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SaaS firms avoid credit crunch as NetSuite and RightNow narrow losses

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6th Aug 2008
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Software as a service vendors NetSuite and RightNow narrow their losses in their latest results - but the credit crunch still presents questions over the future of the market.

NetSuite and RightNow narrow losses

By Stuart Lauchlan, news and analysis editor

Two of the leading software as a service (SaaS) vendors narrowed their losses in their second quarters, but the credit crunch remains an unknown quantity for the future.

RightNow Technologies posted a narrower-than-expected second-quarter loss, helped by improved operating margins, but the credit crunch is still casting long clouds. The company reported a second quarter net loss of $3.1 million, compared with a loss of $5.7 million a year earlier. The mix of revenue across geographies for the quarter was 67% Americas, 25% EMEA and 8% Asia Pacific.

"We are cognizant that the economy is impacting our customers and may potentially impact our business. That being said though, we continue to remain confident in our business."

Greg Gianforte, president and CEO, RightNow

“We continue to execute on our land and expand strategy, while delivering true, measurable ROI to our customers,” said Greg Gianforte, CEO of RightNow. “We remain focused on our core value proposition, which is to help our clients deliver superior customer experiences, while reducing their operating cost. This value proposition continues to resonate with our customers and prospects. It is why we win our enterprise accounts, and it is why they continue to expand their business with us.

Meanwhile, Netsuite has come another step closer to breaking even with the reporting of a second-quarter adjusted loss of $900,000, compared to an adjusted loss in the year-earlier period of $1.37 million. Revenue for the quarter ending June 30 rose to $36.6 million from $25.5 million a year ago.

Reataining and acquiring customers

“Anyway you look at it, our second quarter of 2008 was another stellar quarter for NetSuite,” said NetSuite CEO Zach Nelson. “When compared with recent trends seen in the market in which we play, specifically the mid-market ERP business application space, the performance was fantastic. In this past quarter, we saw traditional mid-market application vendor sale stall and shrink."

"When compared with recent trends seen in the market in which we play, specifically the mid-market ERP business application space, the performance was fantastic."

Zach Nelson, CEO, NetSuite

Both companies played up their commitment to reataining and acquiring customers. “Our customers know that we deliver real value, whether it is by increasing self-service rates, reducing email and call volumes, or making their contact centre agents more efficient," said Gianforte. "For example, Epson recently deployed our solution for 400 agents in four contact centre around the world. With the help of RightNow agents now resolve 80% of incoming inquiries on the first call. With our web self-service solution, Epson saw a 26% reduction in email volume within just four months.”

Gianforte also sees a shift in the demands from clients. “We all know it costs less to retain current customers than acquire new ones. In fact, the number one issue amongst C-level executives in a recent Gartner Forbes study was retaining customers and enhancing relationships with them. They ranked taking care of customers higher than reducing costs or planning for future growth. This is all in the context of the current macro-economic environment.

“Land and expand is really at the heart of the way we go to market. It plays very well in the current economic environment because the land and expand strategy does not require a customer to make a huge investment upfront. Through early success and quick ROI, we earn the right to come back and do the follow-on business,” he said. “I never get tired of talking about the ROI we create for our clients, so I am pleased to report that the Colorado Department of Revenue, a RightNow customer for eight years, just recently won the Nucleus ROI award. Some 90% of their site visitors are now able to find answers quickly online. This equates to call centre volume reductions of about 45%, and a savings of more than $5 million life-to-date.”

Slowing economic conditions

Nelson said that NetSuite had added 400 new customers during the quarter, citing a number of them to back up his claims. “Intuitive Surgical, a fast-growing publicly traded $600 million company and the leader in operative surgical robotics, selected NetSuite CRM to integrate and manage a number of complex business processes that they provide to hospitals nationwide,” he said.

"What has changed in the last year is people look at RightNow as a viable replacement for their Siebel deployment that has a lot of hair on it."

Greg Gianforte, president and CEO, RightNow

“Wasserman Media, a leading sports marketing agency, replaced Microsoft Great Plains with NetSuite to manage complex business processes unique to their industry such as partner athlete commissions, athlete management, and media purchases. And finally, Nestle UK, the British arm of the world’s foremost nutrition, health and wellness company, used NetSuite Ecommerce to build a completely integrated web store in six weeks under rigid requirements.”

In common with all other hi-tech firms, both firms are keeping a wary eye on the slowing economic conditions, particularly in the US. “As you look at the leading indicators of our business, leads and pipeline, we haven’t seen an economic impact and in fact to date those two leading indicators have grown faster than historically,” said Nelson. “It’s basically business as usual for NetSuite. We don’t have a ton of exposure in financial services and construction and those markets.

"Almost every vendor out there says they are counter-cyclical, but as we’ve gone through this economic cycle, I really do believe that it is true in NetSuite’s case. I think we are in a great position when economies are booming and nobody wants to have economic slowdown but certainly, the economics of SaaS and more importantly, the economics of NetSuite, the economics of a multi-application solution that is integrated are really compelling on the downside as well.”

The economy's impact

Gianforte pitches a similar argument. “We are cognizant that the economy is impacting our customers and may potentially impact our business,” he said, “That being said though, we continue to remain confident in our business for the second half of this year. In fact, customers are seeking us out to help them during these uncertain economic times. In total we added 73 new customers in the second quarter. In many of these deals, with both new and existing customers, we are replacing competitors.

“At a macro level we have not seen any real changes in the competitive landscape. Our primary competitor continues to be the call centre incumbents. That is mostly Oracle Siebel. We win there mostly because our stuff is easier and goes in faster and costs less to own, which are pretty compelling advantages for a client. There is a fairly high level of frustration amongst existing Siebel customers. They have to get ready to decide they are going to stop throwing good money after bad. Once they get there, we get the business.

"We are in a great position when economies are booming and nobody wants to have economic slowdown but certainly, the economics of SAP and more importantly, the economics of NetSuite, the economics of a multi-application solution that is integrated are really compelling on the downside as well."

Zach Nelson, CEO, NetSuite

“What has changed in the last year is people look at RightNow as a viable replacement for their Siebel deployment that has a lot of hair on it. Or their Clarify deployment that is just long in the tooth. Or their massive system that needs to be replaced. We could do those replacements a year ago. A year ago RightNow 8 was out a quarter. Now it is been out a year and a half. So we can point to proof points.

“The high ground in the account as far as we are concerned is the agent desktop, that is the ground we have to occupy. Our calling card is the e-service stuff because it is complementary to existing CRM deployments they have in place. We come in that way. We prove our value. We earn the right to take away the agent desktop business. That is really the big difference from a year ago. That is why the expansion opportunity is bigger.”

Competitively, NetSuite sees different competition. “It does vary by geographic regions,” noted Nelson. “We are doing quite well in Australia where the guy that you can replace a lot would be MYOB. In the UK, you will see a lot of Sage replacement on the back office. In the US, on the back office, the primary competition is Great Plains on the back office. Typically, we are not competing with just one application. We are usually competing with multiple applications, something in the back office and then typically something in the front office. The most likely front office competitor in that particular environment in many cases is Salesforce.com.

"Now, that said, even if you just look at the US competitive environment, let's just say it's Great Plains and Salesforce.com. While that combination is the most common, you still only see in something like 10% of the deals. So, our point has always been in the opportunity for NetSuite in the mid-market is it is really, really fragmented.”

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