2042-zach-nelson
Cloud Computing

Martin Veitch (Global) - Interview: NetSuite CEO Open to Partners as He Swings for SAP and Sage

NetSuite CEO Zach Nelson may no longer be talking the talk about buying UK software powerhouse Sage but he is hinting pretty broadly that going to market with an IT mega-vendor could accelerate his firm’s assault on the blue-chips. More of which later...

Speaking down the line from his company’s offices in San Mateo, California earlier this week, Nelson is as bullish as ever on his Cloud ERP company’s prospects, and just as drily, wryly humorous about rivals. His sunny outlook is understandable as rival and sometime sparring partner Salesforce.com’s numbers have just created a ripple across Cloud stocks, sending NetSuite shares to near their 52-week high. Nelson can also point to numbers showing that his company has grown its value by more than 450% over the past few years.

Of course, the vagaries of the public markets are not everything but they are indicative of a broader trend, he argues:

“All these midsize [ERP] companies are going to private equity. Epicor and Lawson went private because that’s the way the business is being retooled. [ERP] software never goes away entirely but investment levels are going to change fundamentally. Five years from now I’d be shocked to see anybody say they’re embarking on a 15-year SAP journey. I mean, you really think your company is going to look the same in 15 years? Try 15 minutes…”

Although NetSuite has often been seen as the Tweedledee to Salesforce’s Tweedledum, it might be that it is on more of a collision course with the likes of Sage and SAP. Originally envisioned as an ERP suite for SMBs and SMEs, NetSuite has grown to encompass more blue-chips and Nelson claims about 40% of new business is coming from the enterprise end of the market moving to NetSuite’s OneWorld suite. OneWorld was launched in 2008 as a way to book business from multinationals dealing in multiple currencies and requiring a consolidated view of what was happening across their businesses.

“Four to five years ago we said it’s hard to build for small business, but it runs out that big companies wanted that approach for agility,” Nelson says. “We didn’t really target the enterprise, the enterprise targeted us. What we’re seeing is a two-tier enterprise approach to ERP because they might have spent $100m on SAP at the corporate level but outside that they’re a Tower of Babel, running Intuit and whatever else individually at the subsidiary level. They end up running on Excel because that’s the only way to put Humpty-Dumpty back together again.”

Without losing “that midsize market DNA”, Nelson wants to capitalise on this fragmented scenario, installing NetSuite as the core ERP wherever possible and circling mother-ship ERP installations where it’s hard to move incumbent suppliers. The NetSuite Cloud offering is based on common code so switching functionality on and off isn’t an issue, Nelson says, but scaling his organisation and infrastructure has been necessary. A second major datacentre went live late last year in the Boston area to provide extra capacity and failover for California, and plans are being drafted to add facilities in Europe and Asia in the next 18 months. Growth is global and broad, with Vietnam, Thailand, Brazil and South Africa prominent.

At the same time, NetSuite has been hiring to fill out its enterprise sales team to address Fortune 2000 companies and recruiting the likes of Accenture and Deloitte to resell its service. However, Nelson has reined in his views on mergers and acquisitions since last we talked when he caused a stir by suggesting NetSuite could eventually acquire Sage. This time, he’s a little more circumspect, saying that his main thrust is that if current trends continue, Cloud companies like NetSuite will outperform, and eventually grow larger than, traditional software suppliers like Sage and SAP. Of course, both those latter companies have invested heavily both organically and via M&A to add to their Cloud credentials but Nelson argues that it’s hard for these leopards to change their spots.

“No major company has made the transition from one major inflexion point to another,” he says. “That’s why we’re targeting Sage in the UK, and some of their biggest resellers like Eureka in the UK and Blytheco in the US are starting to see the writing on the wall too [by signing up to be NetSuite channel partners]. Sage has nothing to offer that looks like NetSuite. These companies like SAP are buying companies like SuccessFactors to get some Cloud DNA into their bodies but it doesn't really help.”

However, Nelson hints broadly that forming axis operations with third-parties could be a catalyst for deeper penetration into the enterprise. For seasoned watchers of the sector the most obvious tie-up would be with Oracle. Oracle CEO and industry luminary and legend Larry Ellison was a NetSuite co-founder and financial backer and NetSuite uses Oracle database and middleware and is evaluating its Exadata appliances. In the early days of NetSuite (when the company was called NetLedger) Oracle resold NetSuite as Oracle Small Business Suite.

Despite the overlaps and Oracle’s burgeoning Cloud aspirations, Nelson is cagey on the Ellison connection but seemingly very interested in the notion of moving closer to go-to-market partners in the enterprise IT space:

“We can certainly help Oracle customers where they might want to have Oracle as the ERP and NetSuite for subsidiaries. Back in the old days before NetSuite's IPO we [Nelson and Ellison] spoke a lot but now it’s only like once a year. But there’s a lot of other people at Oracle we talk to.”

Nelson names IBM, Dell, CA and Cast Iron as other “opportunities”.

“It’s not just software but the systems players,” he adds. “Hardware is the canary in the coalmine [and when hardware suppliers struggle for profitability] that’s going to drive lots of new relationships. You’re beginning to see that the canary’s not singing anymore.”

As for that Sage connection, Nelson has another revelation: he once attempted to get Sage to resell NetSuite. “I approached Sage way back and said ‘do you want to endorse NetSuite?’ They rejected that, unfortunately for them, but we’re still open.”

He remains as waspish as ever, saying that Salesforce’s FinancialForce Cloud accounting service has “gotten smaller as a competitor”. On a more serious note, he says, “What’s interesting is that we’ve gone down very separate ways. They’ve gone down a very different track with all the social media analysis and unstructured data work. NetSuite is all about structured data. [The Salesforce ecosystem has] worked out well because sales force automation doesn’t do much without those partners but I always say that NetSuite is like giving your company a heart transplant. Salesforce is like a knee replacement.”

Regrets? Like Sinatra, he has a few when he looks back at the history of his company. The financial crisis when it came in 2008 and 2009 led to a bout of short-termism, for example.

“Like everybody else we began conserving cash even though we were still growing, and we stopped hiring developers. If I were to go back I wouldn’t have stopped hiring developers and we’ve increased developer head count by 400% since 2009.”

But with its growing band of diverse customers expanding across geographies and with more and more businesses acknowledging that Cloud services are an attractive route to take, things are looking pretty good for NetSuite.

“The comfort factor in Cloud has completely changed,” he says. “The light bulb has gone on above every CEO’s head. P&G is a Cloud company, UBS is a Cloud company. They’re fundamentally changing their infrastructure and looking at their internal systems. Not all CIOs have figured this out but the CEOs are now driving this.”

Martin Veitch is Editorial Director of IDG Connect

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Martin Veitch

Martin Veitch is Contributing Editor for IDG Connect

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