HP, BMC Hearing Footsteps In Strategic Area

(MoneyWatch)  HP, BMC, and other legacy software vendors are in danger of losing a strategic foothold in enterprise IT departments to insurgent Service-now.com, which could eventually lead to overall account losses.

Service-now.com sells software used by IT departments to support corporate networks. Its application is a scaled-down version of application suites such as HP's OpenView and BMC's Remedy applications, and is delivered over the Web in a software-as-a-service (SaaS) mode.

The danger to the established vendors, who also include IBM and CA, isn't that Service-now.com will replace all the functions provided by their diverse application suites, but that by taking away a critical IT function, Service-now.com is introducing change that could eventually lead to other defections. Stuart Williams, a senior analyst with Technology Business Research, noted that the service desk is "the nerve center" of corporate IT departments. Once customers realize they can do without a vendor in that area, other application areas could come into play, he told me.

Michel Regueiro, director partner of Aspediens, one of Service-now.com's largest European resellers, told me over lunch that HP has started taking competition in this area extremely seriously even if it represents a relatively minor piece of their overall offering. "HP realizes, 'hey, if we lose the service desk, we're going to lose the whole account,'" he told me. "Customers see HP as a necessary evil. They say, "it's not exactly what I want, but I don't have a choice.' Once you breach that wall, it's a paradigm shift for the IT organization, and they realize they don't have to buy into total HP integration," he said.

Service-now.com can be fairly said to have taken the IT management space by storm, tripling revenues from $5 million in revenues in 2006 to $15 million in 2008. CEO Fred Luddy said during a presentation to customers in San Diego that the company is on track to book close to $25 million this year and between $35 million and $40 million in 2010. While those numbers are probably less than either HP or BMC spend on executive salaries in a given year, they are only part of the story. Service-now.com counts some of the world's largest multinational corporations among its 255 customers, including Qualcomm, Juniper Networks, Deutsche Bank, TIAA-Cref, Blue Cross Blue Shield of Minnesotta, and AIG (yes, that AIG). Luddy says the industry is taking notice; Craig Harper, the company's new vice president of sales for North America defected to Service-now.com from a similar position at BMC because, said Luddy, "he thought it would be a very good move for his career."

Service-now.com has managed to break into a field that has not been traditionally fertile ground for SaaS by doing things a bit differently than typical SaaS vendors, hosting each customer's data and applications on separate servers -- as opposed to having customers share servers, as most SaaS vendors do in order to achieve economies of scale. Customers can also run the software on premise if they'd rather not have it hosted in cloud. The vendor also charges a single price for all its applications, rather than charging customers separately for different modules.

This hybrid approach, once derided by SaaS advocates, is gaining acceptance among analysts -- but it seems as if customers are way ahead of them.