Share this content
MyCustomer.com

NetSuite takes to the (Open)Air

by
4th Jun 2008
Share this content

Software as a service player NetSuite has snapped up on-demand software provider OpenAir. Is majority shareholder Larry Ellison's legendary appetite for acquisitions rubbing off on NetSuite? Will it now fill out its prospects in other vertical markets through further takeovers?

By Stuart Lauchlan, news and analysis editor

NetSuite has made made an unexpected acquisiton in the services space to boost its vertical market strategy.

The software as a service (SaaS) firm is to acquire OpenAir, a Boston provider of on-demand professional services automation software, for $26 million in cash. All 56 OpenAir employees are expected to become NetSuite employees and continue in their current roles upon close of the acquisition. In addition, NetSuite will establish an East Coast headquarters in OpenAir’s Boston location and has committed to invest in the current OpenAir software solutions for a minimum of 10 years. Crucially, OpenAir customers will not be required to migrate to NetSuite products.

In addition to continuing to develop OpenAir's current offerings on a stand-alone basis, NetSuite and OpenAir will integrate their existing solutions via web services. Over time, OpenAir's industry-leading features will be added to NetSuite's ERP/CRM/ecommerce suite.

"We will be keeping OpenAir as a separate product. We are taking a page from Oracle's book on this, it's not just because we're being nice guys – it's the right thing to do for the business."

Zach Nelson, CEO, NetSuite

Assuming that the OpenAir acquisition closes in the expected timeframe, NetSuite expects its revenue for the second quarter of 2008 to remain unchanged from the prior outlook of $36.0 million to $36.7 million. For 2008, revenue is expected to be in the range of $156 to $159 million and net loss is expected to be in the range of $3.5 million to $2.5 million.

"The services market is in need of a major business application revolution not unlike the paradigm shift that took place in high-end manufacturing with the emergence of SAP and fully-integrated ERP systems. By combining OpenAir and NetSuite, we now have the resources to fully execute on our vision and transform the way services-based companies operate," said Morris Panner, CEO of OpenAir. "Our customers require integration with their back-office systems, and by combining forces with a leading provider of on-demand ERP suites, we can bring the seamless end-to-end automation for which modern services-based businesses are clamouring."

Zach Nelson, CEO of NetSuite told MyCustomer.com that the deal was the culmination of months of due diligence. “It's really all about our strategy to focus on vertical markets,” he said. “The services market vertical is our second largest. What OpenAir does is on demand for services firms. This just made a lot of sense for us. They are a great bunch of guys and they have great technology. They also have customers who just love the product, which really does just solve their business problems.”

Nelson said that NetSuite would follow Oracles's example when it comes to integrating OpenAir into its portfolio. Oracle CEO Larry Ellison is the majority shareholder in NetSuite. “We will be keeping OpenAir as a separate product,” said Nelson. “We are taking a page from Oracle's book on this, it's not just because we're being nice guys – it's the right thing to do for the business.

“OpenAir has a roadmap for their products, including adding internationalistation, so that work is all done. Beyond 2009, there are other verticals that we are not yet in that this will be a good solution for. Over time we will add the functionality of OpenAir to NetSuite to create a completely integrated offering. We will take all the domain knowledge that OpenAir has and rewire those into the NetSuite products.”

“The other thing that's great about this is that it gives us a footlhold in accounts that are not yet ready for the full NetSuite OneWorld suite. If you look at the OpenAir customer base, 90% of them look like NetSuite customers, but some of them are just not yet ready for the full suite that we offer."

Never say never

So will NetSuite look to fill out its prospects in other vertical markets through further acquisitions? After all, that's Ellison's strategy with Oracle. Nelson is cautious, arguing: “Never say never, but it's not part of the strategy to do that right now. We will also have our hands full to follow through on this transcaction.”

"Might a purchase of a data integration company lie in NetSuite's future a la Workday's acquisition of Cape Clear Software earlier this year? After all, the company still has the bulk of its IPO proceeds at hand so we'd expect some further acquisitions."

China Martens, The 451 Group

But some analysts reckon this might be a portent of things to come. "In its first foray into M&A territory, we see NetSuite making a deal full of potential benefits - netting it new customers, further expertise in services industry apps, a base on the East Coast and that all-important second data centre,” said China Martens of analyst firm The 451 Group.

“We think opting to run OpenAir as a stand-alone entity makes sense for NetSuite given integrating an acquisition will be a new experience for the vendor. There's also the potential overlap issue in functionality. OpenAir's apps suites - OpenAir PSA and OpenAir PPM - cover some of the same ground as ERP software. Keeping NetSuite apps and OpenAir apps fairly separate while working on Web services integration between them and later the incorporation of some OpenAir features into NetSuite's OneWorld module seems smart. We're interested to see how well the new owner of OpenAir continues the company's partnerships with other apps vendors, particularly Salesforce.com and Intacct, which had seemed pretty close to OpenAir.

“Might a purchase of a data integration company lie in NetSuite's future a la Workday's acquisition of Cape Clear Software earlier this year? After all, the company still has the bulk of its IPO proceeds at hand so we'd expect some further acquisitions, particularly if taking OpenAir on board continues to go smoothly. Other areas we'd expect NetSuite may look to buy in more technologies include more industry-specific apps, deeper partner relationship management, additional customer service automation and potentially some more ecommerce know-how.

“Competitively speaking, NetSuite now faces off more against Microsoft. Dynamics GP is often its major competition, now with OpenAir, NetSuite has a competitor to two other Microsoft offerings - Dynamics SL and Microsoft Project. With OpenAir under its belt, NetSuite also gets to have more of an answer to other ERP rivals that have a focus on services companies like Epicor and Lawson."

Related articles

  • NetSuite stock crashes despite reduced losses
  • Interview: Evan Goldberg, NetSuite
  • Special Report: NetSuite puts hairballs in the Cloud
  • NetSuite CEO slams SAP and outlines successful SaaS drivers
  • Special Report: NetSuite enters 'platform wars'
  • Special Report: NetSuite's first public outing
  • NetSuite releases "most important" software of the past decade
  • Special Report: NetSuite's kung fu fighting talk
  • NetSuite bids for e-commerce lead with eBay
  • Find out more about Stuart Lauchlan

    Replies (0)

    Please login or register to join the discussion.

    There are currently no replies, be the first to post a reply.