth even at this scale. You can see last year we grew at 39 percent. You have the guidance out there. I'm not going to put the guidance for 2019, but clearly we're growing in the high 30s.
That's pretty unheard of, especially when it's really been, as CJ talked about, 1 platform, 1 product. This has really been organic growth for this company. It's pretty unique. But it's not just about that growth. It's also about free cash flow, operating margins, leverage in the business.
We've been demonstrating free cash flow expansion. We're going to continue to demonstrate our operating margin expansion and free cash flow that we're going to give. Our free cash flow actually last year grew faster than our revenue growth. We're going to do about $1,000,000,000 in free cash flow this year and that will continue. I guarantee this model is a very profitable model, and so that will continue.
Billings. Everyone wants to talk about billings. Non GAAP billings is an indicator of high growth, but I got to tell you, it's not all, and I'll talk a little bit more about that. Subscription billings, it's at 30% plus growth. I think this will continue for some time.
But there's really there's a lot of problems with billings. I know you guys look at billings. And I got to be honest, the only reason why we started guiding to billings, there was one analyst that's probably some of you guys know was way out in left field with his number. So we had to rein people in so people could understand what they're going to be. But there's real limitations using that as a performance measure.
And the first one is contract start dates. We and this is the unique thing about our business. We sign a lot of contracts in a quarter, but they actually don't start until the day 1 of the next quarter. So you don't actually see that in billings in the current quarter and Q4 is a prime example of that. In Q4, many of our contracts start in January 1.
And because of the January 1 billing date that goes out, you see that in Q1, that's one of the reasons why the seasonality for our billings is very different. We'll have a high Q4 billings, yes, but there's not that dramatic drop in Q1 billings. And you see that in our numbers. The other thing is duration. Duration can really cause variability in billings.
As an example, you saw Dave was up here and he was talking about investing in our customers and our customer journey. We land a customer and they continually buy more and more. But many of our customers, they want to co term their billings. And many of those, we don't get as much visibility into the co terming of billings, but we do get visibility into the contract size. And so if you focus too much on billings, you kind of miss out on that.
And then I talked about that seasonality. So what is a better measure? RPO. We do think RPO is a better measure of our business. We're not guiding to RPO right now.
We're going to continue. We've been very consistent as a company. We usually set metrics at the beginning of the year when we start out a year in January when we're giving guidance. We started with billings. We'll continue with billings.
But I would say next year, I want people to start thinking about RPO. You'll get our RPO when you see our Q. We just filed our Q on Friday. And so you can get the actual numbers inside there, and we'll continue giving that. But in 2020, obviously, there's a new CFO coming on board, but I think Lisa and others we're looking at, we will most likely start to guide to an RPO versus a billings going forward.
And the big benefit of that, it really aligns with the bookings period, so you don't have that gross down. It neutralizes for duration, and it's a little bit more consistent and predictable. And you can see too with our RPO, well, you'll see in a minute, that it's really you have that hockey stick in Q4 all the time of every year, and that's more traditional for an enterprise software company. So if you look at our RPO, you can see how it's been tracking here. And I know people have said too that just giving to 1 decimal But you can see, our RPO has been growing 33%.
But you can see, our RPO has been growing 33%. The noncurrent has been growing 33%, pretty consistent. So we're pretty proud of this with that 5.1%. The problem with this though that I will say that you need to understand too is these numbers are much bigger than the revenue and billings number. And remember, about a third of our business is in foreign currencies.
And so you have FX movements. It can impact quite a bit that RPO growth rates when you look at that. So you do need to neutralize for FX. The other thing what it doesn't capture RPO is self hosted. Roughly, 4% to 5%, I think it is, of our revenue is self hosted revenue where you're recognizing the revenue upfront, but you have certain quarters where the self hosted can be higher.
Like last quarter, I think it was close to 11% because we did some big federal deals. And that you won't capture in an RPO, but it would have showed up in the billings. So just remember that, and we'll try to normalize for that as well too. So market size. So we've been spending a lot of time internally looking at our 3 different workflows, our IT workflows, our employee workflows and our customer workflows, looking at all the products inside there, looking at Gartner and other things.
And we think that this market opportunity is market opportunity is growing to north of $165,000,000,000 Don't focus on the $165,000,000,000 My point is it is still a massive market opportunity we're going after. That is what gives us the confidence that one day we will be a $10,000,000,000 company. I can't stress that enough. You heard C. J, he talked about we're going to be increasing 2 new products a year by adding 2 new products.
He talked about DevOps and FinanceOps. Actually, I should restate what C. J. Said. I think he said 1 to 2.
Last year, John committed him to 2 and he did deliver 2, and hopefully he's going to continue with that 2. So that will also continue to drive our market size over time. And you have to remember today about 90% of what we're doing is generally replacing a legacy software vendor. But then what quickly happens once we land in a customer, they see what they can do on ServiceNow and then we start going after that white space. It's not necessarily defined in a TAM.
That's why we think this market is going to continue to grow for us. It's rare that we really start in the white space. It's almost always replacing a legacy vendor and we think that will continue. But there is massive amounts of white space in organizations. I will say Financial Clothes Management probably has the biggest white space.
There is so much as being a CFO, there is so much stuff done in a finance organization that is done through Excel spreadsheets with tracking things, emails, voicemails, whatever, and that is ripe for a product like ServiceNow. So I'm very passionate about that and I'm excited to see what that's going to do. I may even be a customer of ServiceNow at my next for a financial close. So what's driving this growth is really the emerging products. You can see how our emerging products have transformed.
If you go back, non IT right now represents 41% of our product or our bookings and it's up from 11%. That's pretty dramatic growth when you look at that. And that's just going to continue. I still think when we're at $10,000,000,000 IT is going to be a major piece. Is it going to be 50%?
Is it going to be 40%? I think it's going to probably be somewhere between 40% to 50% of our business. It is the key. It's generally why customers bias initially. I would almost say it's our Trojan horse because predominantly, it is still a weak legacy market that we're replacing.
There really has been no innovation. Many of you have asked us about Atlassian and others, and we really don't see them in the enterprise space. They're more in the commercial space. 80% of our business is coming from the commercial or is coming from the enterprise space. Only 20% comes from that commercial space.
And as Dave and John said earlier, or I guess it was Dave, sorry, the commercial customers we go after tend to be more in that 3000 to 5000, but the key thing is these are fast growth customers that are going to eventually grow into the enterprise space. The other point I want to make too is we took away the whole Global 2,000 metric that we were giving. The reason we did that is because it's large enterprises we're focused on. Yes, Global 2,000 continues to be 50% of our revenue, but we talked about in the last call public sector. Public sector is a massive opportunity for ServiceNow and not just within the U.
S. Market, globally. Now we're going to be very selective in what public sector markets we go after globally, but there is a massive market just within the U. S. With federal, state and local, and that is the same in every country around the world.
So what's important? Landing new customers is probably the most important thing to us because you need to land new customers to grow these customer relationships. In the 8 years that I've been with ServiceNow, the sales cycles really haven't changed for landing new customers. It's on average 9 months, 9.5 months, something like that. And some of our Global 2,000 back then were taking 5 years to add.
On average, it's probably 2 to 3 years to land a Global 2,000. That hasn't changed. And most customers still today when we land a new customer, they don't start out as $1,000,000 ACV. Yes, we do some, but on average, they start out somewhere in the $200,000 to $300,000 on average for an enterprise customer. And what's so important about those?
Because once they buy, they buy more. You look at 2018, 81% of our net new ACV is coming from our installed base of customers. And you can see how that's been growing and that will continue to grow. Do I think it's ever going to be 100%? No, it's never going to be 100%.
And if it is, there's a problem. That means we stop landing customers. But I can see it getting to the mid- to high-80s one day because our installed base is getting so low or is getting so big, and we are so focused on building larger customer relationships. And why is it that we want to build these larger customer relationships? Because they are inherently more profitable?
The other metric that we're starting to introduce this year that we will start to guide to in the future is net expansion rate. People have been asking us what our net expansion rate is. Well, our dollar based net expansion rate in 2018 was just slightly north of 130%. That's another metric that we're starting to track. That's capturing our upsells, and it's capturing our renewal rates with our customers.
It's something a number of other SaaS companies look at and you guys have been asking. So we're disclosing that for the first time and we'll start talking about that more so guiding in 20 20 is what we're planning on doing. So why are these customer relationships so important? So first of all, Dave talked about that we have, I think he said, 6.75 customers paying north of $1,000,000 annually. Well, you can see the growth rate from 2014 to 2018.
We now have 3 customers that pay us north of $20,000,000 a year. There was 0 in 2014. We have 15 customers that pay us between $10,000,000 $20,000,000 a year. There were 0 in 2014. How are these going to trend over time?
We see on our path to $10,000,000,000 that the only way we're going to get to $10,000,000,000 is we have to invest in these large customer relationships. We need to have 2,000 roughly customers paying us north of $1,000,000 a year. We have to have 30 customers that are paying us north of $20,000,000 100 customers in that $10,000,000 to $20,000,000 And you can see the numbers there. And we feel pretty confident at the rate we've been growing that we can get there. It's just a matter of when.
And why is that important? Is those big customers are so much more profitable. And because they're so profitable, they enable us to continue to invest in our business so we can deliver to all of our customers. We looked at a sample of 4 of our customers. In the retail space, we pulled one that was paying north of $20,000,000 a year.
For every dollar we invest in that customer in terms of the cloud subscription costs, the sales, our estimate of direct R and D for that customer and G and A that gets allocated, we make we get $5.7 in profit from that customer on that. You can see a $1,000,000 customer, this is an energy customer, it's 1.8 percent. And so why this is so important? If we can build these bigger customer relationships, it's going to drive more profitability, which is going to enable us to invest more in R and D and other areas, which is going to enable us to continue to grow as a company. Our long term growth opportunity, it requires these investments.
We talked about these when John first came up 2 years ago. This is John's 3rd Investor Day. And if you recall back 2 years ago, we talked about we're going to invest in product and platform. CJ, that's been his number one priority. He talked about the whole platform and the whole user experience.
He's been really focusing the R and D dollars on. Customer success, Dave owns customer success. We have been spending a lot of money on customer success. And included in that is that whole professional service and how we engage with our customers. Brand, Lisa showed you some of the new ads we're doing, but it's beyond those ads.
We're investing in a lot of branding. It's not about product branding. It's about customer or potential customer awareness of ServiceNow, helping with recruiting. And we are seeing the benefit on the recruiting side. And I can't tell you enough talent.
We've been investing so heavily in talent in this organization to make it a competitive place. A lot of investors have asked me over the years, what is the number one risk of ServiceNow? And I keep saying it's not the legacy software vendors out there. We haven't seen anything innovative out of them. Our biggest risk is retaining the talented people we have in ServiceNow and continuing to attract talented people to ServiceNow.
That is why it is one of our biggest priorities. Now this doesn't mean we're not going to be disciplined. A number of you have asked me, oh, with you leaving, what does that mean? Is John going to spend more money? And as I said to some, John's not an idiot.
I did say that. I told John that. John is very focused on disciplined investing, and the whole management team is very focused on disciplined investing. We will continue to invest in the business, but it has to be the right investments. You will see there are companies out there I know when they come up and they're going to be $10,000,000 more profitable 1 quarter when they're getting towards the end and they just spend that money so that they don't give that through to the street.
Well, I can tell you we do not do that at ServiceNow. That's why you see quarters that we beat and we just say it's timing and we're going to roll to the next quarter. This company will continue to do those types of things. So what does this mean? It's not fair to give a long term operating margin for a company when the CFO is leaving.
It's not right for me to sign up for someone else who's coming in. But I do feel very confident in 2020. Our revenues, same as what we said, we laid this out by the way in 2015. We will be north of $4,000,000,000 and then that will be $4,000,000,000 in subscription. We will be there.
You can see where we're exiting this year with just the guidance we gave. Subscription gross margin is 84% to 86%. We are at 86% today, and people may say, well, why aren't why are you going to why are you saying 84% to 86%. We're spending a lot of time looking at public cloud and maybe we need to start delivering some things through public cloud to leverage some of the things, especially around security that public cloud offers going into new markets. So we're going to keep it at that 84% to 86%.
We're still going to continue to give approximately 100 basis points margin expansion going forward. Annual free cash flow, we think, is going to be greater than 0 basis points. It's not going to go down. In absolute dollars, obviously, it's going to go up because the revenue is going up so much. And our non GAAP tax rate, we're updating that 18% to 20% is what we're seeing based upon the whole tax reform we started telling people last quarter.
And then our annual dilution increase is going to be less than 3% what we've been telling people. This is excluding the impact of any warrants associated with our convertible debt. And with that, I'm going to call John back up here, and I'm going to call CJ and Dave sorry, John, you're up first before Q and A, sorry. I'm jumping the gun. Thank you.
So to some extent, I've got like the CEO dream job and the CEO's dream Analyst Day. I almost have nothing additional to say that wasn't said by CJ, Dave and Mike. I think they've laid out very much the opportunity we have in front of us, how we're focused on it and how we're capitalizing on it. I thought what I might do is just share a little bit about what I hear from customers, because I spend probably 60%, 70% of my time with customers traveling all over the world. I'm in Europe 4 times a year, Asia 2 to 3 times a year, on the road constantly with customers because that's the fun part.
And what I hear from customers is stunningly consistent all over the world. And it's very consistent with what you heard from Andrew Wilson. And I'll use the words I use I hear from them. They're all focused on digital transformation, right? I swear to God, there's not a company on earth that doesn't have digital transformation being one of their top priorities.
And 2 years ago, maybe that was a business buzzword, that's no longer business buzzword, whether it's the CEO, the CFO or the CIO. Digital transformation matters to their competitiveness. If they cannot embrace technology in a way that allows them to digitally connect with their customers, build a better digital experience for their employees and use digital technology to drive the productivity and efficiency that's possible, so that they can invest their scarce talent, capital and resources on innovating for their customers and not on getting stuck in running a global enterprise. So that's real and they feel it and they're trying to figure out how to do it. Everybody's embracing cloud.
There is a nice cloud tailwind. Cloud is a once in a generation technology that allows you to get significant improvements in user experience, in speed and agility, in efficiency, productivity and compliance. They can all go in the same direction. And I would argue we're still in the early days of the cloud tailwind. People ask me, I had the chance in my prior life to have a front row seat to the consumer mobile revolution.
The iPhone came out in 2,007. I would say mobile really took over in 2,009. It's been a 10 year run since then in our consumer lives. Cloud today feels to me like mobile felt 2012, about a third of the way in to this. When they embrace cloud, they centralize their data their infrastructure, figuring out their data center strategy with public cloud, hybrid cloud, private cloud.
And then on the software layer increasingly it's almost across the board they're embracing what I would call the modern tech stack. 4 to 6 strategic software platforms, typically almost increasingly without fail at Salesforce, Workday, ServiceNow, Adobe for Marketing Analytics, Office 365, SAP if they have a supply chain. And they want to go from a world where they have thousands of tools and applications and complexity in an on premise based world to a world of platforms and they want to put as much as they can on these platforms and they want it out of the box so they can ride our innovation curve and focus their energy on innovating for their customers. Incredibly consistent across the board. You heard that from Andrew Wilson, that's what Accenture is doing.
A year ago, you heard Deloitte say the same thing, and that's what they're telling their clients to do. And that's largely fueling the core growth of all those companies. Within that, however, ServiceNow is increasingly playing a distinct and I would argue somewhat unique role. It's not just IT. It's you heard Andrew Wilson talk about us being the connective tissue around the other platforms.
And increasingly that awareness is very broad and very wide. I had many people would call Rob Carter one of the most respected CIOs in the world. He's the CIO of FedEx. He's been the CIO of FedEx for 17 years and he plays both the Chief Technology and CIO role. FedEx is a very technology savvy company.
And I was saying in a meeting of other CIOs that what I hear from them is they want 1 plus 1 plus 1 plus 1 to equal 5. They want those platforms to add up and work effectively together to add up to be more than the sum of the parts, like Andrew Wilson was saying. And Rob interrupted me and he said, no, John, that's not how I see it. He said, at FedEx we want 1 plus 1 plus 1 plus 1 times ServiceNow to equal 10 times. And he said at FedEx we have Salesforce plus Workday plus Adobe plus Oracle is our financial ERP.
But we don't consider ServiceNow, we don't just add it to that equation. You're the multiplier. You're time Service now because you do both IT, but you also do the workflow around the other platforms. And that is what enables us to get 10 times improvement in user experience and 10 times improvement in productivity. And so as I travel around, Dave travels around, CJ travels around talking with our customers, we now have access in the C suite and the C suite is saying, ServiceNow, you are one of our most important strategic software platforms.
And so that's the opportunity we have. The opportunity is to capitalize on that. And to be honest, the next sentence they say is, so we need you to completely behave like a strategic partner and make the transition from being a vendor to being a partner. And so that's what's driving our priorities. Our customers are leaning in with us.
The opportunity for us is right in front of us. As Mike said, about 40% of our work in our business is customers using software where software was not being used before. That's the white space. That's the opportunity. And so our investments remain the same.
Mike described them. Product and platform, we are a technology company. We are not going to take our foot off the gas on organic innovation. CJ is doing an outstanding job of leading that team and he's deepened his team, he's built talent, growing our go to market organization, so it's not a pre sales motion and then it show up at renewal. It's the whole customer lifecycle.
As Mike said, if 80% or 80% plus of our growth is going to be from these large companies that want to lean in and want us to be a strategic partner where we can grow our relationship from $1,000,000 to $5,000,000 $5,000,000 to $10,000,000 $10,000,000 to $20,000,000 We need to provide an end to end customer coverage. And Dave is doing an incredible job of doing what I don't think anyone in the industry has done well yet, which is to build that and build it around with a real focus on customer outcomes, customer value, customer results. You heard Dave talk about that. We have a simple mindset. If you spend $1 on ServiceNow and you get $5 of productivity, odds are you'll spend $2 if you get $10 $3 if you get 15 dollars And we believe our platform in fact, there's plenty of evidence our platform can provide those kinds of returns.
So we'll continue to invest in the areas Dave talked about. Talent, we're growing our talent. Breadth and depth globally. And then company brand, we spent nothing on company brand. You see us spend some this year.
We'll look at the tracker. Our unaided and aided brand awareness is going up and we'll just try to manage that as effectively as we can to continue to invest in our. So we spent our we have 3 of our I should introduce 3 of our Board members here in the second row, Paul Chamberlain our newest Board member, Theresa Briggs and Jonathan Chadwick. We spent our entire October Board retreat, our annual strategy retreat last year talking about our path to $10,000,000,000 The management team went through a process last year where we embrace the path to $10,000,000,000 and then we spent a day and a half, 2 days with our Board on that. And I would say all of us walk out very confident that we have an opportunity to in fact achieve $10,000,000,000 and that is our focus.
Our challenge is not opportunity. We don't need to spend something here or tell some great big story. Our opportunity is to take advantage of the opportunity in front of us by focusing on executing and continuing to innovate and building our organization. And that's what we're doing. That's what we're doing.
And I hope you got a sense of that today from what you heard from Dave, CJ and Mike. Last thing I'll say, I'll echo what Mike said. Believe it or not, Mike is not the only reason that our margins are where we are. We I've seen a lot of organizations in my career, and I said this last year, this organization has a lot of discipline up and down. We have the risk
of underinvesting, not overinvesting. I'm not signaling that we need to invest more.
In fact, not overinvesting. I'm not signaling that we need to invest more. In fact, we couldn't spend more this year and do it intelligently. So all I can say is that next year, we said we'll give another point of margin. And the paradigm we have in our mindset is we want to invest to capitalize on this opportunity, but we'll only invest intelligently.
And if ever we see an opportunity to invest more that we think will accelerate growth, we'll tell you that. We'll be very transparent. There'll be no surprises in that front. For now, we think we can take the growth we've got, continue to invest in the areas we're investing in, generate positive growth and give 100 basis points of margin. So let me stop there.
I don't think anything I said was different than what you've heard all day. Hopefully, it reinforces it a little bit with the voice of the customer behind it. I want to now invite Dave, CJ and Mike up to the stage and we've got plenty of time for your questions. All right. We'll start working our way this way.
So how about we start over there and we'll work our way and work our way back.
Thank you. Keith Bachman from Bank of Montreal. I wanted to throw just ask a question about the new financial solution. If there's any metrics or any kind of points you should help us think about as investors, when might that gain traction? Is that a next year kind of dollar impact?
Or when does it show up on the metrics that you give on the slide decks of when customers should be thinking about it or even more broadly than that? Mike, we've talked in the past too about you thought it was going to be a pretty big market opportunity for you. But any more granularity on how we should be thinking about the financial solution that you've introduced?
Sure. I'll take it first, then I'll let Dave. Obviously, when we roll out any new product, as C. J. Announced, we have controlled availability that is starting right now.
We do expect that we will start to sign some customers up. It's not going to be meaningful this year. And realistically, I think it's going to be more of a 2021 before you see any real impact from a revenue standpoint. We do think that product as we said, any new product we roll out generally has to we have to believe that it has the ability to do $100,000,000 in revenue from 3 to 5 years from being released and have $1,000,000,000 opportunity doesn't mean we'll get there. And so you really won't see until 2021, it's really 2022 more where you'll get that.
You will see, as I said, I will evaluate pricing. I actually told Dave, I said, Dave, you can sell it to me directly, but you're going to discount the commission because you're not going to get paid commission. Don't give me a sales rep. He didn't respond.
And let me just build on. Mike's been saying something since I joined that I think is true that this is potentially a very strategic product in the following sense that this is our first entree to the world of CFO, where the CFO can see firsthand what the ServiceNow platform can do in workflow within finance. And CFOs understand that spend $1 get 2 back, that's a good thing. And so I think it's going to both help build our brand awareness with the CFO that will go beyond what the CFO spends on ServiceNow. Increasingly is, as we become a larger ticket in these companies, CFOs have more oversight.
And at some point, we may have an economic downturn, in which case, CFOs are going to start focusing a lot on software spend. And if we're the people that they're confident that provide productivity and return, in a world of tighter spend, we're going to be the ones that benefit disproportionately. And so I think there's a strategic value for us of this product. And that's why C. J.
Highlighted that NowX is going to continue to work on additional finance workflows as a real, I think, both strategic and economic opportunity for us.
The other thing I would just say that having an established route to market when you launch a new product is really important to me. And so building on the relationships we have with our global SIs, in this case, Deloitte being our launch partner with this is super important for us. They have a very strong SAP practice and they're trying to work on the digital transformation for the office of the CFO. This product is exciting for them to bring to market. So it's going to accelerate us into the space.
We don't have huge plans for it this year, because it would be silly to base this year on that product. But as we learn more, we'll lean in further and we'll update you going into next year.
Hi, over here. Brad Zelnick with Credit Suisse. Thank you so much for hosting us today. And Mike, congrats on a great run and it's been a great couple of years working with you. I have one question for John and one for Mike.
John, last year, I think we came away from this event thinking that you can you've opened the door to more substantive M and A. I was hoping that you can give us an update on how you're thinking about corporate development. And for Mike, with federal such a huge opportunity, which I think I heard a couple of times in the presentations today, And just the question, what are you baking into your model in terms of the self hosted revenue? And also along the lines of the comments around RPO, is it fair for us to look at a revenue plus sequential change in RPO for a bookings type calculation as a proxy for the performance of the business? Thanks.
On the M and A front, I would echo what I said a minute ago and Mike said as well, which is, we think we have enormous organic growth opportunity. We think we can get to $10,000,000,000 with organic growth. So the way we think about M and A is really in 2 categories. The first is where we can buy technologies, talent that can accelerate that. We call these acquihires or a lot of the kind tuck ins we've been doing and we want to continue to do.
C. J. And his team are constantly evaluating and monitoring those and we're going to target doing 4 to 8 a year. Like the mobile capabilities you'll see us release tomorrow were largely built on an acquisition that CJ and T made 18 months ago, a company called SkyGiraffe, Israeli company that rebuilt native mobile capabilities. So we'll continue to do those.
And then we'll look selectively. If we think there's another growth engine that we can add side by side to ServiceNow, we'll do that on an opportunistic basis. We can do that from a position of strength. We can be patient and thoughtful about it. If we see 1, we'll come to you and say, hey, we think this is a great opportunity and we're going to do it.
But it's not out of necessity. We don't say we don't sit down with our Board and say we must do a large acquisition this year. And so but it is another tool in our toolkit. And if you were to ask me, by the time we get to $10,000,000,000 I bet we've done 1 or 2 of those.
To your question on RPO, change in current RPO plus revenue would be a pretty good proxy for bookings, with the exception or with the caveat that FX movements because RPO is a big number can swing that quite a bit
as well, too, so you need
to normalize for FX. Your question on the federal segment, in particular, self hosted, roughly half of our federal customers are self hosted because they can't get around security concerns or we don't have the FedRAMP certification 5, 6 that some require. We are working on getting a higher FedRAMP certification now. We probably will never get to 6 because of the cost. I don't want to say never, but it's unlikely.
And one of the things I mentioned is we are looking at public cloud vendors to partner with to offer potentially the required bed ramp for like Microsoft. Azure has 1. I believe Amazon does too, and we are exploring that right now. If we can meet some of the demands of those customers to deliver that way so it's not self hosted. But if they just host themselves in those data centers, then it would still be self hosted revenue to us.
But at the end of the day, on an annual basis, it's only causing quarterly fluctuation, not annually, because we only do annual contracts anyway. So it would have been recognized through that year anyways, even if it was under the old subscription model.
Great. Thanks. Kirk of Attern with Evercore ISI. Dave, I wanted to follow-up on your I'm sure your comments around and I think Andrew actually brought it up as well and maybe C. J.
You can talk about from a product perspective. But when you think of where you need to go over the next however many years to get to $10,000,000,000 what do you think is the right recipe in terms of letting partners build out some of the vertical business process logic on top of your platform versus you doing it? And then if you look at Salesforce at their scale, they're roughly 40% vertically oriented from a go to market model today. Is that similar where you'd like see that get? And just can you just talk about that in a little bit more detail about how you see that unfolding over the next couple of years?
Thanks.
I think we're still in the early innings of understanding the full impact. One of the things that I'm looking at with David Parsons is the question of IP ownership and how we want to think about that. There are certain things that we see repeating across many of our customers. We may partner with one of the largest SIs and actually pay for them to help us develop something to accelerate development with CJ's team as an extension of our team, but then want to own the IP, and then other situations, we're going to be encouraging them to do it. I think Salesforce actually had a very similar strategy.
They took on some of that and then really worked with partners to build others.
And I'll just add one thing, maybe a couple of things. For a specific vertical, say, financial services, we have to go through the entire all the way from data center platform to actual use cases we support and ensure that we are adding value by creating products or content that is something that supports the use cases that are repeatable and there is a large enough TAM like we John spoke about our finance operations management product, there's a large enough TAM in that specific verticals. We will indicate we are Dave Parsons team that we are playing and we may take SI's help in that. But we have come up with a very simple framework, no fly zone, turbulent zone and freedom to fly everywhere with working with our partners where we will play and where they should develop their own IP for certain vertical use cases.
Hi, guys. Thanks for everything. And Mike, of course, great run. Been wonderful. Michael Turits from Avon James.
So two questions. One for C. J. And one for Dave. So for C.
J, you talked about the single platform, single data model. Is there some limit to that at some point? Do you need another platform? And for Dave, as you've gone through selling more into the white space, that's more difficult than selling non white space. So what's been your strategy and what's kept that from having turbulence?
All right. So I will address for the current use cases that we support, we are pretty disciplined about single platform and single data model. However, behind the scene, we are constantly evaluating our technologies as our customers are adopting multiple products to make sure that we can scale with those customers. So we will refactor, some people may call it replatform, whatever term you want to use, we will replatform that to support our use cases gracefully. And as customers grow in size with multiple products, our platform can grow as well.
Our platform is suited for the current use cases really, really well. Now when it starts coming to lots of machines generating lots of data, we currently in our operations management space, which Andrew was hinting at, do things at the events level, but we would not go at the logs level and for example, some of those logs, traces, alerts and so on. What I'm trying to say is that for currently supported use cases, we are maniacally focused on can the platform scale gracefully as customers scale and as Dave's team continues to sell more products. And when we get to are we going to expand in other use cases, we'll figure out what to do with the platform.
And on the question on the white space, so every once in a while, we'll be or not every once in a while, CJ and I and John are out talking to customers all the time. And so at times, what looks like white space becomes a product. So the security incident vulnerability product came out of a set of conversations we had with a group of customers. And very quickly, we realized there was a significant opportunity for us to go build something around. The other thing I'd point out is a lot of the white space, we're weaponizing 22,000 people this week.
That's our sales force on the white space because they're going back into their companies looking to solve problems. And so every one of those people, including people that aren't here, are looking to add value and they use ServiceNow to do so.
Raimo Lenschow from Barclays. All the best, Mike as well for me. Can we talk a little bit about the dollar net retention? And with that, I want to talk about the penetration per account because at your scale to still do $130 plus is like crazy good number. And maybe a question as the question now in terms of for Dave is like, can you talk a little bit about what you see in terms of penetration even of core products within customers?
Because if we talk to customers a lot of the time it's yes, they have ITSM, but they haven't rolled it out actually properly. They have some item, but not rolled out properly. Can you talk a little bit about that? And then over to Mike a little bit like how does that feed the 130% because like that's a crazy good number? Thank you.
I wish we could always land at full capacity everywhere and people could take full advantage of something right away. It is not uncommon in a large enterprise we're starting with a department or a group to solve a very specific problem. And so where that we get unnatural expansion is you take a $50,000 or $100,000 initial project or pilot and it then goes to multiple millions. And so that we benefit significantly from that. And on the ITOM space, we're just scratching the surface of the opportunity.
The $130,000,000 is pretty simple math. It is what it is. We just continue when and it ties into what Dave said. And it's what I said earlier, we land customers. It doesn't matter how big they are, on average, they land at 200,000 to 300,000.
And we find in 4 to 5 years, those guys are spending $1,000,000 plus with us because they start out unlike most other SaaS companies where they go in and license all the employees or license all the salespeople. We usually start with a geography or a division, and we quickly grow. And that's why we've said before too. There's still a massive opportunity within our existing installed base on our core ITSM product today, and that's why that product continues to grow. And it's really the bulk of our revenue comes from our IT, and it will for quite some time.
Well, in, CJ and his team delivered a product called ITSM Pro, and that has a ton of innovation value for our customer base and gives us an upsell capability into the base to take advantage of the new features and technology that CJ and the team are building.
Hey guys, over here. Alex Zukin from Piper Jaffray. So maybe same topic, but 2 different questions. On the road to $10,000,000,000 what are some of the big go to market changes that you're going to need to have to make over the next few years that could potentially be disruptive? And number 2, as you think about these customers that you were highlighting that are paying you 10 to 20, 20 plus and you think about the set of kind of competitors, not coopetition that you have with the sales force and the Workday and the SAP and these other guys, To what extent, I
mean, when a company is
paying you $20,000,000 plus for some of that white space functionality and they're also a giant customer for these other vendors, Can you maybe talk about how you're navigating some of those relationships on that trajectory?
Why don't you do it first?
So on the go to market side, I think we're already on the journey of segmenting our customers and providing much better account coverage on the very large enterprise, and that's been ongoing for the last few years. And what we've seen is a direct benefit of that coverage model, and we're going to continue to lean in. I think there's much more we can do to differentiate ourselves as a strategic provider and transformation provider. And the investment that John and the team was allowing us to make around customer success and the type of strategic architects that we're providing those accounts is a really we're seeing direct benefit from that spend. As far as navigating the landscape, it is always a question when things are white space, how one goes after it.
Customers usually speak up and tell us or the partner or the other companies where they think we're well suited. The good news for us is our platform has lent itself to be an easy adaptation to do that and they find integration with our platform to be very straightforward.
I think one of the hidden things, there's so many things in this company that may not be obvious, but one of the things that Dave is and Kevin Haverty and others have really built into our sales team is the focus on business value. They cannot get a deal approved unless there's a business value case, even if the customer is not asking for it. Every time one of us get a briefing before we visit a customer, the business value case has to be on the front page. And so I think at the end of the day, those greater than $20,000,000 customers, I can do 2 of them off my head, top of my head. 1 has an $8,000,000,000 IT budget and I think one has a $9,000,000,000 IT budget.
So $20,000,000 is not a large portion of their IT budget. The question is, if they're spending $20,000,000 on us, are they getting value? Because there's an awful lot of that $8,000,000,000 they're not getting value on. So if we can stand out on demonstrating business value, it just changes the paradigm. It's like, all right, I can trust these guys to invest in them more, invest more in them and I'll get return.
And Dave and his team that really inculcates that and that whole go to market team in a way that is cultural almost and I think quite powerful.
Over here, Karl Keirstead at Deutsche Bank. A question for you, John. John, you were on stage here a year ago telling us that you're going to put some energy into evaluating ServiceNow's pricing model. And I'd like to you the progress you've made in the last year. It seems to me that you've gone through a period of price discovery with all the modules, and I'd love to hear where you ended up.
Is there an effort to better standardize the different pricing metrics? Is there an effort to bundle ala ITS Simpro? Thanks for any update.
Sure. So one of the first things we do is to diagnose, sorry, where's the noise on pricing? And the noise, I would say, was 80% complexity, 20% price levels. On price complexity, Dave talked about it. We discovered ourselves because of the organic way our products have grown.
We had what was it 24 different meters that we priced against. And because a lot of our customers bought at the individual product level, they would after buying 4, 5, 6, 7 products at all these meters. So what we did, the first thing we did is we formed a strategic pricing group, Alex, right here, we hired Alex, who's run strategic pricing, how many
places?
3. Three different places and formed a strategic pricing group that works with Dave's team and Andrew Casey's team. And then we picked half a dozen customers, Accenture being one of the visible ones and said, what would a pricing arrangement look like from your eyes that aligned both of our incentives to accomplish what we both want around usage of our platform and getting business value out of it. And you heard Dave and Andrew talk about that Dave and Andrew Wilson talk about that on stage, how I think we feel increasingly comfortable and confident we're coming to some principles really where we can have for those customers that want to have a strategic pricing relationship, we understand what some of the foundational elements are. Why don't you
And I think that there will be certain customers that only want when they first engage with us, they only value one specific element of our product. And so we'll have to maintain some of those historical mechanisms, but as they expand presence with us, having consistent measures in meters and the ability to experiment with new technology the way that Andrew Wilson was talking about at Accenture is really core to getting rid of any kind of objection handling, because the contract is more adept to handle that?
So I'd say, I don't know, we're maybe a third of the way through or a quarter of the way. We feel like we've got the right direction principles and now we'll start expanding out to what we said, what, 30, 40 more customers sitting down with them and we'll learn as we go. I mean, one of the nice things about this organization is our ears are bigger than our mouths. And one of the things that I think ServiceNow has done so well really since Fred Luddy founded it, but just it's deeply ingrained in this company is to listen to the customers and continue to listen and learn and not feel like at any point we have it all figured out. So I don't know, a third of the way through on our pricing journey, maybe a quarter.
Hi, Jen Lowe from UBS. John, in your remarks you talked about 4 to 6 different vendors that are forming the modern enterprise stack. And if you look at the list of companies there, some of them are ones that you've publicly announced partnerships with, Adobe was a recent one. And some of those are ones that may seem like they may, at least at certain points, be a little bit more in competition with you, thinking of Salesforce as maybe that specific example. When you talk and then there was also the discussion around coexistence that there is from Accenture that there's a need for these platforms to coexist.
When you think about what coexistence means and as those vendors come together, do you see more need to do more go to market partnerships or formulate more formal partnerships with those companies to be successful in the enterprise stack? Is open APIs enough that you can just pass data back and forth? How do you see that going and how important is technical partnership to your success?
Well, I very much come from what I hear from customers, right? Very much look at not an industry outlook, but a customer look in. And the customers, especially the strong customers, are unequivocal. I mentioned 1 plus 1 plus 1 equaling 5 or time service now equaling 10. They want to get they do not want these platforms to start competing with one another.
They want to get the value from the collective bundle. Yes, there's 5% to 10% overlap. And so we take that quite seriously. You heard Andrew talk about that. And so and I do believe I also come from the consumer world where Amazon and Google and Facebook, you could say, oh, are those 3 advertising platforms that compete with each other?
I suppose, but boy, I would love to have the growth they've had in the last decade. All three were winners. And I believe that all those companies we mentioned can be winners in a cloud world. And so our focus is how do we work as effectively as possible, understanding where we're adding value and where we're not and how do we connect and integrate as effectively as possible with those other platforms. I don't think it's a go to market thing.
I actually think we're all large enough where our scale is pretty good at going to market and our brand awareness and the customers want to do business directly with us by and large. But I do think it's a technical integration and almost a mindset, almost a mindset that if a customer calls us in and says to CJ, I really want, I've got, I'm using Salesforce's product here or Microsoft Dynamics here or Adobe here, can I ingest that data along with the ServiceNow data? That's where we're focusing our attention on how do we work effectively with them. And so I think it's that is the real need and opportunity in the eyes of the customers more than a go to market piece. Wouldn't you agree?
Yes. I mean, I And
there are times where the power of 2 of us or 3 of us together, and there are times where the power of 2 of us or 3 of us together provides a much better solution to a customer. One of the large projects we're working on has Workday and ServiceNow and a large global SI. They host a meeting every week where the 3 of us with the customer are solving problems. That's the ideal situation. We're all in it together, focused on the right outcomes for the client.
Now the go to market piece where I do think there's opportunity and Dave talked about this earlier is with the SIs. We announced a significant partnership with Deloitte today or yesterday. We spent time with the senior leadership at Deloitte feeling like the combination of their process redesign, change management, their relationships and our technology can accelerate both of our businesses tied around customer outcomes. You heard Dave talk about with Andrew Wilson, we're working more closely with Accenture than ever before, more closely with KPMG, DXC. And so I think that with the global SI's, there is a more of a go to market acceleration opportunity.
Sterling Auty from JPMorgan. As I listen to the comments around your investment in spending into the future of the business, I'm thinking back to a year ago. And I'm curious from your standpoint, do you think the philosophy that you've got towards that investment in spend is exactly the same as we heard a year ago? Or what portion of it has evolved and how? I
mean, I have a I kind of have a simple mindset. Could we have spent any more money this year intelligently? And the answer is no. At the end of the budget year, CJ said, I can't spend more intelligently. Dave said, I can't spend more intelligently.
And this is the point I made earlier, the discipline in this company across the leadership teams as strong as I've ever seen. And so I wish it was as easy that we could just spend more money and go faster, but actually the real world management, leadership and execution bandwidth and then customer capacity to absorb. Those are more the limiting variables. And so we feel like we have a really high quality opportunity in front of us. We want to invest to take advantage of it, but to do it in a disciplined and intelligent way.
And the only thing I can say is each year we'll revisit it. We'll be transparent in our thinking. We feel like the investments we're making around product, customer success, talent and brand, same 4 categories, we feel like they're smart, we feel like we can demonstrate return from those and we'll continue to do that.
Walter Pritchard from Citi. First, Mike, I'll remind you that even though my billings numbers were way too high, you ended up beating them. So just on profitability, so you put up that slide showing $20,000,000 customer, dollars 1,000,000 customer, the sort of benefits you get on a customer basis. It feels like that would actually drive more leverage than you're talking about of 100 basis points a year. And I'm wondering how much of it has to do with you sort of reserving some room over time to invest down market with customers that are like much smaller than your current commercial base?
And I know there's a lot of venture investment and so forth going after those customers. It feels like you could get maybe eaten from below if you're not careful there. And I'm curious how much you're looking at investing there.
I'm going to just make the point, when Mike talked about profitability of those big accounts, I'm actually trying to invest more into those bigger accounts because, 1, they deserve it and 2, there's even more opportunity there. So in the short term, we may actually spend more to serve at the top end of the pyramid, because I think the return is going to be there for the organization over time.
And I don't think we're really spending a lot more down market. The Commercial segment is important. As I said, it's about 20% of revenue, and we'll continue to grow our reps down there. But the bulk of our go to market spend is at the enterprise level.
We've got just one more here.
Thanks, guys. Matt Hedberg, RBC. Question for CJ. DevOps Management, this is a huge category and there's lots of little things within DevOps. Can you talk
a little put a little
bit more granularity on what this product will do? And maybe how do we think about the competitive landscape there? I think in the Financial Ops Management, we have a pretty good idea, but maybe a little bit more color on where that product is initially, where it goes and some of the other functionality that could come into that product?
Sure. So DevOps is an incredibly fragmented tool chain with both the open source and commercially available products at the highest level. And the engineers with the new and new technologies and as the infrastructure and dev environments continue to change, they continue to adopt new technologies. We believe that right now for us, the priority and focus is in enterprise DevOps. So not at the DevOps tool chain level where you're doing planning, configuration management and those kind of things, but at the higher level where you have many DevOps projects, you need visibility across those projects and making sure that the change management or release management that needs to be done for a large bank or for a large organization is done using ServiceNow.
So we would consider ourselves as an enterprise workflow on top like a system of action, what I said earlier, on top of systems of record. So if you think of systems of record analogy, you will have planning software, configuration management software and other software. We will integration into ServiceNow and ServiceNow executes that will I execute a particular change based on conflict management level at this level. So there is no real good compare right now. But all I will tell you is that whether it's financial services, healthcare and other places or even retail, there are so many DevOps productsprojects going on and our value is to give visibility into the DevOps pipeline and help execute changes successfully using service management concepts.
We have time for one more question.
Okay. Hi, guys. Greg Moskowitz from Mizuho. Just two questions for Dave. So you spoke about building out dedicated industry verticals, Specifically, you referenced the financials and telecom.
How should we think about the timetable of those? And then secondly, I realize it's early, but are there any sort of early takeaways that you have around the new global accounts management structure? And how should we expect that to evolve over time? Thanks.
So I'll start with the second question on the takeaways from Global Account Management structure. So we started to segment what we call select accounts. We started with 10 last year and then we've added from that. And we're seeing a direct benefit both in net promoter scores from customers as well as increased pipeline creation from that focus. So continuing down that path, there is some added expense in our sales model that wasn't there before, but that we've been planning for that.
So it's built into the model that you see. As far as vertical revenue, again, it's not in this year's plan for us from a new product introduction. We have vertical coverage already and the horizontal products are present in all of those spaces and there's huge opportunity in those spaces for the existing products. It's CJ and I are partnering together to figure out which are the first use cases that we want to productize and that will be not this year.
Okay. I think we're out of time. I'm sure we're happy to be up here afterwards if any of you have any remaining burning questions. But thank you for taking the time to join us today. I hope what you walk away with is clarity on 3 or 4 fronts.
That's what I've opened up with. The opportunity is as good as I've seen in my business career. And you heard that from Andrew Wilson. It's coming from what customers are demanding and saying, not from our marketing materials. I think we've got the right priorities and I believe we've got the right team.
I hope you see that with obviously extraordinary leaders like Dave and CJ and Mike. What you don't get to see every day is we've got Russ Elmer, our General Counsel Alan Marks, our Chief Brand and Communications Officer Lara Cammie, who runs Strategy and Alliances Dan Rogers, who's putting on this whole conference, our Chief Marketing Officer Chris Betti, our CIO, plays a really important role in our company because he is tough medicine, right, in terms of being a user of our products. And so Pat Waters, our Chief Talent Officer, so we have a very strong team, a team I am enormously proud of, one of the strongest teams I've ever worked with and they are building their teams underneath. So right priorities, right team. We've got good momentum and an awful lot of what we need to be doing over the next year is execution and we're going to keep that day in and day out.
So thank you very much for coming with us in this journey. I hope many of you stay for at least the first part of our Knowledge Conference. We welcome your feedback at any time. So thanks very much.