AI company Sierra passed $400M in yearly recurring revenue as ServiceNow stock fell 26.9% in a day. Software pricing is shifting from per user to per result.
Sierra, an AI company that had no customers 30 months ago, added more than $150 million in yearly recurring revenue in one quarter. It now stands above $400 million. A day earlier, shares of ServiceNow, a long-established business software maker, fell 26.9% after its October 28 earnings report.
Yearly recurring revenue, or ARR, is the amount customers are contracted to pay over a year. Sierra's founders, Bret Taylor and Clay Bavor, posted the numbers on Friday. That one quarter brought in more ARR than all of last year.
ServiceNow's drop came while the S&P 500 slipped 0.3%. By at least one account, it was the company's worst day since its 2012 IPO. The stock now sits 41.3% below its highest close of the past year.
The headline numbers were close. Adjusted earnings per share were $1.00 against $1.02 expected. Revenue was $4.11 billion, slightly above the $4.09 billion forecast. The author of the SaaStr analysis argues the market is betting ServiceNow will stay a 20% grower while AI costs it margin faster than it adds growth. The company also lowered its backlog growth outlook from 21% to 18.5%.
ServiceNow is still healthy. It is a $16 billion subscription business with 36% free cash flow margins.
Sierra is not being paid from new money, according to the analysis. Companies already spend on customer service, IT and operations. The same buyers are signing checks to different vendors.
A rough estimate based on Gartner forecasts shows the pattern. If total software spending grows about 15% and AI agent software grows 141%, everything else grows only about 6% this year. Gartner expects that remainder to start shrinking in 2027. The source says this is a rough estimate because the forecasts come from separate models.
Sierra charges for outcomes, such as a loan refinanced, an insurance claim paid, a sale closed or a customer kept. ServiceNow still mostly charges per user seat. Its leaders said on the earnings call that customers like seat pricing because it is predictable, with usage-based fees added on top.
ServiceNow has moved some. Half of its net new business now comes from pricing that is not seat-based, such as usage fees. Its AI numbers are growing too, but it must protect its seat-based base while it builds. Sierra has no such base.
Business owners who pay for software should expect vendors to pitch AI that charges per result. Before agreeing, compare that price with what you pay per user today.
Expect pitches for AI that charges per result, and compare that price with what you pay per user seat now.
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