Microsoft, Oracle, SAP, and 100,000 Missed Sales Opportunities

On a third-quarter earnings call last Tuesday, salesforce.com founder and CEO Marc Benioff announced that his company had reached 67,900 net paying cloud customers. Presumably, this doesn’t include the 7,500 nonprofits and non-government organizations that are using it for free.

The updated tally represents an addition of 4,700 net new customers in the quarter, and an increase of 16,100 customers over the last four quarters. The new business helped fuel a 20% revenue jump over the year earlier period. This is a nice contrast to the weak application license results reported by Oracle and SAP in their latest earnings calls.

If you take the 67,900 figure and add Concur’s 9,000 customers, NetSuite’s 5,000 or so, Taleo’s 4,200, and SuccessFactors’s 2,850, you end up close to 90,000. If you add Ariba, Kenaxa, Intuit, RightNow, Saba, and all of the others who are busy crafting e-mails to admonish me for excluding them, we might end up with a universe of 100,000 unique companies using SaaS or cloud applications.

While not all of these companies would make good Oracle or SAP customers because of their size or software needs, my point is that their lack of a strong cloud offering has caused them to miss out on  a lot of sales opportunities and seats. At the Dreamforce luncheon, Marc mentioned that his company currently supports 2 million subscribers. On its website, SuccessFactors brags about touching 5.4 million users.

It’s worse for Microsoft. In addition to missing out on CRM and ERP licenses, the delay of the long-promised Azure offering has allowed Google to attract more than 2 million companies to Google Apps. Some 3,000 businesses sign up for Google Apps every day.

And these aren’t just startups. The roster of Office and/or Outlook defectors include Avago (5,600 users), City of Los Angeles (30,000), District of Columbia (38,000), Genentech (17,000) Mead Westvaco (17,000), and Valeo (32,000).

If you believe the old adage that “the trend is your friend,” salesforce.com’s strong results in a crappy economy prove that people will find money for software they value. If you talk to CIOs who are salesforce.com customers, they are shifting more of their current/future applications to the cloud.

Maybe there’s no one left in Redmond that remembers the impact that Microsoft (and Lotus indirectly) had on Wang and the other word processing companies. Wang refused to be commoditized by being in the software-only business. Instead, it hung on too long to the high margin hardware business until lower cost PCs killed that market.

Microsoft is scheduled to have Azure offerings ready early in the new year. Oracle has CRM On Demand, but little else. The new Fusion applications are at least a year, maybe two, from shipping. SAP has a smorgasbord of offerings—including single-tenant CRM, the multi-tenant Frictionless Commerce platform, and the third-party HCM software from NorthgateArinso. If I’m Marc Benioff or the CEOs of the cloud/SaaS companies mentioned above, I continue to be thankful for the head start that Microsoft, Oracle, and SAP keep extending.

Comments?

What’s The Fully Loaded Cost of Software Delivery by Platform?

I wish I had a dollar for every time I found myself in a debate over whether SaaS is cheaper than on-premise software over a 5- or 10-year period. Well, here’s some ammo that’s not going to win me friends in the on-premise camp.

This morning’s edition of the GigaOM blog opened with a piece written by George Gilbert, partner and co-founder of TechAlpha, and Jeurgen Urbanski, managing director, TechAlpa. They reference a new book by Dr. Timothy Chou, former president of Oracle On Demand, entitled “Cloud: Seven Clear Business Models.” What captured my attention was the data on fully loaded costs for the following deployments.

“Traditional legacy applications such as Oracle or SAP have a fully loaded cost of delivery of $1,000-$1,500 per user per month. Several years ago, Oracle On Demand got that cost down to $50-$100, whether it was Oracle-hosted or customer-hosted. Salesforce.com has squeezed that cost down even more to $7-$10, though admittedly just for the much lighter-weight CRM portion of the suite.”

I have to admit that I want to see the spreadsheet with all of the fully loaded costs. Still, if Dr. Chou is even close to being right about $7-10 per user per month, that’s going to grab the attention of the most SaaS-averse CIO.

Heard in the Hall, Part 1

There was a lot of vendor buzz at our recent Supply Chain Executive Conference at The Phoenican. I’ve attempted to capture some of the news and insight that I picked up in various formal and informal sessions, and through dozens of e-mails. Here is a quick summary in alphabetical order, starting with A through C.

Acresso Software recently launched FLEXnet Embedded, part of FLEXnet Suite for high tech device manufacturers. Built on Acresso’s expertise in license and entitlement management, the new software allows manufacturers to easily modify product configurations, simplify field upgrades, and enable trials of new capabilities. The new release enables high tech manufacturers to configure capability and capacity on their products by managing the licensing of embedded software.

Active On-Demand has crafted new partnerships with Inovis and Transfreight. The company is linking its TMS-as-a-service platform with Inovis' BizLink Manager. This will provide FedEx, Honda, and YRC Logistics with increased collaboration capabilities for shipment execution. In the deal with Transfreight, Active On-Demand will provide the 3PL with unscheduled transportation procurement and execution services across North America. 

Next month Acorn Systems will release its new Operational Performance Simulator, which is designed to show the actual financial impact of business decisions. The software has been installed at a well-known retailer that has been using the product to model its supply chain and sourcing strategies, ensuring the most profitable product flow paths and cost effective paths to its retail store locations. Insiders estimate that the customer has already saved more than $30M.

Robert Di Scipio, CEO, Aegis Analytical Corp. was all smiles after adding Merck Serono to his customer list. Aegis provides software for manufacturing process intelligence to companies in life sciences, chemicals, and medical devices. In a nutshell, Aegis aggregates all of your process information from a host of different sources and makes it available for analysis. For example, a company looking at the test results of a new product batch may want to retrieve data on the pH level, raw material supplier, time in the dryer, environmental condition, operator of the production line, and other potentially pertinent details. As Bob put it, “we help customers get to the ‘why’ of the outcome.”

As we were welcoming former Disney CEO Michael Eisner to the stage, Amitive was announcing “SCM in the Cloud.” Customers can select and run Amitive Unity 5.0 in any cloud environment, including Amitive's private cloud, a customer's own private cloud, or a public environment such as those provided by Amazon, Go-Grid or Google. We will have more on this in an upcoming post.

Apriso is set to launch FlexNet Lean Material Flow jointly developed with Accenture, based in part on work completed at Valeo, a leading automotive supplier. The new software generates a unique barcode to scan and synchronize material flows while integrating with ERP across production to final shipment. Benefits include improved visibility, traceability, and material throughput across operations to cut costs and improve cash flow.

Sao Paolo-based Axia Consulting is looking to start operations in the United States this year with the opening of a new office in Atlanta. The company intends to leverage its experience in Global S&OP, Demand Management, and SAP APO to add American customers in consumer goods, mining & metals, life sciences, and machines & components.

Aldata told us that Delhaize has signed on to use its Apollo space optimization software. If the customer name is not familiar, Delhaize America operates 1,500 supermarkets in 16 states in the eastern United States. Stores include Food Lion, Bloom, Bottom Dollar, Harveys, Hannaford Bros., and Sweetbay. Delhaize is an existing customer of Aldata’s G.O.L.D. Enterprise Retail Suite. Aldata plans to integrate the G.O.L.D. and Apollo applications for supply chain and replenishment optimization.

Better Place executives were at our conference to accept one of our Sustainability Leadership Awards. This is the company Shai Agassi started after leaving SAP. Guryan Tighe brought me up to speed on a new agreement that her company has with the City of Copenhagen. The two entities are teaming to build an electric vehicle pilot project for the COP15 conference being held in the Danish capital in December.

It looks like BravoSolution’s expansion into the United States is bearing fruit as sales in this country have led to the most successful quarter in the company’s history. BravoSolution entered the U.S. market with the acquisition of financially troubled Verticalnet. The company is counting on continued strong sales in the health care and energy & utility sectors.

Centric Software's new Product Profitability Planning solution provides detailed visibility into all new product costs and margins before launch. Calculating the fully loaded cost of a new product is difficult, since information like royalties, COGS, marketing costs, freight costs, and channel costs are usually captured by different departments in different systems.

Chainalytics’ Mike Kilgore made it clear that “we're not just optimization guys anymore.” Over the last seven years, Chainalytics has helped clients apply operations research tools to make better decisions in areas like supply chain network design, transportation bid optimization, and inventory optimization, and to improve supply chain performance management. While staying away from systems integration work, Chainalytics is focusing on defining data models, root-cause analysis and cost/service drivers that take BI to a the next level of effectiveness. The company has had a number of recent successes helping companies implement tools and processes in the areas of cost-to-serve and profitability analytics (look for an upcoming AMR Research case study) and transportation management, including a BPO-like offering to help companies reduce the profit leakage from transportation procurement events.

Old friend and former colleague Louis Columbus was waxing enthusiastically about Cincom Guru™ reception at the company’s recently completed Cincom User Summit.  Guru™ is the company’s new .NET knowledge management engine. It integrates into office automation and productivity apps from Microsoft, salesforce.com, and SAP, and gives line-of-business managers hands-on control over workflows and business rules. Mash-ups can be quickly created. Louis overheard one customer say, “This unshackles us from IT once-and-for-all when it comes to getting what we need from our data.”

Look for the next batch soon.

One Software CEO’s View on “Ease” Buyers vs. “Function” Buyers

In a recent First Thing Monday, "Of Human Capital: SAP’s SaaS Plans, Kronos’ CEO, and “Closed-Door” Apps," I repeated a conversation that I had had with Aron Ain, CEO of Kronos, a leading HCM supplier. Here’s an excerpt:

“Mr. Ain told me that he had hired a consulting company to help him better understand his win-loss ratio. His a-ha moment came when he saw his prospect base consisted of two types of prospects: function buyers and ease buyers. Classically, Kronos had done well in sales situations that required deep functionality. Unfortunately, customers buying on the basis of ease of use represented the majority of opportunities. They saw his product as being more complex and harder to use than offerings from the Big ERP vendors. He was shocked.”

That piece hit a nerve with Prashanth Palakurthi, founder and CEO, Reflexis Systems. Here’s his take on Ease vs. Functions:

“Aron Ain makes valid points on the software selection process focusing on two dimensions: ease of use vs. feature functionality. (I would add domain expertise as an equally important consideration.)

Vendors winning exclusively on “ease of use” put the sting on customers by filling in functionality gaps with “customization” needs. In short duration, different versions of the vendor’s products mushroom, causing major maintenance challenge for the vendor and upgrade challenge to the customer.

Vendors winning exclusively on functionality richness on a single version of code are rigid and do not lend themselves to easy configuration to meet individual customer needs. This apparent false choice is necessitated due to high R&D costs of making highly configurable (yet scalable) software that is both easy- to-use and functionally comprehensive. I should know because of the time spent in our Board meetings (and we have just a single outside investor!) justifying why our R&D budgets are “way out-of-whack” with our peers in software industry.

Great article!”

Hara: Cool Software For a Warm Planet

At the stroke of midnight, Hara Software emerged from stealth mode after 18 months of incubation at the headquarters of Kleiner Perkins Caufield & Byers. Pronounced “ha-RAH,” or “hurrah” to a Bostonian, Hara is the Sanskrit word for “fresh green.” This is very fitting given the company’s focus on helping organizations track, manage, and optimize the use of energy, fossil fuels, carbon, water, waste, and other resources.

This morning’s announcement includes the launch of the Hara Environmental and Energy Management (EEM) suite. EEM is a software-as-a-service offering that includes modules for aggregating data on resource consumption and spend, helping companies plan new initiatives such as reducing their carbon footprint, assisting in the execution of environmental and energy programs, and best practices for continuous improvement. 

There is also a content play. In the press release, Hara’s CEO Amit Chatterjee described how his firm intends to work with customers to “write the encyclopedia of environmental efficiency.” This reference material will include a guide to managing “organizational metabolism,” or how energy is consumed and expended by an enterprise.

What makes Hara different is its focus on end-to-end energy and emission management. Most competitors have focused exclusively on emissions, emission offsetting, and Global Reporting Initiative (GRI) sustainability reporting.

In mid-April, Dr. Stephen Stokes and I flew to California to visit the Hara executive team at Kleiner’s offices in Sand Hill Road. During our visit, Mr. Chatterjee discussed some of the work underway at the dozen customer accounts and demonstrated the new software. When asked for his impression based on the demos, Stephen said, “Cool software for a warm planet.” That said it all.

Hara has a strong management team, with veterans from Agile Software, McKinsey & Company, Oracle, SAP, and TIBCO. This is complemented by a strong board of directors and an advisory board. The latter includes four academics with backgrounds in various environmental disciplines.

The EEM market promises to attract a lot of attention. Last month SAP announced the acquisition of Clear Standard, a provider of software for carbon management and sustainability. Meanwhile, former Siebel Systems founders Tom Siebel and Pat House have started C3 which is still under the covers. The only publicly available information is from various blog posts. There are other firms, too, like Carbon Networks vying to be one of the early leaders. 

This market has already begun to attract attention from other enterprise apps vendors and providers of environmental, health, and safety software. Look for lots of alliance announcements over the next year.

Hara’s early customers include The Coca-Cola Company and the city of Palo Alto. In today’s edition of The New York Times Coca-Cola is cited as using Hara’s software to track greenhouse emissions at 1,000 sites around the globe. 

In newly emerging software categories, it’s critical for vendors to stay tightly focused, especially around a handful of core verticals. I think the early adopters will be drawn from consumer-facing verticals, including food and beverage, packaged goods, electronics, energy companies, and public sector. If I were advising Mr. Chatterjee, I would urge him to pick one or two verticals and build critical mass. 

At this point, the market is still in the early cocoon stage. Based on history, it seems less likely that a homogenous market will emerge where every enterprise needs the same functionality. Instead, as the market develops, each vertical is likely to have its own unique requirements that will likely be based on its usage and demand for specific resources.

The Future of Work

If you looked inside our company, you would see that we currently serve two broad categories of technology buyers: IT executives at large companies who need insight on managing their global enterprise application/ERP architectures, and operations executives looking for our assistance in helping to improve the effectiveness and efficiency of their ever-expanding supply chains.

For about a year or so, I’ve been fixated on a third audience: executives looking at how their organizations will need to evolve over the next five to 10 years.

There’s no shortage of questions: 

• Where will we find the people?
• How will we train them?
• Where will they be based?
• What productivity tools will they need?
• How will we structure their responsibilities?
• What will compensation look like?
• How will we manage the transition from baby boomers to younger employees?
• Who are our future competitors?  

The best-run organizations are already looking ahead. Fortune recently profiled Procter & Gamble’s A.G. Lafley as part of its ongoing “Top Performers” series. P&G has a comprehensive leadership and performance management program that is has branded “Build From Within.” 

A couple of points in the article jumped out:

• P&G plans to hire 2,700 people this year out of 600,000 applicants.
• Nearly all will be new graduates. Less than 5% of the hires will come from other firms.
• The company maintains a database on all 138,000 employees that closely tracks their monthly and annual performance reviews.
• P&G maintains a stable of three viable candidates for each of the top 50 positions.
• All P&G executives teach at the company training center and host weeklong “colleges” for employees moving up in the organization.
• Mr. Lafley closely tracks the development of the top 150 managers.

Clearly, this is a company focused on the Future of Work.

What do you think of “The Future of Work”?

I see the Future of Work as the theme for a lot of our existing coverage on human capital management, customer relationship management, knowledge and content management, SaaS/clouds, office automation tools, business intelligence and performance management, business process outsourcing, and social networking and other Web 2.0 tools. We would need to add some additional coverage around the organizational issues that don’t fit neatly in the software and services coverage areas.

I need your help, though.

What do you think of the theme? We have debated calling it “The Future of Work” or some combination of “People, Performance, and Productivity.” I believe this will be a critical discussion topic, especially as we emerge from the recession. What do you think?

10 Questions with GT Nexus ’ John Urban

This week's First Thing Monday column (subscribe here): "10 Questions with GT Nexus’ John Urban". We welcome your feedback! Coming on the FTM blog … The First Thing Monday newsletter may be taking a holiday break, but we'll still be blogging. Here's a peak at some posts I'm working on for next week:

• We explore the modern day version of the age old question, is it better to be feared or loved?  Given the current economic outlook, is it better to be a software vendor or a services provider?  The recent financial results from Accenture and Oracle may provide some clues.
• SaaS started as an American phenomenon.  Now it has spread around the world.  Look for highlights from our interviews with Ariba, NetSuite, RightNow, salesforce.com, SuccessFactors, and Taleo.
• When we met in March, Infor CEO Jim Schaper was hoping to have completed the S-1 documentation for taking his company public.  Instead, he’s working on parallel initiatives to boost revenue growth while reducing costs.  Our conversation spanned from current financial performance to his perspective on the state of the M&A market. 

We’ll have it all for you this week. In the meantime, let us know if you have any additional questions for John Urban or commentary on his take on the state of supply chain logistics in the current economy and global environment.

SaaS advantages: lower TCO for buyers, higher volumes for vendors

I always look at the "net new customers" figure during quarterly earnings calls. While my only proof is anecdotal, I suspect that vendors selling a SaaS product add customers at least twice as fast as on premise vendors.

Consider these results:

In the third quarter ended October 31, salesforce.com added 4,100 "net paying customers" to bring its total to 51,800. The customer base has grown by 13,700 the past four quarters. That’s an increase of 36%. The customer base has nearly doubled in the last two years. By contrast, at the time of its acquisition by Oracle, Siebel had 4,000 customers.

In the fourth quarter ended September 30, Ariba added 224 new customers, with 185 opting for the software on demand. The company now has more than 1,000 customers.

In the third quarter ended September 30, Taleo added 232 new customers. It now has 3,800 total, thanks in part to the acquisition of Vurv Technology and it’s 1,700 custpmers last July. Archrival SuccessFactors added 220 customers in 3Q. It now has 2,360 customers, up 69% from 1,400 at the same period last year. Combined, the two companies have more HCM customers than PeopleSoft did at its peak.

In the third quarter ended September 30, NetSuite’s customer base grew by 330 new accounts. The company’s stated goal is to add 300-500 new customers each quarter. All told, NetSuite now has more than 6,000 customers. While not an apples-to-apples comparison, QAD has attracted 80-90 customers to its on demand offering in the nine months its been available.

While RightNow Technologies added a modest 68 new customers in the third quarter ended September 30, this was down from 74 new accounts in 2Q, but the company should be close to the 2,000 customer mark by the end of the year. It had more than 1,900 companies and government agencies at the end of the last quarter.

Is Now the Time to Buy the “SaaS 20”?

While I believe that the SaaS market is the safest haven for software companies, it certainly hasn’t been reflected in the share price of the six companies I wrote about for the current edition of First Thing Monday.  Nor is it reflected in the broader SaaS 20 Stock Index produced by MSPmentor. For some reason, Ariba is not on their list. I found the index in mid-November thanks to an article on Yahoo! Finance. MSPmentor updates the list after the market’s close on Fridays. On November 21, the SaaS 20 Stock Index stood at 437.03. As a group, the share prices of the top 20 were down 56.30% for the year. They had fallen 11.86% in trading that week. Here is how they stood at that point for the year, with their closing price at the time in parenthesis:

• NetSuite ($6.63), down 83.08%
• RightNow ($6.23), down 60.69%
• salesforce.com ($22.32), down 64.40%
• SuccessFactors ($4.99), down 57.78%
• Taleo ($5.73), down 80.76%

 

ERP and the SaaS Question

As we mentioned in this week’s newsletter (subscribe here) , ERP vendors don’t seem to be getting the big picture regarding SaaS.  Like the Big 3 domestic automakers, the largest ERP vendors will have to embrace and develop a hybrid strategy. In this case, it  means supporting multiple deployment options. They don’t have time to develop their own multitenant platforms. Instead, they will have to buy to fill the gap. The most vulnerable flanks for on-premises ERP vendors are in CRM, human capital management (HCM), and supply management. That leaves financials, inventory management, some supply chain processes, engineering, and manufacturing. Over time, cost issues may favor moving another slice to a new SaaS product versus upgrading the on-premises version. The hybrid model is not perfect. There are issues on integration and master data management. On the flip side, software as a service has more innate appeal to line-of-business (LOB) buyers that are developing more say in software purchase decisions. SaaS deployment options remain a top inquiry from clients across the board. As for a complete ERP-as-a-service offering for large enterprises, it's still way off in the distance. Workday is following the PeopleSoftpath by delivering HCM and financial applications. While it has been able to sell HCM into Oracle and SAPaccounts, the strategy for the foreseeable future is coexistence, not replacement. Not convinced? Look at the relatively high number of new customers that the leading SaaS vendors add every quarter.

SAP Hires Former Oracle Exec to Run New “Large Enterprise On Demand”

SAP AG sent an email to employees, this week, announcing the hiring of John Wookey as executive vice president of “Large Enterprise On Demand.” Mr. Wookey reports to Jim Hagemann Snabe, head of SAP’s Business Solutions and Technology (BST). Mr. Snabe is responsible for all product development for large enterprises. This includes the SAP Business Suite and SAP NetWeaver.

 

While we seldom focus on new hires, Mr. Wookey is different because of his pedigree: Up until a year ago, he was Oracle’s senior vice president for all application development, a position he assumed in April 2000. He joined Oracle in April 1995 as vice president of development for financial applications.

 

Mr. Wookey was hired to align all of SAP’s various On Demand products into a coherent offering. The “pieces” include CRM, e-sourcing, and the business process optimization portions of human capital management (delivered via ADP’s outsourcing services). He will also be responsible for developing additional applications and services.

 

One core tenet of the new focus is “easier consumption.” SAP is looking to Mr. Wookey to simplify the configuration, use, and operation of the software-as-a-service (SaaS) products. Easier consumption also includes reducing the cost and time of third-party implementations often associated with SAP on premise projects. SAP would like to free up some of the spending on third-party services so that it can accelerate subsequent phases of various SaaS initiatives.

Straight from the Source: Conversations with Ariba Executives

Over several meetings with Ariba’s president Kevin Costello and Tim Minahan, his top marketing strategist, we talked about how the market and the competition has changed the past decade. While we didn’t specifically talk about why Ariba survived and thrived while others didn’t, Mr. Costello attributed his company’s success to a transformation that began five or six years ago.

 

At that time, the company recognized that it needed to be more than a technology provider. Mr. Costello recognized that he needed to build a strong services component to augment Ariba's software and Network. This was a sharp departure from the higher margin “software factory” model that was in vogue.

 

Today, Ariba has 700 consultants with expertise across more than 400 categories. The company maintains service centers in Bangalore, Pittsburgh, Prague, and Shenzhen, using these sites to help customers set up and manage international procurement centers.

 

Ready for “Spend Management 2.0”?

 

During our last conversation, Ariba executives outlined their plans for the next generation. They seem to be borrowing some ideas from salesforce.com, including a “walk-up” user interface and simpler configuration and administration. While it may be a stretch to draw a comparison to salesforce’s AppXchange, Ariba wants to open its network further to include all sorts of third-party applications and services, including those from Oracle and SAP. After all, it’s all about transactions and content.

 

Ariba is also going deeper into web-based community services such as a best-practice center and “Category Playbooks,” as well as providing more role-based spend dashboards. Ariba Sourcing customers can directly access Ariba Category Playbooks, which provide current supply market dynamics, cost drivers, and RFP templates for more than 50 spend categories, all within the context of their application. Customers can also punch out from Ariba Sourcing to search, discover, and assess new suppliers via Ariba Network Discovery.

 

This week in the First Thing Monday newsletter

 

You can read more of our conversations with Ariba in this week’s First Thing Monday newsletter (subscribe here), where you’ll also find our Economic Turmoil Survival Guide.

Oco and Business Objects on BI-as-a-Service

Since joining Oco 18 months ago, CEO Bill Copacino has been developing a strategy for expanding the company’s presence in the business intelligence (BI) market. The best bet seemed to be to team with one of the market leaders.

 

That’s exactly what he did. On May 27, Oco signed an agreement with SAP’s Business Objects unit to jointly sell, market, service, and develop software to support the burgeoning business intelligence-as-a-service market. The partnership is expected to be announced July 14.

 

While Business Objects already had an on-demand product, the teaming with Oco allows the company to more easily integrate and manage multi-source data, and to do so faster than competitive offerings. Oco’s claim to fame has always been its ability to complete projects in six weeks or less. The two companies are looking to maintain that speed by offering a combo of Business Objects and Oco software than can be operational in 10 weeks or less.

 

In addition to the large Business Objects and SAP customer bases, Oco was attracted by Business Object’s Xcelsius’ interactive dashboards and its Web Intelligence for ad hoc queries and analysis.

 

Now that Mr. Copacino has landed its first major partnership, his next challenge is to see how many deals they can land together. It’s not always easy for smaller companies to effectively partner with giants. Then again, Mr. Copacino is known for his persistence and attention to detail.

 

Kevin O'Marah, who writes our sister blog Chain Reaction, writes more about Oco in "Complexity Tamed."

Highlights from NetSuite ’s First Analyst Day

Not every CEO would pick Friday the 13^th for their company’s first investment analyst briefing. But that’s exactly what NetSuite CEO Zach Nelson did, last week, when he hosted 100 attendees at a briefing at the New York Stock Exchange. The date seems to have been a lucky one for his company; by the time NetSuite rang the closing bell at the exchange, the stock was up 92 cents, or 4.6%, and closed at $21.09.

 

After opening with a story of his throwing out the first pitch at the Oakland A’s game against the Yankees earlier last week, Mr. Nelson was all business. What impressed me most was how efficient the company had become the past few years.

 

For example, running NetSuite’s large data center operations consumed 35% of revenues in FY03. From there, it dropped to 15%, 10%, 7.5%, and 5% over the next four years. Meanwhile, performance has been strong enough that he can promise a 99.5% uptime guarantee.

 

Likewise, the cost of sales represented 180% of NetSuite’s revenue in FY02. This has been trimmed to 40% today.

 

The average implementation project required more than 300 days in 2Q06. Since then, the services team has expanded to 150 people. Full-suite implementations now take three months. During that same period, it took call center operators 18 minutes to answer the phone in 2Q06. That time has been cut to less than three minutes.

 

In 2002, the average annual deal size was $149. Now, it’s just above $20,000. Mr. Nelson outlined a plan to get it up to $50,000 by offering industry-specific versions and NetSuite OneWorld (allows companies to support global operations on a single instance).

 

After his presentation, NetSuite invited three customers to share their experiences. For many in the audience, the most interesting presentation was made by the CFO of a textile company that moved from SAP R/3 to NetSuite in 90 days. The executive had been frustrated by his inability to attract SAP consultants to his site. By switching to NetSuite, he was able to eliminate 11 topical consultants and 2 dedicated consultants. His NetSuite implementation requires no IT staff. Along the way, he took usage down from 90 SAP users to 32 NetSuite users. His spend went from 3% of revenues to “one-tenth of 1%.” He was able to move people to more customer-facing activities.

 

Oh, and in case you’re curious, Mr. Nelson said that he fired a strike to the A’s catcher.

NetSuite's Goliath Move

We met with NetSuite, this week, about a new release of their software-as-a-service product for manufacturers. The company has been offering vertical suites for the wholesale/distribution industry for a while with a proven track record. Manufacturers have been longing for SaaS products to build better overall total cost-of-ownership. Until this release, there haven't been any broad SaaS products that include financials, CRM, e-commerce, and manufacturing. The on-demand suite approach that NetSuite has pioneered could prove to be a major market accelerator and it's a direct attack on Goliath SAP. In this week's column (subscribe here), we explore how much. As always, we welcome your comments.