ServiceNow's Platform Evolution - From Accidental Architecture to AI Control Tower
The Accidental Advantage: ServiceNow and the Power of Being "Wrong" in the Right Way
In 2003, Fred Luddy did something that defied the conventional wisdom of enterprise software development.
โ
When Luddy tried to sell this platform, the market's response was predictable: confusion.
Nobody understood what a "generalizable automation platform" meant or why they should buy it. To gain traction, he was forced to build a concrete application โ an IT Service Desk โ on top of his platform.
โ
โ
What appeared to be a backward approach in 2003 has positioned ServiceNow perfectly for the AI era.
By creating a horizontal platform that spans across enterprise functions rather than a vertically-integrated solution for a specific department, Luddy inadvertently built the ideal foundation for integrating AI across the enterprise.
โ
The Power of Being "Wrong" in the Right Way
โ
ServiceNow's story illustrates a pattern that appears repeatedly throughout business history: innovations that succeed not because they perfectly executed the conventional playbook, but because they were "wrong" in ways that became advantageous when conditions changed.
โ
โ
Consider Sony's development of the compact disc.
As Steven Levy recounts in his book "Insanely Great," when Sony created the CD, they decided its capacity should be 75 minutes โ enough to hold Beethoven's Ninth Symphony in its entirety. This seemingly arbitrary decision, based not on market research but on the personal preference of Sony's executives who loved classical music, ended up being perfect for the recording industry.
Or think about IKEA founder Ingvar Kamprad's decision to locate his first store far from the city center to save on real estate costs.
This "inconvenient" location forced IKEA to reimagine furniture shopping as a destination experience rather than a quick errand โ a model that would define the company and revolutionize retail.
โ
The lesson isn't that planning is futile or that success comes from random choices. Rather, it's that sometimes being "wrong" according to conventional wisdom creates unexpected advantages when circumstances change.
โ
The Integration Tax
To understand why ServiceNow's approach proved so advantageous, we need to understand the "integration tax" that most companies pay.
The typical enterprise has accumulated dozens, if not hundreds, of specialized software applications over decades. Finance has its ERP systems. Sales has CRM. HR has its talent management suites. Each department optimizes for its specific needs, creating a fragmented technology landscape.
This fragmentation imposes massive costs. Employees waste time switching between applications โ ServiceNow CEO Bill McDermott notes that the average worker "swivel-chairs" between 17 different applications daily, losing approximately one-third of their productivity. Data becomes siloed, making cross-functional analysis difficult. Workflows break down at departmental boundaries.
For years, the solution was massive systems integration projects โ expensive, time-consuming endeavors that stitched together disparate systems with custom code and middleware. These projects frequently went over budget, took years to complete, and often delivered less value than promised.
โ
โ
This approach has become even more valuable in the AI era, where the ability to integrate across systems is essential for delivering intelligent automation.
โ
From Fascination to Implementation
ServiceNow's recent earnings report reveals a company that's successfully navigating what CEO Bill McDermott calls -
โ
While many companies have announced AI initiatives, ServiceNow appears to be delivering tangible results.
- Its AI-included contracts deliver 30% higher value than contracts without AI.
- One multinational conglomerate reported a 45% reduction in live chat customer service needs, expecting to save millions in 2025.
- The New Zealand Parliament reduced employee request response times from weeks to just two days.
โ
These results reflect ServiceNow's unique approach to AI.
โ
The challenge with implementing such sophisticated AI capabilities is that they require seamless integration across systems. If an AI agent needs to access information from HR, finance, and customer service systems to complete a task, any friction in that integration will lead to signal loss and task failure.
ServiceNow's recent product releases directly address this challenge. Its new AI Agent Orchestrator ensures that all company agents are properly integrated, with the right context and the ability to communicate across systems. Its AI Agent Studio provides a secure environment for developers to build customized AI agents.
โ
The Psychology of Technology Adoption
What makes ServiceNow's approach particularly interesting is its recognition of the psychological aspects of technology adoption.
McDermott, who began his career as a deli owner in Long Island before working his way up through Xerox and SAP, brings an unusually grounded perspective to enterprise software. "People have a deep human need to see themselves in the picture," he notes when discussing AI implementation.
โ
This framing addresses one of the most significant barriers to AI adoption: fear. By positioning AI as a tool that enhances human capabilities rather than replaces them, ServiceNow makes adoption less threatening and more appealing.
The company is also adapting its business model to reduce adoption barriers. Rather than simply raising subscription prices for its AI capabilities, ServiceNow is incorporating more consumption-based pricing:
"While we could have launched an additional SKU and offered AI agents as an add-on to drive more immediate revenue growth, our strategy prioritizes accelerating adoption. So by foregoing upfront incremental new subscriptions, we are enabling faster penetration into our customer base... As the agents become increasingly productive they will drive the consumption pricing meter."
This approach balances immediate revenue growth against long-term adoption. It's a bet that once customers experience the value of these tools, usage will increase naturally.
โ
The Lesson: Build for Adaptability, Not Perfection
ServiceNow's journey from Fred Luddy's seemingly backward platform approach to becoming what Nvidia CEO Jensen Huang calls "the AI operating system for the enterprise" contains a broader lesson for businesses and investors.
In a rapidly changing technological environment, the most valuable characteristic might not be perfect execution of today's playbook, but adaptability to tomorrow's conditions.
But this approach created an architectural foundation that has proven remarkably adaptable to changing technological conditions.
This pattern appears repeatedly in business history. Amazon wasn't initially focused on cloud computing โ AWS began as an internal solution to the company's own infrastructure needs. Netflix didn't start with streaming โ it was a DVD-by-mail company that adapted as technology evolved. Neither company perfectly predicted the future, but both built adaptable foundations that could evolve as conditions changed.
For investors, ServiceNow's experience suggests looking beyond perfect execution of today's playbook to consider adaptability to changing conditions. In its recent earnings call, the company reported a superficial miss on guidance, primarily due to foreign exchange headwinds. The stock initially dropped, reflecting Wall Street's focus on short-term expectations.
But the underlying business showed remarkable strength: 21% year-over-year growth despite its scale, expanding margins, deepening customer relationships, and accelerating AI adoption. CFO Gina Mastantuono, recently promoted to President as well, noted that the guidance is "consistent with how we have guided in recent years. You'll recall, we consistently overachieved our stated goals."
This isn't just about ServiceNow. It's about recognizing that in a rapidly changing technological environment, adaptability may be more valuable than perfect prediction or even perfect execution against current conditions.
โ
โ
Disclaimer: The views in the post are for for informational purposes only and should not be considered as investment advice. Please contact your RM or Kristal.AI for investment advise.
โ
โ
โ
By
Kristal Investment Desk
March 23, 2025
Liked it? Share it with your friends & colleagues!
We encourage our India investors to use a financial guide. Kristal does not charge any additional fees for investing through them.
In case you already have a guide, we will try to bring them onboard. In case not, we can recommend one of our qualified partners to advise you through the journey.
This is offered only to Accredited and Institutional Investors as defined under the Securities and Futures Act, Chapter 289 of Singapore (โActโ), which broadly comprises of regulated financial Institutions, large corporates, high net worth individuals and sophisticated investors.
An Accredited Investor is an individual
Whose net personal assets exceed in value SGD 2 million (or itโs equivalent in a foreign currency) with value of his/her primary residence capped at SGD 1 million, or
Whose financial assets (net of any related liabilities) exceed in value SGD 1 million (or itโs equivalent in a foreign currency), or
Whose income in the preceding 12 months is not less than SGD 300,000 (or itโs equivalent in a foreign currency)
I agree to opt-in as Accredited Investor and will submit required documentation to confirm the same.
Proceed as Private Wealth
ยซ BACK
Barrier Reverse Convertible (BRCs)
It is a structured product issued at par. In working it is similar to a Reverse Convertible but includes the barrier feature to protect downside to some extent. The underlying can be a basket of shares where the worst performing share may be delivered on expiry at the strike price.
Itโs a structured product which is similar to ELONs, except the underlying can be a basket of stocks. This means that in addition to normal ELON factors, there are additional knock-out, knock-in rules associated with them.
An equity linked note which is issued at par. The payment is made on initiation, by the client, in the form of shares that he/she might already hold and wants to unlock more returns especially during the periods when the stock is not giving any dividends.