ServiceNow Q2 strong, Desai out

Larry Dignan

Editor in Chief of Constellation Insights
Constellation Research

Larry Dignan is Editor in Chief of Constellation Insights at Constellation Research, where he leads editorial coverage focused on enterprise technology, digital transformation, and emerging trends shaping the future of business. He oversees research-driven news, analysis, interviews, and event coverage designed to help technology buyers and vendors navigate complex markets with clarity and context. ...

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ServiceNow reported better-than-expected second quarter earnings and announced that president and chief product officer CJ Desai will leave the company after an internal investigation.

Long-time ServiceNow executive Chris Bedl will serve as interim chief product officer. Bedl had previously served as Chief Digital Information Officer and Chief Customer Officer.

Here's what ServiceNow had to say about Desai's departure and its internal investigation that stemmed from an employee complaint:

"As a result of the investigation, the Company’s Board of Directors determined Company policy was violated regarding the hiring of the former Chief Information Officer of the U.S. Army. As such, the hired individual, who led the company’s public sector thought leadership and business development efforts since March 2023, departed the company. In addition, the Company and CJ Desai, President and Chief Operating Officer, came to a mutual agreement that Desai would resign from all positions with the Company effective immediately. The company believes this was an isolated incident."

ServiceNow reported second-quarter earnings per share of $3.13 a share on revenue of $2.627 billion, up 22% from a year ago. Wall Street was expecting second quarter earnings of $2.84 a share on revenue of $2.61 billion.

As for the outlook, ServiceNow said third quarter subscription revenue will be between $2.66 billion to $2.665 billion, up about 20%. For 2024, ServiceNow said subscription revenue will be between $10.57 billion to $10.58 billion, up 22%.

ServiceNow earlier in the day announced the acquisition of Raytion, a genAI search tool that will be integrated into the Now Platform. Boomi and ServiceNow also formed a strategic partnership that will blend Boomi's application programming interface management and automation platform with ServiceNow's Now Platform.  In addition, Salesforce and Workday said it will combine data to enable employee workflows in a move aimed at ServiceNow. 

Speaking on an earnings conference call, ServiceNow CEO Bill McDermott said the company has signed 11 NowAssist deals more than $1 million in ACV. "Enterprises are investing in business transformation. They are investing in AI. They are building a new reference architecture for the decades to come. This is the largest, most compelling business opportunity in the world. We are bullish on what's ahead," said McDermott.

Salesforce, Workday form unified data foundation aimed at employee workflows

Larry Dignan

Editor in Chief of Constellation Insights
Constellation Research

Larry Dignan is Editor in Chief of Constellation Insights at Constellation Research, where he leads editorial coverage focused on enterprise technology, digital transformation, and emerging trends shaping the future of business. He oversees research-driven news, analysis, interviews, and event coverage designed to help technology buyers and vendors navigate complex markets with clarity and context. ...

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Salesforce and Workday formed a strategic partnership that revolves around a unified data foundation that connects Workday financial and HR data with Salesforce CRM data to streamline workflows.

With the move, Workday and Salesforce are combining forces to deliver an AI-powered assistant for employee use cases that include onboarding, health benefits and career development.

The upshot here is that the Salesforce and Workday partnership adds seamless integrations across the platforms to extend into workflows. ServiceNow has become an increasing threat to HR and CRM use cases championed by Workday and Salesforce.

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Constellation Research CEO Ray Wang said the integration of business processes and data is critical to CxOs. "The shared data foundation between ;Workday and Salesforce will enable these partners to deliver AI capabilities that could completely transform the employee experience," said Wang. Wang added:

"Organizations are having a tough time bringing all their datasets from multiple systems into one place.  Workday and Salesforce are often in the same organization and represent a large bucket of data that will be needed for AI. Executives want to ask how many FTE's do they have in an area and whether or not they should add more people in sales lead generation or marketing. To do that, the data and the process have to come togeether in one place."

Here are the moving parts of the Salesforce and Workday partnership:

• The partnership combines Salesforce's Agentforce Platform with Einstein AI with Workday AI and the platform.
• The AI agent will be powered by the unified data foundation and natural language. The AI employee service agent will run on Einstein 1 Platform and Workday AI.
• According to the companies, the AI employee service agent will use LLMs built on the common data platform, which is built on Salesforce Data Cloud.
• Salesforce and Workday said the combination will enable employees to take action and automate tasks.
• Workday will be natively integrated inside Slack.
• The partnership is aimed at boosting productivity for joint customers.

Salesforce CEO Marc Benioff said the partnership with Workday "to jointly build an employee service agent" will enable employees to "get answers, learn new skills, solve problems and take action quickly and efficiently."

Carl Eschenbach, CEO of Workday, added that the partnership will boost employee experiences with genAI. For employers, the common Salesforce and Workday data layer will improve workforce planning, financial planning and sales enablement.

Google Cloud Q2 revenue $10.37 billion, lands $1 billion in operating income

Larry Dignan

Editor in Chief of Constellation Insights
Constellation Research

Larry Dignan is Editor in Chief of Constellation Insights at Constellation Research, where he leads editorial coverage focused on enterprise technology, digital transformation, and emerging trends shaping the future of business. He oversees research-driven news, analysis, interviews, and event coverage designed to help technology buyers and vendors navigate complex markets with clarity and context. ...

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Google Cloud revenue for the second quarter was better-than-expected at $10.35 billion, up from $8.03 billion a year ago. Analysts were modeling $10.2 billion for Google Cloud revenue.

It was the first quarter where Google Cloud topped operating income of $1 billion. Google Cloud reported second quarter operating income of $1.17 billion.

Alphabet, parent of Google, reported second quarter earnings of $18.37 billion, or $1.89 a share, on revenue of $84.74 billion, up 14% from a year ago. Wall Street was looking for second quarter earnings of $1.84 a share on revenue of $84.19 billion.

Analysts were expecting Google to report second quarter earnings of $1.84 a share on revenue of $84.26 billion.

Google’s second quarter earnings landed as the company’s plans to buy Wiz and HubSpot fell apart. Google has gone shopping in recent months to bulk up Google Cloud. Google Cloud also forged a pact with Oracle.

Speaking on an earnings conference call, Pichai said Nvidia's latest platform will be coming to Google Cloud. "We continue to invest in designing and building robust and efficient infrastructure to support our efforts in AI given the many opportunities we see ahead," said Pichai.

He added that Google is also looking to drive efficiency in its AI models and matching "the right model size to the complexity of the query to minimize the impact on costs and latency."

• Google Cloud Vertex AI updates focus on the practical with Context Caching, grounding services
• Oracle partners with Google Cloud, takes on OpenAI workloads
• Google Cloud Next 2024: Google Cloud aims to be data, AI platform of choice
• Google Cloud Next: The role of genAI agents, enterprise use cases

For Google Cloud, the Oracle partnership can embed its AI services into more enterprises. Customer references cited by Google Cloud for AI adoption include Bayer, Best Buy, Discover Financial and TD Bank to name a few. Also see what Equifax and Wayfair have done with Google Cloud.

Meta launches Llama 3.1 450B and for Zuckerberg it's personal

Larry Dignan

Editor in Chief of Constellation Insights
Constellation Research

Larry Dignan is Editor in Chief of Constellation Insights at Constellation Research, where he leads editorial coverage focused on enterprise technology, digital transformation, and emerging trends shaping the future of business. He oversees research-driven news, analysis, interviews, and event coverage designed to help technology buyers and vendors navigate complex markets with clarity and context. ...

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Meta released Llama 3.1 405B, an open "frontier-level model" that aims performs as well as proprietary models. For Meta CEO Mark Zuckerberg, the Llama cadence is designed to play the long game and bet open-source models ultimately win.

The company released Llama 3.1 405B, which will support synthetic data generation and model distillation. Those two features haven't been available in open-source models. Meta also said it released upgraded 8B and 70B Llama models with context length of 128K and better reasoning. The models are also multilingual and support multiple use cases.

For Zuckerberg, Llama is a mission. In a blog post, he said large language models (LLMs) will develop much like Linux did. First there was Unix and over time open-source Linux won. He said:

"I believe that AI will develop in a similar way. Today, several tech companies are developing leading closed models. But open source is quickly closing the gap. Last year, Llama 2 was only comparable to an older generation of models behind the frontier. This year, Llama 3 is competitive with the most advanced models and leading in some areas. Starting next year, we expect future Llama models to become the most advanced in the industry. But even before that, Llama is already leading on openness, modifiability, and cost efficiency."

Meta's latest Llama release and letter from Zuckerberg are designed to court developers that want to fine tune models, evaluate models for specific applications, pre-train and make models their own. The company said developers can leverage workflows and directions from partners such as Nvidia, AWS, Google Cloud, Microsoft Azure, Dell Technologies, Databricks and others.

Zuckerberg added that developers want affordable model options that can be fine-tuned on sensitive data while avoiding vendor lock-in. Llama is a high-profile effort, but not out of character for Meta, which also led the Open Compute Project.

The win for Meta's approach with Llama is that it can leverage the open-source community and build an ecosystem. Meta wants Llama to be a standard and can play neutral party since its business model isn't about selling access to LLMs.

Enterprises start to harvest AI-driven exponential efficiency efforts | Generative AI use cases, takeaways from projects underway and how the technology fits in with broader digital transformation.

In the end though, Meta's Llama efforts may be personal for Zuckerberg. He said:

"One of my formative experiences has been building our services constrained by what Apple will let us build on their platforms. Between the way they tax developers, the arbitrary rules they apply, and all the product innovations they block from shipping, it’s clear that Meta and many other companies would be freed up to build much better services for people if we could build the best versions of our products and competitors were not able to constrain what we could build. On a philosophical level, this is a major reason why I believe so strongly in building open ecosystems in AI and AR/VR for the next generation of computing."

More:

• OpenAI, Mistral AI aim for models that can show their work, tackle mathematical problems
• Foundation model debate: Choices, small vs. large, commoditization
• SpreadsheetLLM may yet decipher, democratize spreadsheets for rest of us

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• Copilot, genAI agent implementations are about to get complicated
• Generative AI spending will move beyond the IT budget

CrowdStrike CEO called to testify before House committee

Larry Dignan

Editor in Chief of Constellation Insights
Constellation Research

Larry Dignan is Editor in Chief of Constellation Insights at Constellation Research, where he leads editorial coverage focused on enterprise technology, digital transformation, and emerging trends shaping the future of business. He oversees research-driven news, analysis, interviews, and event coverage designed to help technology buyers and vendors navigate complex markets with clarity and context. ...

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CrowdStrike CEO George Kurtz is being called to the House to testify about the global IT outage that has hampered enterprises--notably airlines like Delta--for days.

House Committee on Homeland Security Chairman Mark E. Green, MD (R-TN) and Subcommittee on Cybersecurity and Infrastructure Protection Andrew Garbarino (R-NY) sent a letter to Kurtz requesting public testimony.

Kurtz's testimony will be closely watched, but he’s hardly the first technology CEO to testify and take lumps from lawmakers. CrowdStrike’s outage lands just as cybersecurity vendors are pushing platformization in a bid to consolidate IT budgets. While the cybersecurity industry sees innovation from startups and smaller companies, it’s still dominated by a few large vendors, including CrowdStrike. Some vendors, like Palo Alto Networks, advocate for platformization, aiming for even greater consolidation.

• From Blue Screen to Blackout: Unpacking the CrowdStrike Catastrophe and Industry Implications
  CrowdStrike outage likely to hit cybersecurity's platformization pitch
• Cybersecurity platformization: What you need to know

Green and Garbarino wrote:

"We write in response to the global information technology (IT) outage, which has been attributed to a “defect” in a CrowdStrike software update that impacted Microsoft Windows. While we appreciate CrowdStrike’s response and coordination with stakeholders, we cannot ignore the magnitude of this incident, which some have claimed is the largest IT outage in history. In less than one day, we have seen major impacts to key functions of the global economy, including aviation, healthcare, banking, media, and emergency services."

The letter also requests that CrowdStrike schedule a hearing with the Subcommittee on Cybersecurity and Infrastructure Protection no later than 5 p.m. July 24.

Delta has struggled with restoring services, but the CrowdStrike outage affected multiple industries. For its part, CrowdStrike has documented what went wrong and published a remediation and guidance hub.

Kurtz said in a statement:

"I want to sincerely apologize directly to all of you for the outage. All of CrowdStrike understands the gravity and impact of the situation. We quickly identified the issue and deployed a fix, allowing us to focus diligently on restoring customer systems as our highest priority."

IonQ's quantum computing bets: Quantum for LLM training, chemistry and enterprise use cases

Larry Dignan

Editor in Chief of Constellation Insights
Constellation Research

Larry Dignan is Editor in Chief of Constellation Insights at Constellation Research, where he leads editorial coverage focused on enterprise technology, digital transformation, and emerging trends shaping the future of business. He oversees research-driven news, analysis, interviews, and event coverage designed to help technology buyers and vendors navigate complex markets with clarity and context. ...

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IonQ outlined it roadmap for its quantum computing stack as well as various use cases as it aims to create enterprise grade infrastructure that could offload GPU workloads if successful.

In a webinar, IonQ CEO Peter Chapman said the company's strategy revolves around performance, scale and enterprise grade infrastructure. If those pillars are weighted equally, IonQ will generate commercial advantage for its quantum computers.

IonQ is approaching $100 million in annual bookings.

Chapman positioned IonQ as a company that's defining use cases and doubling down on the ones with the most promise. "I think we're homing in on exactly what those superpowers are," said Chapman.

Chemistry and quantum drug discovery have emerged as two primary use cases. The chemistry use cases were barely mentioned during IonQ's pre-IPO roadshow, but has emerged as a go-to enterprise application. "There is some brilliant work on the algorithmic chemistry coming," said Chapman.

Constellation ShortLists™

• Quantum Computing Platforms
• Quantum Computing Software Platforms
• Quantum Full Stack Players

Generative AI is another area where IonQ can add value, said Chapman, who said IonQ has been focused on machine learning since inception. "One of the new things that we're doing this year is applying quantum to large language models," said Chapman. "We're just at the beginning of that journey, but I hope to have results within a year or so."

If successful, Chapman said IonQ "will be able to offload significant workloads from GPUs and significantly reduce energy requirements for data centers and LLMs."

The focus of IonQ's talk is about developing performance with its roadmap, lowering errors and then scaling. "We hope to find commercially significant applications, but the true promise of quantum will need a lot more qubits and faster gate speeds," said Chapman. "Just as importantly we'll need to network these quantum computers and reduce the costs to make them affordable. Future quantum computers are going to be made up of network individual machines so the cost per qubit comes down as computational power increases."

Chapman said the plan is not to over index on performance, scale or enterprise grade because the pillars have to be in balance.

IonQ SVP of Engineering & Technology Dean Kassmann walked through the IonQ roadmap, developing multi-core quantum infrastructure and systems that go beyond what can be simulated on a classical computer. Kassmann also emphasized modular designs, systems that will be put into data centers with classical infrastructure and software that just works.

The plan for IonQ is to get to a point where it can stack its qubits and technology advances together. "A milestone we have planned for 2025 is physical qubits that are photonically interconnected," said Kassmann. "We have a plan set out where we continually build up numbers of qubits by connecting modules together."

Kassmann added that IonQ is focusing on photonic interconnects between quantum systems to scale as well as smaller vacuum packages and refining components. "The work we're doing needs to be on-ramped into the larger engineering pipeline but represents our thought process to scale 2-, 5-, 10-years from now," he said.

Margaret Arakawa, CMO of IonQ, is a Microsoft alum that is focusing on democratizing quantum computing and scaling with its US manufacturing center in Seattle. To sell quantum--an enterprise category that has typically been more about R&D labs--IonQ plans to lead into use cases and solving big problems.

Some use cases include solving for corrosion in the US Navy, which is an expensive problem for the Department of Defense, Airbus optimization and flight orchestration. "We have an applications and algorithm team working on the most important groundbreaking areas a quantum computer can actually address," she said.

In the end, AI may wind up being the play for quantum computing. Arakawa and Chapman both spoke to it and the general idea is to focus on the part of AI that quantum computing can do better than supercomputers.

More quantum computing:

• Classiq CEO Minerbi on the intersection of quantum computing, HPC and use cases
• Quantinuum, Microsoft claim quantum reliability breakthrough
• IBM launches latest Heron quantum processor, IBM Quantum System Two
• Quantinuum raises $300 million, valued at $5 billion
• Will IonQ make quantum computing enterprise relevant in 2025?
• Why your quantum computing vendors are going to look familiar

Verizon sees genAI cost savings with edge revenue in the future

Larry Dignan

Editor in Chief of Constellation Insights
Constellation Research

Larry Dignan is Editor in Chief of Constellation Insights at Constellation Research, where he leads editorial coverage focused on enterprise technology, digital transformation, and emerging trends shaping the future of business. He oversees research-driven news, analysis, interviews, and event coverage designed to help technology buyers and vendors navigate complex markets with clarity and context. ...

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Verizon is betting that its network--5G and fiber--can be the "backbone of the AI economy" with a boom of edge computing generative AI workloads on deck. The problem is Verizon hasn't seen real revenue yet but appears to be leveraging generative AI to become more efficient.

Speaking on Verizon's second quarter earnings call, CEO Hans Vestberg outlined the genAI use cases on the revenue and cost side. Vestberg said:

"We will power the best AI services for our customers. What set us apart with AI is our network's mobile edge computing capabilities and deep fiber footprint. By processing data closer to the source, we enable real-time AI application that requires security, ultra-low latency, and high bandwidth. Our network will be at the forefront of AI and mobile edge compute applications."

For operations, Vestberg said AI is benefiting customer service by routing calls to agents, improving network design and personalizing offers. CFO Tony Skiadas said:

"AI is an enabler of efficiencies. You can think about customer care, you can think about the personalization with myPlan. And we see efficiencies coming from there as well."

In many respects, Verizon resembles many enterprises. Companies are leveraging generative AI to save money and become more efficient. The revenue side of the equation isn't quite baked yet. Enterprises have been expanding generative AI use cases, offering takeaways from projects underway and figuring out how the technology fits in with broader digital transformation.

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Verizon reported second-quarter revenue of $32.8 billion with net income of $4.7 billion. The results were roughly flat with a year ago. Verizon Business revenue was $7.3 billion, down 2.4% from a year ago.

Verizon sees enterprises building out private 5G networks

Vestberg said Verizon has more line of sight into the enterprise business and genAI than the consumer opportunity, which will depend on adoption of smartphones and features lead to device upgrades. Vestberg said:

"I think where I'm most excited is that we have built the Verizon Intelligent edge network which will be the platform for GenAI. You are going to have to have a lot more compute storage at the edge of the network, and that's how we built the network already 2018 with fiber to all our main hubs and between our main subcenters. On top of that, we have cooling and power at those edges. As we go from the LLMs into commercial products for enterprises our network is set up for that. I'm very excited for that opportunity to go forward together with private networks. There are a lot of things coming into GenAI devices, our efficiencies and a business opportunity for us when it comes to AI."

The problem for Verizon is that the genAI mobile edge payoff isn't here yet. Vestberg said Verizon doesn't have genAI in mobile edge computing to customers but it's clear in conversations with cloud vendors and enterprises that large language models will move to the end points.

SAP Q2 cloud ERP revenue up 33%, sees restructuring hitting 9,000 to 10,000 jobs

Larry Dignan

Editor in Chief of Constellation Insights
Constellation Research

Larry Dignan is Editor in Chief of Constellation Insights at Constellation Research, where he leads editorial coverage focused on enterprise technology, digital transformation, and emerging trends shaping the future of business. He oversees research-driven news, analysis, interviews, and event coverage designed to help technology buyers and vendors navigate complex markets with clarity and context. ...

Read more

SAP in the second quarter said its cloud revenue was up 25% and CEO Christian Klein said its Business AI efforts are "enabling many deals." The company reiterated its outlook for 2024 and raised its 2025 operating profit guidance due to efficiency efforts.

The company also said its restructuring efforts will impact 9,000 to 10,000 jobs. SAP said in January it expected to cut 8,000 jobs.

For the quarter ending June 30, SAP said its SaaS and PaaS revenue was €4.02 billion, up 28%. Cloud ERP revenue was €3.41 billion, up 33%. The Cloud ERP Suite revenue line includes services that are included in RISE with SAP. SAP S/4HANA Cloud, SAP Business Technology Platform, and applications for HR and payroll, spend management, commerce, customer data, business process transformation, and working capital management also fall under Cloud ERP.

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SAP reported second-quarter revenue of €8.29 billion, up 10% from a year ago, with €918 million in net profit. Earnings per share were €0.76. Non-IFRS earnings per share were €1.10.

In a statement, Klein said "our cloud growth momentum remained strong in Q2, with Business AI enabling many deals." He added that SAP is well positioned to see "accelerating topline growth through 2027."

CFO Dominik Asam added:

"We are staying squarely focused on delivering our outlook for this year. Our current cloud backlog growth during the second half of 2024, and especially in Q4 will be decisive to lay a solid foundation for our cloud revenue ambition for 2025. At the same time, we'll continue to execute against our transformation plan to achieve our 2025 free cash flow ambition despite a mid-triple-digit million cash out for restructuring spilling into next year."

On an earnings conference call, Klein said SAP is landing and expanding as it moves large enterprises to the cloud. "Since Sapphire, we have seen a lot of additional interest from big customers, over 90 partner use cases for co-innovation, including use cases with big systems integrator," said Klein. "Sapphire also helped to significantly boost our pipeline. It's not just a lift and shift to the cloud. It's a holistic offering to increase competitiveness through a deep business transformation to replace the legacy ERP with our modular cloud ERP."

Klein said he was confident that SAP was executing well and seeing a "land and expand" cadence at large enterprises like Exxon." He added that SAP is also investing in SMBs with partners. 

By the numbers for the second quarter:

• Current cloud backlog was up 28% to €14.81 billion.
• Software license revenue fell by 28% to €0.2 billion.
• SAP had repurchased 12,895,525 shares at an average price of €145.20 as of June 30.

SAP also said that its restructuring program is expected to finish in early 2025. SAP said the restructuring will affect 9,000 to 10,000 positions, but the company expects headcount to be similar to 2023.

As for the outlook, SAP projected €17.0 billion to €17.3 billion cloud revenue for 2024, up 24% to 27% from 2023 with €29.0 billion to 29.5 billion in cloud and software revenue for the year.

For 2025, SAP projected non-IFRS operating profit of approximately €10.2 billion, up from previous guidance of €10 billion. The rest of SAP's 2025 outlook remains the same including cloud revenue of more than €21.5 billion and total revenue of more than €37.5 billion.

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• SAP retools for generative AI, cuts 8,000 jobs, sets 2024, 2025 ambition