ServiceNow, the provider of Enterprise IT service management software, has announced that it intends to raise $500 million by offering convertible debt. ServiceNow says they expect to use the net proceeds from the offering of the notes for general corporate purposes, including potential acquisitions and strategic transactions.
The game plan so far for ServiceNow has been to focus on growth rather than profitability.
They ultimately wants to compete effectively on gaining market share against big league players like CA, IBM, and BMC. The question is, how do they plan to foster growth with these new (and expansive) funds.
ServiceNow currently holds $353 million in cash and investments (at the end of Q3) with no debt. The company has no pressing need to raise funds – unless it plans to make an acquisition. They have stressed that they currently have no commitments with respect to any acquisitions or investments right now, but we have a few ideas.
There are three big-picture options that are available for ServiceNow right now: investing in IT service management (ITSM), expanding into other fields in IT management, and making a strategic move to become the next big enterprise IT management company.
Playing the same field
Staying in the ITSM business involves buying another company for growth, but whether this is a valuable move is a good question. ServiceNow currently operates within a very specific SaaS messaging and delivery framework, that targets the Fortune 2,000 market segment. Acquiring a similar company in the ITSM business that targets the mid-market might then be a feasible option.
There are two problems with this option. The first is very basic, and it is that mid-market and large enterprise targeting do not really mesh. The two different sales models could make it difficult for this to be an effective partnership coexisting in the same company. The second is that it would be very difficult to find a mid-market, IT service management company that is both a SaaS offering and aligns nicely with the general ServiceNow messaging around SaaS and cloud. Other than some cloud washers in the space, there are’nt any mid-market SaaS ITSM companies.
A different direction the company could take is to move away from service and focus on other areas of IT management, such as server monitoring, cloud orchestration or any other high margin sizeable IT management segment. This could mean companies that provide services like cloud provisioning or cloud management to larger enterprises. The goal of a move like this would be to expand current offerings so that they are better able to service their clients – who are big and have a lot of needs.
Taking it to the next level
The third way ServiceNow can go is the most interesting, creative, and out of the box move they can make. If you want to compete against CA, HP, BMC and IBM, you need to have the full bag of products. Your target customers have that big blue Mainframe in the basement, so go out and buy yourself a mainframe businesses. This is the option that really offers the edge necessary to compete in the big leagues. With an investment in a mainframe enterprise, the company can actually create a bigger and more complete ServiceNow, one that can get Fortune 2,000 customers signed on a big ELA that cover a customer’s entire IT management needs.
What do you think ServiceNow can and should do with all that cash? Tell us in the comments below!
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