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April 11, 2025
The Lithography Inflection Point - How Two Different Approaches to EUV Could Reshape the Semiconductor Industry
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Kristal Investment Desk
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ServiceNow's Platform Evolution - From Accidental Architecture to AI Control TowerThe Accidental Advantage: ServiceNow and the Power of Being "Wrong" in the Right Way
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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 – an IT Service Desk – on top of his platform.
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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.
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.
As Steven Levy recounts in his book "Insanely Great," when Sony created the CD, they decided its capacity should be 75 minutes – 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.
This "inconvenient" location forced IKEA to reimagine furniture shopping as a destination experience rather than a quick errand – a model that would define the company and revolutionize retail.
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.
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 – 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 – 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.
This approach has become even more valuable in the AI era, where the ability to integrate across systems is essential for delivering intelligent automation.
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.
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.
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.
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:
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.
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 – AWS began as an internal solution to the company's own infrastructure needs. Netflix didn't start with streaming – 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.
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.
By
Kristal Investment Desk
March 23, 2025
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April 11, 2025
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We are licensed in Singapore, Hong Kong and India. Kristal Advisors (SG) Pte. Ltd. presently operates under the CMS license by the Monetary Authority of Singapore (MAS). Kristal Advisors (HK) Ltd is licensed and regulated by the Securities and Futures Commission (SFC) to carry out Type 4 and Type 9 regulated activities and is not involved in the discretionary management of any collective investment scheme. Kristal Advisors Private Ltd. presently operates as a Registered Investment Advisor under the jurisdiction of the Securities and Exchange Board of India (SEBI).
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