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Wednesday, 16 May 2012 06:58

SAP buys NetSuite?


NetSuite chief executive Zach Nelson was exuberant during the opening of the company’s annual conference announcing that arch rival SAP had spent almost $US1 million on NetSuite tools which were being used to run one of its operations.

It was an announcement which clearly thrilled the 3,000 odd NetSuite faithful gathered in San Francisco for the company’s second SuiteWorld conference. What Mr Nelson didn’t say during his keynote address was that the sale was to a division of SuccessFactors, which SAP bought for $US3.4 billion in February, and which is now being touted as the new heart of SAP’s cloud computing strategy.

It prompted a swift rebuttal from SuccessFactors, which was one of the star turns at SAP’s big user conference which is also underway in Florida; the company may have renewed a NetSuite licence, but it won’t be using it.

For a short while the “sale to SAP” looked like an enormous triumph for NetSuite; more sober analysis suggests that the company is still looking for all the marketing oxygen it can get in the highly competitive cloud computing market.

Certainly there is little love lost between the two companies – not surprising given that Oracle’s Larry Ellison is the majority shareholder in NetSuite. Asked directly about SAP and its cloud strategy Mr Nelson said; “SAP was a fine product for the era in which it was invented – before the internet,” adding that it could take 20 years for the company to get its cloud computing offering right.

It’s clear that in the space of just 13 years NetSuite has become a significant player in the mid market cloud computing ERP space – but it’s still a relatively small player.

While it may be enjoying rapid growth – Mr Nelson quoted statistics pointing to 84 per cent growth rates – it’s off a relatively low base. This year the company estimates it will achieve 30 per cent top line growth, and achieve revenues of $US300 million.

It claims 12,000 customers internationally. However in the past most of its user base have been small businesses.

In 2010 the average NetSuite sale was worth $US20,000 a year.  But the company is now starting to push into the larger client market and Mr Nelson said that doubled last year to $US40,000.

What might well catapault the company into the major league is the release of what Mr Nelson described as Commerce as a Service, or SuiteCommerce.

Initially available in only very limited release – the company plans to sign up just 100 users this year – the system allows companies to build an ecommerce front end using their core NetSuite data. According to Mr Nelson it will allow companies to deliver an “Apple like” customer experience.

It’s a savvy move, and will allow companies to build ecommerce applications to support any device, any business model, and rapidly innovate the front end using data already stored in the ERP.

While 2,800 websites are already running on the NetSuite platform, SuiteCommerce takes things to a whole new level. “The whole point of SuiteCommerce is to make this as frictionless as possible,”said Mr Nelson.

What will also be attractive to customers is that NetSuite won’t be taking a clip of the ticket, instead charging a fixed price based on the size of the company, starting at $US799 a month.

Demonstrations of the system at SuiteWorld were marred by a series of network problems, but Mr Nelson does not expect latency to be a problem when SuiteCommerce is generally released (a date for that has not yet been provided).

Asked by iTWire about the challenge of serving up data for customers and clients in Australia from just two data centres in the US, Mr Nelson said that to date “latency has not been a factor,” and if it did become an issue the company could afford to roll out more data centres, which he said only cost $US1 million a pop.

Admittedly the Commerce as a Service offering has been designed so that instead of serving up pages from the NetSuite data, only data from the ERP is served, leaving the page to be assembled using that data at the client side.

However once the service takes off there could be hundreds of thousands, even millions of concurrent sessions taking place on NetSuite’s cloud, and online consumers are notoriously quick to abandon their shopping carts if they sense there is any delay.

While dismissive of any concerns re latency today Mr Nelson said; “I think you will see us have data centres in Europe, Asia and Australia in the next two years,” acknowledging that there were “speed of light” issues in terms of the ability to serve up data globally from the company’s two US data centres.

The other challenge in Australia however is likely to be educating the market about cloud computing in general.

The Sage Business Index which was released in Sydney this week suggests that cloud computing “remains largely an enigma to business” with only 53 per cent of respondents to a survey having even heard of the term. The survey, of 500 business people found only about one in five companies had any idea what cloud computing meant in practice and only one in 12 had any experience of actually using public cloud computing services.

There was hope though. Once the respondents had cloud computing explained to then, almost half said they might be interested in trying it.

The author attended SuiteWorld as a guest of NetSuite.


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