ServiceNow to Acquire Canadian Artificial Intelligence Start-Up Element AI

eResearch | Last month, ServiceNow (NYSE:NOW), a U.S. cloud-based software company, announced the acquisition of Element AI, a leading artificial intelligence (“AI”) software company in Canada.

ServiceNow plans to build the first AI Innovation Hub in Canada, following the development of AI Innovation Hubs in multiple locations including Chicago, Hyderabad, Kirkland, San Diego, Silicon Valley, Washington.

Element AI is ServiceNow’s fourth acquisition this year, following the acquisitions of:

• Loom Systems: $58 million deal;
• Passage AI: $33 million deal; and,
• Sweagle: $25 million deal.

Jean-François Gagné, CEO of Element AI, stated,

“Element AI will help ServiceNow deliver workflows that learn more efficiently from smaller datasets, improve the quality of existing AI capabilities like content and language understanding, and expand new capabilities like image recognition and cognitive search. Together we will enable customers to surface and summarize information, make predictions and recommendations, and automate repetitive tasks so employees and customers can focus on areas only humans excel at – creative thinking, customer interactions, and unpredictable work.”

ServiceNow expects to complete the acquisition of Element AI by early next year.

Element AI

Headquartered in Quebec, Canada, Element AI launched in 2016, bringing together industry-leading researchers to develop customized AI solutions for organizations across all industries. Element AI currently has offices in Montreal, Toronto, London, Singapore, and Seoul.

According to Tractica, the global AI software market was $10 billion in 2018 and is forecast to reach $126 billion by 2025.

Element AI’s founding team members include:

• Jean-François Gagné – former Chief Product Officer and Chief Innovation Officer of JDA Software where he was the youngest global C-Level executive of a top-20 enterprise software company.
• Yoshua Bengio – one of the pioneers of Deep Learning who is a professor for The Department of Computer Science and Operations Research at Université de Montréal and a Scientific Director for the Montreal Institute for Learning Algorithms (“Mila”).
• Nicolas Chapados – PhD graduate in Computer Science at the Université de Montréal under thesis advisor Mr.Bengio, and co-founder of ApSTAT Technologies and Imagia.

Starting with a partnership with Mila, Element AI created an academic-driven model that provides insight, talent, and research towards developing competitive AI solutions. The model now includes academic cooperation from several other institutions.

Element AI currently offers three AI-driven solutions:

1. Knowledge Scout – turns untapped data and information into actionable insights.
2. Document Intelligence – automates and accelerates document processing.
3. Access Governor – automates the regulation of data governance across multiple stakeholders.

Element AI’s clients include Aisin Seiki (TYO:7259), GIC, GroupAssur, Hanwha General Insurance (KRX:000370), LG Electronics (KRX:066570), Port Montreal, National Bank of Canada (TSX:NA), and Shinhan AI.

To date, Element AI has raised a total of $258 million from various backers including Real Ventures, Development Bank of Canada, Fidelity Investments Canada, Hanwha Investment & Securities (KRX:003530), Intel (NASDAQ:INTC), M12, McKinsey & Company, National Bank of Canada (TSX:NA), NVIDIA (NASDAQ:NVDA), and Tencent (HKG:0700).

According to various sources, Element AI had challenges in profitably commercializing its product offering and the sale price guarantees that institutional shareholders will receive most of their money back but wipes out the bulk of the employee options.

FIGURE 1: Element AI Funding History

Source: eResearch; Element AI; Caisse de dépôt et placement du Québec; DCVC

ServiceNow

ServiceNow provides Platform-as-a-Service (“PaaS”) offerings for the management of various digital workflows, supporting over 6,200 global customers on its Now Platform.

The Now Platform offers various AI-driven products, including:

• Now IT Service Management
• Now IT Business Management
• Now DevOps
• Now IT Asset Management
• Now Security Operations
• Now Integrated Risk Management
• Now HR Service Delivery
• Now Customer Service Management
• Now Field Service Management

In Q3/2020, ServiceNow reported revenue of $1.2 billion, a 30% increase year-over-year, and a net income of $13 million compared with $41 million in the prior year. Gross margins improved slightly to 78% compared with 77% last year.

ServiceNow’s subscription sales account for 95% of its total revenue, with 1,012 total customers that have annual contract values of over $1 million.

ServiceNow closed new and expanded partnerships in the recent quarter with the following companies: Accenture (NYSE:ACN), Cisco (NASDAQ:CSCO), Deloitte, IBM (NYSE:IBM), Microsoft (NASDAQ:MSFT), Uber Technologies (NYSE:UBER), and Zoom (NASDAQ:ZM).

AI Software Market

AI is becoming a necessity for companies to remain competitive as various technologies disrupt industries by leveraging data to improve speed, efficiency, and optimization.

As more companies across multiple industries adopt technology and collect data, AI software firms are expected to experience an increase in demand.

FIGURE 2: NASDAQ 100 (black) vs ServiceNow (blue) – 1 Year Chart

Other industry-related articles:

• November 2020: EQ Works – Data Revenue Surges by 81% in Quarter as Advertising Revenue Recovers from COVID-19 Hit
• September 2020: Healthcare Companies Investing in AI – Medtronic, Health Catalyst, and Cognetivity Leverage Machine Learning to Enhance Patient Care

Notes: All numbers in USD unless otherwise stated. The author of this report, and employees, consultants, and family of eResearch may own stock positions in companies mentioned in this article.