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

1/11/11Follow @bvbigelow

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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 »

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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  • http://www.tingbasoft.com sam surkhang

    Congratulations to service-now.com for setting the trend in SaaS for ITSM tools and for the success they have had in the past few years.

    We at tingbasoft.com also look at service-now.com as a trendsetter. Having recently released a beta of cloud based SaaS IT Service Desk from tingbasoft, we are definately looking forward to this ongoing trend towards SaaS.

  • Josh Marlatt

    I was a big fan of service-now before they lost focus. Nowadays, they spend their time slinging mud at BMC and HP – calling them “legacy” – while at the same time basically carbon-copying all the features of Remedy. Now that Service Now is selling a shadow of Remedy, I’ll just buy Remedy and get the real thing.

    Luddy, I was with you, really thought you would innovate. With all this talk of IPO’s and being the next Qualcomm, it’s clear you just want to be another BMC or HP. And Peregrine? Really? Luddy’s proud of that?

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  • Raj

    Yes it is about doing, learning and getter better at what you do. I am really surprised at two things.

    First: What a vision you have Mr Luddy. No doubt you have found that niche in the market which has been missed by many of them out there. Good on you for working towards achieving it.

    Second: There are just two comments on this blog even after 2 years of publishing it. Something seriously wrong out here. I cannot believe myself. Blog has been written very well. Yes I can some people have shared it but don’t we even have few minutes to appreciate something like this.

    I would love to hear more like this. Where somebody dreams about something and then also walks to achieve it.