'I still get on the phone for a $5k deal' - NetSuite CEO's anti-SAP mission

Interview California-based Salesforce has been an unstoppable force in Software as a Service (SaaS) for 14 years. It pulled in $3.05bn in revenue last year, and just booted rival enterprise tech maker SAP from its slot as the world's number-one customer relationship management software (CRM) company.

But there’s another SaaS company that started life around the same time as Salesforce, and it also specialises in a branch of enterprise software.

That company is NetSuite, which sells enterprise resource planning (ERP) products as a service. The biz is eclipsed by Salesforce; it took $308.8m in revenue last year.

Anyone can switch CRM vendors, but ERP customers are locked in

CEO and president Zach Nelson, in an interview with The Reg, gives his version of how Salesforce has out-gunned NetSuite, also a Californian company. He says Salesforce has been slurping up all the trade from "poorly designed" CRM systems.

The big cheese cites Siebel - the on-premises CRM suite from one of Oracle supremo Larry Ellison’s protégés Tom Siebel - as an example. Businesses can switch their CRM provider and their trade won't be affected, says Nelson, and Salesforce has benefited from this. Until recently, the same could not be said of traditional on-premises ERP systems, he says, so people put up with what they had and there was little movement in the sector.

“If you deployed Salesforce and it didn’t work nobody would go out of business," Nelson says on a visit to London. "In the case of ERP, with Sage and Great Plains [now Microsoft Dynamics], it kind of works.”

NetSuite, which sells SaaS rather than on-premises, has made its mark in the mid-market, displacing Sage, Microsoft’s Dynamics and others with average deal size around $5,000. In NetSuite’s entire 15-year history, Nelson claims, there has been just one occasion where the company has been called in to completely replace a failing ERP project: it was a SAP system in 2005, he says. Mostly, NetSuite is brought in as an addition to the existing SAP or Oracle system.

But Nelson, who has been at the helm of NetSuite since 2001, reckons times are beginning to change.

In the last five to six years, businesses have been replacing their ERP with NetSuite and deal size has grown by 20 per cent in the last 12 months. Nelson reckons existing customers are buying more NetSuite as potential customers in the enterprise customers begin adopting NetSuite.

These are companies already running Oracle or SAP in their core but whose regions, subsidiaries, partners, customers or suppliers are picking up NetSuite because of the steep licence and maintenance price of Oracle and SAP, because they pack in too many features, or because Oracle and SAP are missing some piece of specific vertical or linguistic functionality, he claims. Nelson cites the Philippines operations of SAP apps customer Proctor & Gamble – also a user of Oracle Exadata hardware - that has moved to NetSuite.

"It's a Tower of Babel,” Nelson says. “In large enterprises we are coexisting. In the mid-size, we are classic enterprise deployment."

Nelson reckons such customers are taking out NetSuite ERP subscriptions despite already having a site licence from one of the big vendors, meaning they are paying twice. “They are paying twice because it’s still cheaper than deploying the licence to a new business unit for an upgrade to the existing product,” Nelson claims.

Wheeling and dealing

Oracle hasn’t really tried to venture outside of the enterprise but SAP has - with Business ByDesign. However, the world’s largest business software company has struggled to sell a product that strips out the “enterprise” features to suit the mid-market. Also, the company struggled to turn the Business ByDesign architecture into something that was genuinely multi-tenant and scalable. First mentioned in 2007, then going under the moniker A1S, it wasn’t until 2010 that Business ByDesign was finally deemed ready and launched to lowered sales targets from SAP. Since then, SAP has bought online marketplace Ariba and human-capital-management specialist Success Factors.

Nelson reckons the number of deals against Business ByDesign fell by 40 per cent in the last three months of 2012 – meaning, he says, it’s showing up less often in competitive situations against NetSuite. "They [SAP] are looking at how to sell more Ariba and more SuccessFactors into the install base, so I don’t think Business ByDesign has more strategic value for them,” Nelson says.

On Oracle, Nelson says: “While we do compete with them, if were are in the room and Oracle is in the room, one of us is in the wrong deal.

“When we win a deal from Oracle, I’m sure a sales rep from Oracle feels we are a competitor. If you can deploy NetSuite you’d be crazy to deploy Oracle. SAP would be more a competition because they are always taking about coming downmarket."

It’s worth noting Oracle’s chief executive is a personal investor in NetSuite. Ellison and related partners own more than 50 per cent of the company. His shares are locked up in a trust, though, so he’s locked in and can’t sell for gain.

But people don’t buy ERP based on price and Nelson reckons NetSuite is now being taken seriously because it has more functionality than 15 years ago. In 1998, NetSuite didn’t even match Sage’s Line 50 accounting software but today, as the Philippines division of Proctor & Gamble proves, NetSuite is considered mature enough for subsidiaries of operations in multinationals.

To break into the enterprise, NetSuite’s got two major allies: consultants Accenture and Deloitte. The company has also hired people in sales and marketing. Nelson claims up to 20 deals with Deloitte, with “lots” around “second tier ERP” - NetSuite used in operations with SAP or Oracle in their core. “The pipeline is building,” he says.