ServiceNow CFO Gina Mastantuono said the company's new generative AI SKUs, Pro Plus, is seeing rapid adoption, but it will take time to move the revenue needle. She also provided insights on how ServiceNow decides how to price its products.

Speaking at a Morgan Stanley investor conference, Mastantuono said ServiceNow's AI SKUs were launched on Sept. 30 and it is the fastest growing product the company has launched, but "it's still new and it's still small in a $10 billion base."

According to Mastantuono, the Pro Plus lineup should make a meaningful contribution to revenue in two to three years. She added that ServiceNow is using generative AI technologies inside the company across all business functions for about 20 use cases and seeing productivity gains.

"We're seeing millions of dollars of savings just this year by virtue of what we're doing internally," she said.

Mastantuono said:

"Most of what we're doing with our Gen AI SKUs, we're mimicking what we did with our initial AI SKUs and our Pro adoption back in 2018. And so, if you think about that Pro adoption versus the Pro Plus adoption, we're not building in accelerated adoption curve just yet. But if you think about the excitement, the understanding of the productivity gains that Gen AI can drive in 2024 versus what we knew and understood and what customers knew and understood back in 2018, there's an argument for sure that, that adoption curve will be faster."

She added that the upgrade from standard ServiceNow subscriptions will be a heavy lift to Pro Plus. Enterprises on the Pro plans already have a relatively easy upgrade path.

As for the pricing plans for Pro Plus, it's a 60% uplift relative to Pro SKUs. But there's a method to ServiceNow's pricing.

Mastantuono said:

"We did it very similar to how we price our Pro SKUs. So, when we launched Pro back in 2018, we had a 50% price uplift on the list price. And we did the same exact math, right? We looked at the productivity expectations, the efficiencies by task by employee salaries. And what we do is we give 90% of that value to customers and we keep 10%, that value equation seems to work extremely well with the customers. And based on our initial kind of one quarter out, feels like we're in the right place."

In other words, if ServiceNow can automate a task for someone in IT operations management who makes $100,000 a year and boost productivity 30% there's $30,000 in value. ServiceNow wants 10% of that sum in price increases.

Mastantuono said that's rough math, but there are other moving parts to ponder.

"I don't think that 30% of one person's job is going away immediately. It's specific tasks. How many of the tasks that they do are going to be automated? I think companies are going to really have to lean into reskilling some employees, because it does mean that they have more time. I don't think that full jobs go away, but we make them much more productive. And reskilling in areas there's more value add."

Over time, Mastantuono said pricing will have seats, which are actually increasing with Pro SKUs, and there's consumption via tokens for large language models. ServiceNow is building capabilities for usage-based models too. Consumption models can work better as enterprises consolidate platforms. She said:

"I think there are a few different ways of thinking about potential pricing in the future. What I think is important is that efficiency and productivity is not just about time. It's about better resolution. It's about getting those IT issues solved faster, which means the employee who's either with the customer or building code and driving innovation can be more productive to drive better top line, better innovation across the board."

On the back end, ServiceNow is focused on domain specific language models, which use less computing power.

Business Research Themes

Data to Decisions, Future of Work

Roles

Chief Information Officer

Tags

@servicenow, #GenerativeAI