ServiceNow plans a new AI-native offering later this year aimed at smaller customers beyond its enterprise base, Chairman and CEO Bill McDermott told analysts during the company’s second fiscal quarter 2026 earnings report.
ServiceNow’s innovation velocity continues to accelerate to meet AI opportunities, including a potential move toward expanding the company’s reach into smaller businesses.
ServiceNow Chairman and CEO Bill McDermott, during his prepared remarks for ServiceNow’s second fiscal quarter 2026 quarterly financial analyst conference, said the company will shortly unveil a business model evolution to expand its total addressable market with AI-native products.
“This new offering will be a conversational service desk experience: no tickets, and [including] AI-coded automation,” he said. “In a new product-led motion, we’re targeting the Fortune 500,000, many of whom we expect to replace their legacy offerings and bypass startups and stop wasting time. We already have several customers in beta and soon will be [generally available]. This is the first of many net-new AI-native products we’ll be bringing to market in the weeks to come. Our dynamite engineering team is on fire.”
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ServiceNow declined to discuss the company’s move to bring its technology to smaller businesses than in the past. However, a company spokesperson confirmed with CRN that the “Fortune 500,000” descriptor is correct, and that more information will be forthcoming.
It is a move welcomed by ServiceNow channel partners, several of whom told CRN the vendor’s AI capabilities will help it succeed in the midrange and commercial market where it had previously struggled.
Ryan Crosby, vice president of sales for the intelligent ops practice at Ahead, a Chicago-based solution provider and ServiceNow channel partner, told CRN that he feels ServiceNow’s AI capabilities will better position it to move downstream.
“I do believe they’ve got the capabilities to do it. They’ve tried it in the past. It’s just that they didn’t have AI built into the platform,” Crosby said. “I think the addition of AI-native solutions specifically for commercial and midmarket customers is what they need to capture that market.”
Crosby believes that the “missing element” as ServiceNow tried to enter that part of the market in the past via its previous ServiceNow Express technology was AI-native applications.
“If you think about the way typical ServiceNow deployments go, there’s a lot of building out processes, building out the understanding of how workflows need to work, and that’s typically really strong in the enterprise space, but with smaller companies, there’s not a ton of processes,” Crosby said. “They need a more ‘assembly line’ approach to be able to deploy a platform like ServiceNow.”
Ahead has already been building up capabilities that would enable it to work with ServiceNow in this new market segment, Crosby said.
“We’ll obviously need to hire people in my division to specifically go after that market, but Ahead has been building out a midmarket or ‘growth patch,’ as we call it, for the last two years, so we’re pretty much almost ready,” he said. “We’ve got core client directors that are already selling into the commercial and midmarket space. We would just need to layer on specialty sales … and rejigger our offerings to be more in line with ServiceNow’s, which we’ve already started doing. AI has been embedded in everything we’ve been doing for the last year and a half. We started getting ahead of it long before ServiceNow really started building out their offerings. We really just need to build out the dedicated sales team to focus in on it, which I think we could do in short order.”
Rick Wright, CEO of CoreX, an Addison, Texas-based solution provider and ServiceNow channel partner, told CRN that he expects ServiceNow to come out with a variety of tools and agents that will allow partners to configure the vendor’s platform to meet customers’ requirements.
“More and more, you’re starting to see AI impact how we go about driving implementations, which is going to allow us to go further downmarket,” Wright said. “It’s quickly getting to the point where the limiting factor of how fast we can go in these implementations is how much change the customer can absorb in how short a time frame. It’s no longer about how much time it takes to configure the platform. It’s really the adoption and the change management that’s the limiting factor.”
CoreX has the people on the AI front to expand downmarket with ServiceNow and has invested heavily from an R&D perspective in how to leverage AI to drive much more efficient and expedient implementations, Wright said.
“We’re already well down the path there,” he said. “We see that as a need not only for the midmarket but for all of our clients. They’re all expecting it. I think what will be interesting is the go-to-market sales channel marketing. We do a lot with ServiceNow today in joint marketing activities and customer roundtables, but we haven’t seen their go-to-market model for the upcoming technologies. … But I know ServiceNow is still primarily a channel company.”
Wright also pointed to AI as the missing piece that will now help ServiceNow be successful with its new market push.
“I think AI is the big difference,” he said. “What they tried to do [with ServiceNow Express] was just simplify the product without creating a whole other version. At its heart, it was the same platform. It didn’t really change the complexity or what you needed to do to support it. Leveraging AI now, you know how you configure the platform, how you support the platform, how you have agentic agents to drive a lot of the workflows and a lot of the configuration, the upkeep, how you do upgrades. AI is completely changing how much effort it takes to support the platform, and I think now you can go downmarket where you couldn’t before.”
Andrew Paolino, general manager at Konversational, a Dublin, Ireland-based solution provider and major ServiceNow channel partner with extensive operations in the U.S., told CRN that ServiceNow’s move makes sense given the dynamics of AI and workflow technologies.
Paolino also pointed to potential competition from smaller AI-native vendors, including Serval, a San Francisco-based developer of AI-based IT service management technology, and Servicely, a Sydney, Australia-based developer of AI-powered service management technology.
“We’re not seeing them steal customers, but they are AI-native companies that promise to deliver the IT experience without having to go in and build all the workflow and spend all these consulting dollars to stand up the product,” he said.
How ServiceNow’s new downstream push is accepted by the channel will depend on the services opportunities around it, Paolino said.
“Our business is based on delivering professional services, and if there are no services to deliver, then it’s probably not interesting,” he said. “If it turns out to be a starting point product, a ‘door-opener’-type of product, and that some set of customers that turn this new product on actually turn out to be great candidates for the larger ServiceNow platform, that’s pretty interesting.”
ServiceNow’s AI Push
Seven years ago, ServiceNow said it would be the defining enterprise software company of the 21st century, and it has done so, McDermott said during the financial conference call.
McDermott called out his company’s accomplishments during that time, leading to its leadership in bringing AI to enterprise customers, as well as to introduce new offerings targeting smaller customers than it has in the past.
“We beat expectations in every quarterly report, expanded the profitability and free cash flow in the company, quintupled our total addressable market, accelerated six of our own unicorns to billion- or multibillion-dollar businesses, processed billions of workflows and trillions of transactions, grew the partner ecosystem globally, architected the most complete AI Control Tower for the enterprise, maintained our best-in-class renewal rate, increased our brand value, offered our customers deep enterprise context, unlimited choice, and differentiated capabilities,” he said. “And of course, we set a course to $32 billion in revenue in 2030, operating at the rule of 60 and beyond.”
ServiceNow continued that track record in its second fiscal 2026 quarter, with a 23 percent increase in subscription revenue growth, a 21.5 percent current remaining performance obligation growth, operating margin of 29.5 percent ,and 123 deals greater than $1 million in net-new annual contract value, McDermott said. That meant ServiceNow AI annual contract value surpassed $1 billion, keeping the company on track to beat its target of $1.5 billion annual contract value by the end of 2026, he said.
“We’re feeling real good about it,” he said. “What does it all mean? We are who we said we were. The path to value isn’t just making AI. It’s deploying AI securely across the enterprise. IDC forecasts spending on AI software is going to grow 53 percent this year, 17 percent faster than AI hardware. Whichever chip wins, whichever lab wins, whichever price-per-token regime prevails, the enterprise needs one governed layer of record for work. And ServiceNow offers needed certainty in an uncertain stack.
“We’re in the bull’s-eye of AI, cybersecurity, workflow orchestration, integration and automation,” he said. “That’s why we’re growing fast. It’s why we’re only just getting started. We are who we said we were.”
During investor meetings over the past several months, ServiceNow has addressed multiple questions including whether ServiceNow was becoming a cybersecurity company, he said.
“ServiceNow already was a billion-dollar-plus cybersecurity business,” he said. “Today, our risk and security business is the fastest-growing of the top 10 cyber companies in the enterprise. … We’re building the world’s most integrated end-to-end security platform across cyber, risk and compliance, agentic incident response, exposure management, identity and access security, cyber physical security, and continuous vulnerability detection.”
ServiceNow now brings together its AI Control Tower platform with its Armis and Veza acquisitions into a complete security offering, McDermott said.
“Our customers want every AI in the enterprise to be visible, governed and secured in one command center, native or third-party,” he said. “They don’t want any bots. There’s 2.2 billion agents entering the enterprise globally. That’s 2.2 billion new identities, a quarter of today’s human population. Veza maps access across human, machine and AI identities. We’ll have 40 billion connected devices in the world in the next four years. Armis already tracks 7 billion of those devices in real time.”
The attack surface from ungoverned assets and identities multiplies the security blast radius, McDermott said.
“When you integrate awareness and identity with the actionability of the ServiceNow platform, you have a complete 360-degree capability to secure the enterprise. … This is the eighth largest cybersecurity business in the enterprise and the fastest growing,” he said. “And we are just getting started.”
Another question ServiceNow gets is when will customer deployment of AI mark an inflection point for ServiceNow’s growth, McDermott said. The answer, he said, is it already has as the percentage of renewal customers purchasing agentic AI for the first time doubled quarter over quarter and year over year.
“Customers that weren’t already on the AI journey are signing up fast,” he said. “Most customers are now completely allergic to anything that looks like a project. They only want deterministic. ServiceNow only does deterministic. That’s a big reason why customers with agentic AI in production have grown 9X over the last nine months.”
He cited the U.S. Air Force, Experian, Malaysia’s Maybank bank, the U.S. federal government’s largest IT contractors and agencies, and Hitachi as customers of ServiceNow’s agentic AI capabilities.
He said investors also ask whether ServiceNow is gaining traction in the CRM marketplace, McDermott said his company already has a $2 billion annual contract value CRM business, with CRM net-new annual contract value growth accelerating and average CRM deal size doubling year over year.
“We’re on track to execute over 2 billion service CRM cases this year,” he said. “In addition, partners are increasingly positioning ServiceNow as an operational CRM platform, opening executive conversations across the C-suite.”
On the human resources side, ServiceNow’s EmployeeWorks AI-native employee portal, which combines Moveworks conversational AI with ServiceNow workflows to create a single place to search, self-serve and take action across HR, IT and all workplace services, McDermott said.
McDermott also said ServiceNow gets asked about industry dynamics and enterprise AI and said AI innovation is like politics in that it’s easy to make noise and hard to make progress. ServiceNow, on the other hand, offers technology like ServiceNow Action Fabric, which enables any Claude, Copilot or homegrown agent to tap directly into and secure govern enterprise actions, he said.
For ServiceNow and its partners, the company’s deep integration of ServiceNow AI-native technology with technology from vendor partners extends the company’s momentum around AI, McDermott said.
Investors also ask whether ServiceNow can gain more enterprise wallet share, McDermott said. He said confidence should come from ServiceNow’s ability to work with major enterprise players while combining a system of record, deep context, governance, auditability, global distribution and flexible pricing.
Only ServiceNow checks all those boxes, McDermott said.
“Risk at scale is why CEOs are losing sleep right now,” he said. “They read all these threat headlines. They see all these platforms and token invoices, and they don’t know what to do. This is the gap. ServiceNow is the bridge. We’re in the control business. One platform, one system of action. Any cloud, any agent, any workflow, any model, governed, secured, and accountable. … We said we are the defining enterprise software company of the 21st century. We are who we said we were.”
ServiceNow By The Numbers
For its second fiscal quarter 2026, which ended June 30, ServiceNow reported total revenue of $3.99 billion, up 24 percent over the $3.22 billion the company reported for its second fiscal quarter 2025.
That included subscription revenue of $3.88 billion, up from $3.11 billion, and professional services and other revenue of $110 million, up from $102 million.
Total revenue beat analyst expectations by $50 million, according to Seeking Alpha.
ServiceNow also reported GAAP net income of $298 million, or 29 cents per share, down from last year’s $385 million, or 37 cents per share. On a non-GAAP basis, the company reported net income of $900 million, or 90 cents per share, up from last year’s $851 million, or 81 cents per share.
Non-GAAP earnings beat analyst expectations by 4 cents per share, according to Seeking Alpha.
Looking ahead, ServiceNow expects third-quarter 2026 subscription revenue to be between $3.975 billion and $3.980 billion, up about 20.5 percent year over year.
For the entire fiscal year 2026, ServiceNow expects subscription revenue of $15.760 billion and $15.780 billion, up about 22.5 percent over last year.
