Deal Radar 2009: Service-now.com

San Diego-based Service-now.com was founded in 2003 out of the ashes of Peregrine Systems, which was purchased by Hewlett-Packard (and is now that company’s competitor) in a fire sale. Fred Luddy, who was the CTO of Peregrine Systems, believed that legacy enterprise IT software is akin to “customer abuse” and set out to build a different kind of software company. He started Service-now.com, which is still the only enterprise IT service management solution delivered via SaaS.

Service-now.com offers a set of applications that helps IT organizations operate more efficiently by automating processes and helping system administrators manage their help desk operations. The company used web 2.0 functionality, web services, and open source projects available to developers today to offer a new kind of IT services management.

According to Forrester, the IT service management software market is expected to be $2.8 billion in 2013, while the overall IT management software market is expected to be $33.6 billion in 2013. Though the market is still dominated by tarditional vendors like HP and BMC, a majority of Service-now.com’s customers are former HP and BMC customers. Service-now guarantees three advantages to customers coming from HP and BMC: first, its annual subscription license will be 80% of the cost of those companies’ annual maintenance licenses; second, upgrading Service-now will take 25% of the time it takes to upgrade HP or BMC products; and third, customers will not have to spend more on maintaining and upgrading their service desk applications as they do for HP and BMC. Service-now focuses its development efforts on the current release and future functionality and issues three major releases per year at no extra cost to customers.

The company charges $99 per process user (IT worker using the application) per month and also offers volume discounts. This price includes the Service-now.com application, database, hosting in its datacenters, all application maintenance and upgrades, customer support and training. The company has about 240 customers including Hyatt, Qualcomm, Allianz, Cisco, Juniper, MetLife, UBS and CBS.

Service-now is venture-backed and has raised $7.5 million so far: a $2.5 million Series A and a $5 million Series B from John Moores Interests (JMI). The company was built on about $2 million with about $5.5 million of this funding still in the bank. Service-now.com has been cash flow positive during the past 18 months and expects to be profitable by mid 2009. The company has witnessed triple-digit y-o-y revenue growth each year and 389% revenue growth in FY08 over FY07. Further, Service-now.com booked close to $20 million in recurring revenue during the first six months (July–December 2008) of FY09.

Currently about 25% of its revenues come from outside North America, and the company plans to leverage its channel to expand its global coverage and increase revenues. Service-now aims to become one of the few profitable SaaS vendors in the world and believes that it can be a $500 million software company in the near future. The cost advantage its SaaS model offers is definitely a draw in today’s economic downturn where companies are looking to cut corners.

Suggested Reading:

*Forbes Column 2009: Open Source Means Business
*Deal Radar 2009: OrecX
*Deal Radar 2009: Talend

This segment is a part in the series : Deal Radar 2009