NetSuite Moves Up; Targets SAP, Not Oracle
By TONY KONTZER, FOR INVESTOR'S BUSINESS DAILY
Posted 05:23 PM ET
Oracle's Mark Hurd (left) appeared with NetSuite CEO Zach Nelson at the latter's user show, though the two are moving closer to direct rivalry.
Oracle's Mark Hurd (left) appeared with NetSuite CEO Zach Nelson at the latter's user show, though the two are moving closer to direct rivalry. View Enlarged Image
Born in 1998 as NetLedger, cloud software maker NetSuite (N) is ancient in Internet years. So it seemed strange that its user conference in San Francisco last week felt much like a coming-out party.
But it was the first user conference hosted by the maker of small-business software accessed via the Internet, or cloud. NetSuite CEO Zach Nelson joked in his keynote that he agreed to the event only after his staff assured him his duties would be limited to speaking.
And Nelson — backed by announcements ranging from a new cloud service for large corporations to a new reselling partnership with Accenture (ACN) — projected an aura of no-nonsense self-assuredness that was well-received.
Which brings up another factor contributing to NetSuite's quiet rise: the oversized presence of cloud software rival Salesforce.com (CRM). Sporting a charismatic CEO in Marc Benioff and a catchy "No Software" slogan, Salesforce.com has made cloud headlines and has doubled, or nearly so, its per-share profit minus items in five of the past seven quarters.
NetSuite, meanwhile, has been the engine behind many small businesses moving to the cloud — and it's posted scant per-share profit, 3 cents in Q1 minus special items. Where Salesforce.com built its reputation on its user-facing customer management software, NetSuite has focused on back-end systems like finance that users can be leery of putting in the cloud.
Further fueling NetSuite's emergence is the message behind its conference announcements — that it's moving closer to competing with business software leaders Oracle (ORCL) and SAP (SAP).
With its new NetSuite Unlimited service designed for larger companies, and with Accenture ready to start selling and implementing NetSuite Unlimited to its clients, NetSuite aspires to be more than a supplier to small business. At a starting price of $1 million per year, NetSuite Unlimited is priced for larger companies, though Nelson said it's still "much cheaper than anything you're doing today to manage all of your applications."
The San Mateo, Calif.-based company also announced two customer wins that signal its transition upmarket: Qualcomm (QCOM) and Groupon. The online deal-of-the-day firm has already moved operations in five countries onto the NetSuite platform and plans to have it up and running in 26 nations by July 1, said John Bosshart, Groupon's international controller.
NetSuite has been moving steadily upmarket, says Pat Walraven, an analyst with JMP Securities. The company's recent announcements make it a player in the market for divisions of Fortune 500 companies, but not yet the parent companies, says Walraven. He says it will bump up against the likes of SAP and Oracle more often.
NetSuite's move up the food chain raises some questions for a company that's majority-owned by Oracle CEO Larry Ellison. NetSuite might not immediately be going after the huge corporations that are Oracle's bread-and-butter, but it's likely to eventually go head-to-head with Oracle on occasion.
Oracle vs. NetSuite, though, was not the message of the user conference. To stem any such perceptions, Oracle co-President Mark Hurd appeared during Nelson's keynote. He was there to reinforce the fact that NetSuite, which has always run its service on Oracle database software, would now be using Oracle's Exadata database hardware-software combination to improve the performance of its new Unlimited service. Hurd also was there to remind customers that the two companies are not competitors, at one point saying, "When you're a customer of NetSuite, you're also a customer of Oracle."
Both Nelson and NetSuite founder and Chief Technologist Evan Goldberg are former Oracle execs. Nelson implied that NetSuite was going after SAP and its Business ByDesign cloud software.
Show attendees said NetSuite could be positioned to be acquired. Some see Oracle as a likely suitor, but Walraven says SAP, Salesforce or even Google (GOOG) and Microsoft (MSFT) would have reason to be interested. But he says it would be tricky for anyone to buy NetSuite because of the presence of Ellison. "I suspect it remains independent," he said.
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