ServiceNow has overturned the IT service management (ITSM) market, leaving financial industry naysayers who shorted its stock scrambling, along with such traditional ISTM vendors as BCM Software, HP, CA and IBM, writes Wikibon Cofounder and CEO David Vellante in “ServiceNow: Redefining Enterprise IT Service Management”. It is expected to report annual revenue above $400M at the end of January, a 60 percent growth rate over 2012. It has added $3B to its market value and maintains roughly a 20X revenue multiple over its current market cap.

It has done this by following the Salesforce.com model of providing a highly flexible, easy to use, SaaS version of, in its case, ITSM to enterprise-level clients. Until it arrived, ITSM was a quiescent market dominated by old-line technology that users complained was hard-to-use, fragmented and inflexible. ServiceNow has kicked over the anthill, and the traditional dominant players are creating SaaS versions of their products to compete.

Whether that will be enough for them to hold their market shares against a much more agile, user-friendly competitor remains to be seen. They have been challenged by the introduction of ITIL (Information Technology Infrastructure Library) 2007, which created a more holistic, full life-cycle approach to ITSM. This left the traditional products behind. In contrast, ServiceNow’s modern architecture and single code base and data model, shared among all applications on the system,  made it easy for customers to adapt its platform to changing business requirements and the new ITIL processes. As a result, by the end of September 2013, it had 1,900 customers, just under 16% of the 12,000 large enterprises it targets, and 10-12 percent of the ITSM space overall. It is rapidly gobbling market share to power its growth in what was once seen as a stagnant market.

Justifying its Valuation

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To justify its very large valuation, it needs to continue its growth in the ITSM market against the now awakened traditional vendors and expand into new areas. It is already making noises about supporting HR help desk processes with the same flexible platform and, inside IT, is positioning itself beyond just help desk support as the “ERP of IT”. ServiceNow CFO Mike Scarpelli has conservatively estimated its total market at $8B and cites analysts who have pegged it as high as $20B.

Wikibon believes that it’s total potential market is significantly larger than existing markets and extends beyond IT as shown in the graphic above. “The reality is that HR functions, facilities, marketing and other business lines have similar dynamics for handling requests,” Vellante writes, adding that ServiceNow recently announced capabilities to automate HR service delivery that are complementary to rather than competitive with HR systems such as Workday.

As with all Wikibon research, David’s full report on ServiceNow is available on the public Wikibon Web site. IT professionals are invited to register for free membership in the Wikibon community. This allows them to connect with their peers, add comments to Wikibon research, participate in that research, and publish their own questions for Wikibon analysts, tips, Professional Alerts and longer research.