Wednesday, 18 May 2016 10:00

NetSuite CEO on SAP, SMEs, cloud, private v public, the products industry


iTWire met NetSuite chief executive Zach Nelson for a casual discussion about the company's growth, competition, customers and future. Excerpts:

iTWire, along with a small collection of other Australian and New Zealand journalists, me Zach Nelson in the Presidential Suite of the San Jose Hilton, next door to the San Jose Convention Centre where SuiteWorld 2016 is running. The following questions were posed to Nelson, and Australian and New Zealand NetSuite executives, and are a close paraphrasing of answers provided.

What types and sizes of companies are adopting NetSuite? Is there room for Australian and New Zealand small-to-medium enterprises (SMEs) as well as large business?

Most of the next generation companies are starting with a flexible business model approach. They're building cool things and figuring out how to price it and deliver it to customers in flexible ways. These companies don't know if they are going to be a services or a products company so they need flexible software and this leads them to NetSuite.

Larger, established, companies are feeling market pressure from smaller companies and trying to respond. This in turn also leads them to NetSuite.

Larger companies feeling market pressure from smaller companies and trying to respond and this also leads them to cloud-based systems like NetSuite.

If you're a pure time-based services company, you'll probably be one of the last to move to this multi-product model.

Product companies will move into the services industry. For example, John Deere has its equipment in farms and gets data back from the field which it can then sell back to farmers how to do things well. Another example is with servicing equipment, such as mines operating large Caterpillar trucks which can cost the organisation millions of dollars of lost revenue if it fails.

What pathways do you see customers coming to NetSuite, and does NetSuite assist them in transitioning?

Typically NetSuite is not the first system people use, high-tech companies aside. So nearly everyone who comes to NetSuite is coming from something. Often the pathway is smaller companies increasing in size and moving away from Xero, Saasu etc. who need a larger system.

What's different when migrating to NetSuite, vs. migrating to SAP, is reflected in business process problems. Usually, these show up in a business as an accounting challenge but really they are business challenges, like multiple business models. Large customers are moving to NetSuite to try and become less complex.

So, you have small customers becoming more complex, and large companies wanting to become less complex.

I look at my dashboard and can see exactly what I sold today. You can't do that in SAP.

People come to NetSuite for many reasons.

SAP implementers typically charge even up to four to five times the SAP licensing costs in their implementation fees. Is this a problem for partners implementing NetSuite?

NetSuite needed to craft a different reseller / partner model for this very reason. The traditional model with ERP systems is to charge for upgrades and shock the system back into life. NetSuite doesn't work that way, as a cloud-based system we shock it into life as soon as we make a change.

NetSuite gives its resellers at least 30% of the recurring revenue for the life of the customer. This is opposed to the traditional model of the initial sale then nothing except for upgrades. It's in our interest to make sure our partners are successful.

The demand curve has changed also. People don't want to spend four to five times the license on implementation. Customers are no longer tolerating it. They don't want it. They use cloud systems like SalesForce and see it works without such implementation costs.

Customers say they want things like NetSuite, not like SAP. For customers coming from Xero, for example, why would they want to go on-premises?

Channel partners also come to NetSuite because they've tried to sell SAP or Great Plains and have been beaten by NetSuite on price so they realise they need to add NetSuite to their product list.

With NetSuite, channel partners can focus on domain expertise or unique twists. Instead of screwing servers in they can make vertical additions to the platform. This turns their IP into "Service as Software" essentially. The economics are better for them with reusable IP, and getting out of the people business into the software business.

Do you see a trend in Enterprises towards hybrid models?

Enterprises still have legacy systems even if they want to shift to the cloud. They're not going to give away their EMC servers or other things, but their next set of investment will be on cloud technologies. They will instead be asking EMC to run their servers.

The shift is not towards hybrid but to more NetSuite [-like technologies].

Is security an issue for the cloud?

NetSuite has one system in five data centres. Some enterprises have so many data centres and products it becomes an IT process problem to implement security.

The NetSuite approach is much easier to secure than "Everybody, here's a disc, find the server and patch it."

You can see from news articles SAP has security patches it released years ago which are still unapplied.

What's the change in your average customer size from five years ago to now?

Companies are becoming much larger, aided by increasing facilities in the NetSuite product solving more and more complex problems for them.

Some companies have hundreds of users across 120 companies on a single NetSuite deployment, replacing many individual legacy systems.

How is the responsiveness and usability of NetSuite given there is no data centre in this region?

There are 2000 entities using NetSuite in A/NZ.

The actual speed of delivery is not an issue despite not having a local data centre. There was a data centre in Australia some years ago but it was removed, and no degradation of performance has occurred.

The product was architected in 1998 for dial-up so it has a lot of things built-in about how to move data from a performance standpoint.

Australian data is hosted in Sunnyvale, California. Sovereignty rules prevent us from working with certain customers, like Government, but not telcos or other large enterprises.

Where is the biggest growth being seen?

The most immediate opportunities for growth is in product verticals. We're seeing a rebirth of manufacturing and products because of cloud-based technologies.

Billing is one of the biggest challenges for manufacturing. It's the biggest challenge for CRM systems - "did they get my bill right?"

This problem is on steroids when you have multiple types of services to deliver.

NetSuite solves these problems for the products industries.

How do you feel the pressure of being a public company impacts on things like product roadmap and R&D spend? Would you do anything differently if NetSuite was still a private company?

NetSuite has been very fortunate growing to the scale where we can invest where we need to invest, and shareholders appreciate investment can be prioritised over growth.

Even with ready cash in the bank we still have complaints we're not investing as much as everyone wants. This is the only company on the planet where department budgets go up 30% but even when you have the ability to invest it is still perpetually not enough.

In terms of managing a public company, I see it as an important discipline. SOX is good common sense. You want to have control of your business. Running a public company is a great discipline and gives an advantage over those running a private company who don't have to make good decisions over where they are going to invest.

David M. Williams is attending SuiteWorld 2016 as a guest of NetSuite.

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David M Williams

David has been computing since 1984 where he instantly gravitated to the family Commodore 64. He completed a Bachelor of Computer Science degree from 1990 to 1992, commencing full-time employment as a systems analyst at the end of that year. David subsequently worked as a UNIX Systems Manager, Asia-Pacific technical specialist for an international software company, Business Analyst, IT Manager, and other roles. David has been the Chief Information Officer for national public companies since 2007, delivering IT knowledge and business acumen, seeking to transform the industries within which he works. David is also involved in the user group community, the Australian Computer Society technical advisory boards, and education.

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