Service-Now CEO Fred Luddy Sees a Clear Path to $1 Billion in Annual Revenue

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update its software three times a year—in sharp contrast to the data center model of 10 years ago, when it typically took a software company two to three years to update its enterprise software. “Those upgrades when you buy from an enterprise vender are extremely costly, and they take a lot of time,” Luddy says. Upgrades also frequently require companies to go through retraining cycles, because so many basic features have changed. In contrast, Web-based software can be more or less continuously updated. “Ask [users] how often they notice Google updates,” Luddy says.

Service-now charges its 575 customers according to the number of users, or seats, per month, with what Luddy calls “hardcore IT users” paying $100 per seat per month. Since the collapse of capital markets in 2008, Luddy says, “Lots of organizations—especially in the financial services sector—took a hard look at what they’re doing, and came to Service-now. We didn’t just survive the recession. We thrived through it.”

Fred Luddy

Fred Luddy

Luddy, who has described himself as a programming nerd (“It’s what I want to do every morning when I wake up, and it’s what I do on weekends, and on long plane flights to Europe.”), spent nearly two years developing the software. In mid-2005, he hired five people and raised $2.5 million in an initial venture round from JMI Equity, the private equity firm with offices in San Diego and Baltimore.

Service-now’s first contract, with a San Francisco company called WageWorks, generated just $2,600 a year in revenue. Luddy has said that the buyer at WageWorks went to work at Edmunds.com, and recommended that Edmunds.com also move to Service-now’s approach. They bought in at $35,000 a year, and Luddy says the business “just started to proliferate and spider out from there.”

As Edmunds.com, Qualcomm, and the financial services firm TIAA-CREF became Service-now customers, Luddy says it became clear that the concept of low-cost, outsourced IT services was particularly appealing to the Forbes Global 2000, the largest 2,000 companies in the world. “TIAA-CREF started … Next Page »

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Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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