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.
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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.
SaaS - you're selling to a 30-year-old sales bod
The received wisdom of SaaS companies is they’ve snuck into customers through the browser. Like open source, the easy availability of SaaS has meant companies are using it before those in a position of responsibility know of their existence.
“There was no sneaking in the back door,“ Nelson shoots back. “Dealing with the chief executive or chief financial officer from the beginning is a multi-person decision. [But] the mid-market is the toughest market to sell to on the planet because you are selling to the CEO and you have a 30-year-old sales person who is an expert in their company.”
“[The way] we got into these large enterprise deals was with these partners,” Nelson tells us. “The final tipping point was seeing Accenture and Deloitte build cloud practices. They are well known for SAP and Oracle practices. It says that not just the mid market wants SaaS - it proves the world’s largest companies are interested in SaaS, too.”
In the SAP and Oracle world, consultants were the dreaded black suits, who descend upon ERP and CRM projects to over complicate them and help ensure they run behind schedule and break their estimated budgets. Ellison once mocked “black suits” of IBM while coveting IBM’s consulting business, a business that’s integral in getting Oracle’s ERP to work in individual companies through customisation of modules or workflows.
It’s also a reality check to supporters of software-as-a-service and those prophesying doom for on-premises software - who have been cheered by the Gartner numbers.
This is a slippery slope for NetSuite, to adopt the tools familiar to Oracle and SAP that have helped cement one less-than-positive aspect of their reputation among customers.
But customisation goes with the territory, according to Nelson. He said the basic version of NetSuite was built to run a software company, and so needs tailoring to verticals such as agriculture or telecoms – where Accenture, for example, happens to have practices. Customisation is done on the business logic, UI and by adding database tablets, he says. “NetSuite has 90 per cent of the functionality needed for their [customers’] business but that last 10 per cent is the last mile,” he says.
The difference, Nelson claims, is Accenture’s Oracle and SAP consultants were experts in the Oracle and SAP software itself - they had to be - but not, he argues, in the customers’ businesses. With NetSuite, consultants need know more about the customers' businesses because the suite doesn’t require a deep understanding of any proprietary languages, APIs or workflows.
NetSuite’s strategy is to have existing customers keep buying while attracting new business. Nelson is also pushing SuiteCommerce, launched last year, with the core ERP suite taking orders from a series of different end points – devices, point of sale, web, Twitter. In this world, NetSuite no longer builds front-ends for each device and screen.
No plans for Windows 8...
In January, NetSuite bought point-of-sale (POS) company Retail Anywhere, which runs on iPhone and iPad devices in addition to traditional retail POS hardware. The software is designed to queue and synchronise retail transactions with a central system and consolidate transactions. Now those transactions will be synchronised and consolidated with NetSuite’s headless ERP system.
The deal gives NetSuite's ERP core a distinct retail twist.
NetSuite also has versions of its apps available for the iPhone and Android, and a project’s underway writing the client UI in HTML5. There are no plans for Windows 8. “Our real focus is to make NetSuite a headlines machine for internal and external users,” Nelson says.
If Nelson is right and core ERP systems are now being replaced, then NetSuite can anticipate growth. But can NetSuite eclipse Salesforce?
Despite the outsized popularity of Salesforce's CEO Marc Benioff, Salesforce is actually still a relatively small firm compared to Oracle and SAP - which count their money in units of tens of billions of dollars. With sales for Salesforce and NetSuite growing at a similar rate - between 30 and 35 per cent annually - there's plenty of opportunity to expand. Further, Nelson argues, it's going to be harder for SAP to expand down into NetSuite's mid-market audience than for NetSuite to move up.
Nelson also reckons he's not lost the common touch that helped him win business in the first place, and helped reassure that SAP customer back in 2005. That will be important as NetSuite grows using the same "black-suited enterprise consultant" technique that helped give ERP its bad name in the first place.
"I still get on the phone for a $5,000 deal," he says. He has to, because those doing the buying are business chiefs who have final sign-off on important IT deals. "You deploy NetSuite in the heart of the business. This is the ultimate CEO app. I spend a lot of time with CEOs," Nelson says. ®