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

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

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Author: Bruce V. Bigelow

In Memoriam: Our dear friend Bruce V. Bigelow passed away on June 29, 2018. He was the editor of Xconomy San Diego from 2008 to 2018. Read more about his life and work here. Bruce Bigelow joined Xconomy from the business desk of the San Diego Union-Tribune. He was a member of the team of reporters who were awarded the 2006 Pulitzer Prize in National Reporting for uncovering bribes paid to San Diego Republican Rep. Randy “Duke” Cunningham in exchange for special legislation earmarks. He also shared a 2006 award for enterprise reporting from the Society of Business Editors and Writers for “In Harm’s Way,” an article about the extraordinary casualty rate among employees working in Iraq for San Diego’s Titan Corp. He has written extensively about the 2002 corporate accounting scandal at software goliath Peregrine Systems. He also was a Gerald Loeb Award finalist and National Headline Award winner for “The Toymaker,” a 14-part chronicle of a San Diego start-up company. He takes special satisfaction, though, that the series was included in the library for nonfiction narrative journalism at the Nieman Foundation for Journalism at Harvard University. Bigelow graduated from U.C. Berkeley in 1977 with a degree in English Literature and from the Columbia University Graduate School of Journalism in 1979. Before joining the Union-Tribune in 1990, he worked for the Associated Press in Los Angeles and The Kansas City Times.