24.03 Liontrust Global Innovation Report - The Rise of AI 04.24 - Flipbook - Page 24
TO O L S L AYER – SERVICEN OW
The business-facing technology company
ServiceNow may be less celebrated than
the consumer giants of Apple, Google and
Amazon, but its operational and share price
performance over the past decade since its IPO in 2012 stands
up to comparison with all of the above names. During this period,
ServiceNow has grown annual revenues from $200 million in 2012
to around $10 billion today and expanded free cash flow per share
by an exceptional 50%-plus a year. It has delivered shareholder returns
over the decade at 32% a year. This track record takes some beating.
R IN
IN EE
EN G O LS
TO
G
The shadowy secret of the great digital transformation of the past
couple of decades is that much of the spend has not delivered a
positive return on investment. But ServiceNow is turning this around
and enabling businesses to achieve the long-hoped for productivity
gains from digitalisation and automation. Rather than supply
companies with just another piece of software to add to the pile,
ServiceNow sits above the mess, organises it, stitches it all together
and enables different software programmes to talk to one another.
It does this today for close to 8,000 enterprise companies,
including 85% of the Fortune 500 like Walmart, CVS, AT&T and
JP Morgan. An independent study by the market intelligence firm
IDC in 2021 (ServiceNow Knowledge 2023: AI Advancements
Lead Customer and Partner Opportunities for Collapsing the IT and
Business Divide) of a sample of ServiceNow clients found that the
average return on investment over five years was around five to six
times, with a typical payback period of seven and a half months.
ServiceNow is well positioned to enable its customers to use AI
to enhance their business and achieve strong productivity gains
over the coming years. Its newly announced products as part of
its recent Vancouver software release – which include a large
language model based copilot and text to code developer assistant
(powered through its partnership with Nvidia) – have reportedly
generated strong productivity gains in testing with customers, with
an estimated potential 10 times return on investment over time*
and will give ServiceNow a 60% base price subscription uplift.
*Company management statement at Mizuho Securities AI in Focus
Conference, September 2023.
APPLIC ATI O NS L AYER – N E TFLIX A N D SP OTIF Y
Have you noticed a difference in your daily
commute? Instead of laboriously scrolling
through our libraries of outdated playlists
to find that particular song to kickstart our
days, Spotify is doing a pretty good job at predicting what the
song might be. Users can even type in details of their mood and
a playlist emerges, tailored to the artists they frequently listen to.
A PP S
This is AI touching our everyday lives. And what’s more, we
can all experience first-hand the improvements in AI unfolding.
Netflix, another direct-to-consumer business, is also enhancing its
customer experience through AI deployment. Not only are the
movies personally recommended to us powered by AI algorithms,
but the actual production of Netflix Original shows is optimised
using AI. What this means is a lower cost of content production
and shorter time to market, both of which flow through to the
benefit of the customer. Put simply, these are two companies using
AI to drive automation and create genuine customer value in the
process – the cornerstone of what the Global Innovation team
looks for in our companies.
Past performance does not predict future returns.
24 - The rise of AI: Technology and Innovation Report
In the direct-to-consumer cases of Spotify and Netflix, barriers to
competition come in the form of scale economies and network
effects. It is hard to overstate the importance of owning the data on
a large base of sticky customers when it comes to winning in AI –
it’s this data that trains the AI model and then constantly improves
it. The more customers that feed the model, the more accurate it
becomes: recommendations strike a chord more frequently and
efficiencies are further enhanced. With 515 million monthly active
users in the case of Spotify, and 160 million customers using
Netflix, the treasure troves of proprietary data these companies
have at their disposal is a unique advantage.
Both of these companies are primed to be beneficiaries of the
AI revolution yet neither is a technology company. To access the
gains from AI driven automation, you do not have to be confined
to investing in the companies creating the infrastructure of ChatGPT-esque products. AI is a general purpose technology spanning
all industries, with the potential to enable much better products,
services and organisational design. We believe the emerging
winners from this AI transition will be those with the most innovative
cultures, who are nimbly adapting to create customer value.
