GenAI spending bubble? Definitely 'maybe' says ServiceNow

ServiceNow is trying to assure investors that payback for enterprise GenAI investment is coming, but it may not be soon and biz customers shouldn't expect to get huge returns "tomorrow".

Late last week at the Deutsche Bank Technology Conference, Brad Zelnick, head of Software Equity Research at the bank, asked ServiceNow chief financial officer Gina Mastantuono if the technology is a tough sell.

He recalled two clear themes from conversations with CIOs: "One is that it's been hard to get customers to commit to spend offsets and the savings to justify the ROI case and the upfront investments around generative AI." Secondly, the tech is presented as the "Holy Grail", he said.

The response from ServiceNow's Mastantuono? "So all of that is very true, right? And it's not surprising, it's a new big technology advancement that most people a year and a half ago just didn't understand. And the other thing that we get is, is this a bubble?"

And is this a bubble, asked Zelnick

"Is there a bubble right now on spend? Maybe," said the ServiceNow CFO "But this is something that's going to be long-term. And so we've got to think about what does that mean... every industry is going to shift because of AI".

Mastantuono used the well worn example of the pharma sector where busy doctors and researchers are trying to reduce costs and improve patients' lives, "enabling that quick time to value." GenAI, she said, might be able to reduce the average 6.6 years it takes to get products to market by cutting the drop-out rate of patients taking part in clinical trials by automating communication and question-answering.

"If you can shift that 6.6 years to 6 years or 5.6 years, it's billions of dollars of top line for the pharma company. It's tons of dollars on the bottom line because not only is the top line higher but you are saving so much as well," she said.

"That's where AI is going, and that's just within the enterprise: fixing problems that are so manual and complex," she said.

However, the CFO cautioned: "[customers] are not going to get hundreds of millons of dollars tomorrow, but if they really think about where they're going to lean in, and you're right, some of it is taking a little bit of time because there is a lot of noise and everyone is saying a lot, but if you think about what's happening already with platform consolidation and working with trusted platforms that have been innovating in this space... I think you're going to see real value add."

"It's going to change the way we interact with each other at work and change the way consumer businesses are operating as well. But we're in the super early days," she said.

The Reg would like to apologize to readers for the tub-thumping sales talk, we are only quoting what was said.

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The topic of LLMs and other so-called natural language models have been the subject of intense industry hype and an investment rollercoaster. In Gartner's latest Hype Cycle for Emerging Technologies, the global consultany noted that GenAI is about to enter the dreaded "trough of disillusionment."

Arun Chandrasekaran, Gartner distinguished VP analyst, told us recently that the technology would prove valuable in the long run, but currently it is "unable to keep up with the high expectations."

IBM said last month that some companies have become so obsessed with AI that general tech services are being neglected at customer organizations. Maybe there's a Watson-based solution for that.

A security expert told us that data governance fears over the use of generative AI were also causing some CIOs to ground Microsoft Copilot projects. So it seems Microsoft's efforts to convince customers of the productivity benefits might also need to include other corporate concerns.

Back at the Deutsche Bank Tech gathering, Mastantuono said ServiceNow has piloted ten use cases of GenAI internally, creating about $10 million in annualized savings to date.

"Just imagine what that means going forward: we have real metrics to show real value-add. Hopefully, the noise will calm down. People and companies like ServiceNow, who are continuing to help customers solve their most pressing issues, are really going to change how we run the enterprise."

Gartner said weeks back that it anticipates mainstream adoption of GenAI in the general workplace to take place in about two years. Do you agree? ®