The ServiceNow ecosystem has become an increasingly consolidated space as the platform has grown, posing significant challenges to up-and-coming boutiques that don’t want to be bound by private equity (PE).
Michel Regueiro, co-founder of digital transformation firm Iconica, says his company manages to stand out from the three clear layers of the community as it currently stands.
In a LinkedIn post about how the ServiceNow ecosystem works behind the scenes, Michel outlined these three layers:
- At the top are the “generalist giants”, the GSIs, with deep enterprise relationships and global reach.
- Secondly, the “global pure players”, all of which are private equity-backed, meaning they all strive towards the goal of maximizing return and selling to a GSI.
- Then, “at the bottom”, as Michel puts it, are the founder-led boutiques, which he says are “too often stuck grinding for a seat at the table, without the muscle (or capital) to scale”.
We spoke to Michel to get an in-depth look at how this has evolved over time – and whether there is a way for founder-led boutiques to break out without PE-backing.
How the ServiceNow Ecosystem Consolidated
Michel told NowBen that, back in the early days of ServiceNow, the company had no attention from Global System Integrators (GSIs).
“Obviously, it was a very small solution,” said Michel. “ServiceNow was basically setting up their own salespeople in a direct channel and there were basically a number of very boutique partners in different locations in the world.
“So as it happens, it happened the same with Salesforce, it happened the same with Workday and so on, and as ServiceNow grew and matured, you started to see this consolidation of the market that took place with these boutiques that started to be acquired by the GSIs.
“Very often GSIs are very bad at growing organically, but they are huge monsters… so even 1% of growth for them, it’s actually a massive growth.”
When you are doing $25B or $30B in revenue, even if you do one per cent of growth, that’s a huge amount.
But, Michel says, often these groups will acquire capacity and competence through acquisition and through M&A activities, and that’s where this first wave of consolidation took place, probably around 2013-2014.
That was the point where GSIs started to have an interest in ServiceNow. The GSIs had a unique reach and relationship with customers, and early ecosystem members started to see a “pyramid” forming.
Michel said: “You now have the GSIs at the top where they want to serve the global 2000, that’s their top priority, and I saw that typically. With the acquisition of my company, we saw that really upfront because as soon as we got acquired, our smallest customers were no longer of interest, even to the point where sometimes I was asked to not bid on some RFPs because they were considered too small.
“And the GSI has a very different strategy because they actually add other technology stacks and vendors to just be able to feed more the stacking pyramids and to cross-sell crazy. So it’s not a strategy to say, ‘Hey, we have ServiceNow, so is just the ability to be able to say. ‘Yes, dear customer, I can now serve you on ServiceNow as well and I want to expand more’.”
As Michel and Iconica saw some of the leading boutiques get acquired, something that they were “not used to at all” became apparent – private equity started investing in the ecosystem and acquiring platforms, with some of the ROI becoming “massive”.
He added: “So what we have seen is that we have seen private equity getting extremely interested in this ecosystem and they started to acquire, consolidate and roll up companies. But with one challenge: the fact that, because the market was so hot that the boutiques were to be acquired, they were with huge expectations in terms of multiples, right?
“And then what happened is that some of these were acquired for a very expensive amount and now some… are struggling to actually find a path to exit that will have a return on investment because the market has evolved, and maybe that there are not as many strategic buyers as they were basically in the ecosystem because the consolidation took place and now there is a struggle where expectations are high.
“The buyers, they really struggle to see, ‘Hey, why should I pay so much so you have these great brands as global companies that are really ServiceNow dedicated but with a lot of pressure coming from the [private equities] to actually change the perception.”
So, Do You Need Private Equity Backing?
While boutique consultancies still face considerable challenges in the ServiceNow ecosystem without external investment, they can still succeed without PE backing, Michel says.
“I think it’s still possible,” he said. “I think it’s a lot of work to go organic today in this ecosystem. I think it’s really a lot of work.”
He said that there are still “fantastic boutiques” which have grown independently and could expect high acquisition multiples – but he added that the number of these firms has been dwindling.
“It’s probably less boutiques than before… now it’s really the minority,” he said.
Michel said that one of the core challenges is the size and complexity of the ServiceNow platform.
“If you are a founder and you want to really expand on every domain of the platform it’s almost mission impossible so you need to specialize,” he said.
But specialization limits the potential for growth, particularly across borders. “Most of the boutiques are in only one country… it’s really difficult to actually expand to another country and another market,” said Michel, adding that international expansion is often where “the organic model makes it very difficult.”
Michel’s company, Iconica, gets “minority funding” but remains founder-led and, to overcome sourcing challenges clients face when looking for specialized partners, the company has created something of a unique model: creating their own boutiques where they hire architects, in a bid to ensure business continuity and transformation.
He spoke of the company’s “architect first model,” intended to make sure that engagements begin with a Certified Technical Architect to provide a “holistic view” of a client’s platform strategy – rather than focusing on siloed projects.
“Let’s make sure that we have the right governance… and manage demand from day one,” Michel said.
Michel also spoke about Iconica’s plans to modernize tech service procurement through a curated marketplace inspired by consumer platforms.
He told NowBen: “So our kind of crazy idea behind the marketplace is to say, why don’t we actually streamline all this process where we can offer this, Fiverr, Upwork experience where you go you submit your needs or you can browse basically the expertise available in the marketplace that we have curated?”
Michel said that, unlike other marketplaces, it’s more self-service, and you do it on your own.
He said: “It’s more like, we will always be engaged in any request that we get in the marketplace where we have an Iconica architect who will look at the requirements and so on.”
Looking to the future, Michel predicts even more consolidation in the ecosystem – and warned that artificial intelligence would “disrupt massively” traditional delivery models used by global system integrators (GSIs).
“AI is going to disrupt completely,” he said. “We will see consolidation definitely… and disruption by AI definitely.”
Final Thoughts
Michel outlines a comprehensive picture of the ServiceNow ecosystem and how it has evolved over the last decade.
While there is, according to him, a narrow path whereby up-and-coming companies can succeed without the backing of private equity, Michel’s three layers of the ServiceNow ecosystem which he outlined – the “giant” GSIs; the PE-backed “global pure players”; and the scrappy founder-led boutiques lacking capital – rings true as the general rule.