As NetSuite CEO Zach Nelson spoke to a London SaaS conference, he took time out to criticise major vendors like SAP for failing to understand the model.
By Chris Middleton
SAP and the other ERP giants do not understand anything about software as a service (SaaS), but their interest validates the market. That was the message of NetSuite CEO Zach Nelson as he appeared at a London SaaS conference hosted by French banking giant Societé Generale on Tuesday.
“Every customer needs customisation... simply,” said Nelson, who slammed SAP and other big-hitters who plan to enter the SaaS market for failing to understand this.
NetSuite underlined the point by announcing two new vertical editions of its business suite: NetSuite Ecommerce Company Edition and NetSuite Ecommerce+ Company Edition. In conjunction, NetSuite has added new web store functionality, and fraud protection tools.
NetSuite's core customers are what Nelson termed the 'Fortune five million', those small to medium enterprises (SMEs) with an employee base of 10 to 1,000, who make up perhaps 50% of the economy both here and in the US. “Small businesses can be complex,” he cautioned his competitors, which he claimed were pushing a one-size-fits-all approach to SaaS.
Of the 5,600 active NetSuite customers worldwide (82% of whom are in North America, with the UK being the second largest market), Nelson said: “Every one [of NetSuite's customers] has customised the application; no one is using 'vanilla' NetSuite. SAP [SaaS] is a non-starter if it's non-customisable.”
"I've heard this is SAP's most complete product ever, with one exception: you can't buy it. Are they gonna get their $3 million sales reps to sell it? Good luck!"
Zach Nelson, CEO, NetSuite
“The minute you customise SAP or Great Plains you never want to touch it again for fear of blowing it up,” he added.
Of SAP's much-postponed SaaS offering, Nelson had this to say: “I've heard this is the most complete product ever, with one exception: you can't buy it. Are they gonna get their $3 million sales reps to sell it? Good luck!”
The issue of selling into the complex mid-market is the obstacle for companies such as SAP and Oracle who have stated ambitions for SaaS. The online/service paradigm is a poor match with the sales models of companies whose core customer is a Fortune 500 multinational. In other words, it is hard for them to make money, and it disintermediates their sales and reseller channels.
Nelson forecasted “a world of pain” coming to the indirect channel before it can find a way of working with SaaS companies. The other barrier to cracking the SME market is how to find potential customers. Nelson claimed that customers find NetSuite, rather than vice versa, and that Google has become the company's primary research tool.
Fresh from its recent IPO, NetSuite has announced revenues of $108.5 million for 2007, and is “just about to slip into profitability”, said Nelson.
Drivers for successful SaaS
Nelson believes that the reasons for the company's revenue growth to date is that it understands how to push SaaS successfully. It has taken them 10 years, he explained, and it would take SAP the same length of time from a standing start.
In Nelson's view, the main drivers for successful SaaS for both vendor and customer are:
• Multi-tenant implementations – rather than the single-tenant approach, which Nelson claimed has “failed every time”.
• A central datacentre and repository, as opposed to what he called the “you host, we host, everyone hosts” option (of the type that Microsoft has been pushing recently for its Outlook-accessed CRM suite).
(Nelson revealed that an East Coast US NetSuite datacentre will join the company's West Coast centre later this year.)
• A direct sales channel, rather than the indirect value-added reseller (VAR) alternative. Nelson claimed the latter is slow, unresponsive to customers and geographically specific when set against the hosted, browser-accessed advantage of SaaS for end-users.
NetSuite's own salesforce will grow to 200 this year, Nelson revealed.
• A subscription model in preference to a perpetual licence or a mix of subscription and perpetual licence (which Nelson criticised RightNow for adopting). “You have to make your customers successful,” he said in support of the subscription-only approach.
• A sole focus on SaaS, as opposed to running it as a “side business”, as SAP or Oracle would be doing.
• Finally, a business suite of applications, as opposed to point products. Nelson said that most companies were tangled up in a “hairball” of poorly integrated business suites.
Many customers were now effectively running their business on NetSuite, he said. “Once your data is all in one place it becomes a display issue,” he explained, claiming that you can just as easily build a customer-facing website as you can an employee-facing dashboard.
One company that has done just that across several different brands and web stores is NetSuite customer Hugh Symons telecom, a 45-employee managed service and value-added distributor branch of the Hugh Symons group. Specialising in fixed, mobile and IT networking, the company is an example of a small but highly complex business.
In a live London demo of the company's custom version of NetSuite (hosted from NetSuite's California datacentre) Mike McMinn, Hugh Symons project implementation manager, claimed that since installing NetSuite in 2005, his company has realised a return on investment (ROI) of between 400 and 500 percent.
Comments
RightNow responds to Zach's comments
In response to Zach's comments above, we at RightNow made the decision to no longer sell perpetual licenses at the beginning of last year.
The decision was taken as a direct response to decline in demand for perpetual licenses. To give you a good idea of how fast it happened, we need to compare the full year 2005 to 2006. While our bookings grew 50 percent and recurring revenue grew 38 percent, perpetual sales were flat in this time. The trend was particularly evident in the fourth quarter as more and more customers selected the subscription option. We believe this was a direct result in the market's accelerated adoption of on demand especially among large enterprises.
When we started this business, we thought of ourselves as a software firm that happened to host. We provided the various options that a software firm would offer – we offered perpetual licenses, we offered on premises. But demand for those two options has diminished. Whereas around 50 percent of new customer wanted a hosted option five years ago, now its now over 90 percent. It’s just the preferred option: subscription licenses via a hosted model.
Susan Carstensen, COO, RightNow