Comparing NetSuite and Salesforce

I was at a user meeting with NetSuite in Boston earlier this week.  The company has bought two companies since going public — OpenAir and QuickArrow — both of which support the professional services market.  Companies sell things as well as services and CRM has been applied most successfully to the former.  Companies that sell services have been left to their own devices to figure out how to automate and manage sales and delivery and their situation resembles that of the thing-sellers pre-SFA.

NetSuite’s idea is an integrated solution combining ERP and services oriented planning and sales modules going by the name of SRP — services resource planning — and the idea has legs.

As you can imagine there are some significant differences between selling things and selling projects.  Most importantly, services companies have bigger issues with fixed overhead because you have to have smart people on staff if you expect to sell their time.  Economists might say that supply is inelastic or certainly less elastic for the services guys than for the companies that can throttle up or down the manufacturing process.

All this got me thinking not about the two different types of selling but about the two different styles of building a company exhibited by Salesforce.com and NetSuite.  Both companies have purchased other companies when it made sense as a way to build out their offerings.  But each company also has a multi-tenant architecture and a cloud platform, which makes it easy for third parties to build or modify applications.  Nonetheless, if I had to describe each company’s strategy I would say that NetSuite is more likely to buy than make compared to Salesforce — if you include the partners.

Salesforce appears to have decided on an approach that encourages a partner community to build native applications while NetSuite seems to encourage partners to deploy and modify its core solutions though not necessarily build wholly new ones.

Now, this is a rough approximation and it looks more black and white than it is — there is a lot of grey area in all this.  But it drives an interesting question that I believe can’t be answered, at least not now.  Which approach is better?  Should the primary vendor be the only one involved in new product development or should the platform vendor simply let a thousand flowers bloom?  Certainly the existence of the platform makes the second option possible.

Part of the answer can be found in how each vendor views itself.  Salesforce is obviously looking for a big new market to penetrate that’s bigger than CRM and it has selected application development tools for the enterprise and smaller organizations.  NetSuite might have a serviceable platform but for the time being it appears to be more interested in the market for integrated front and back office applications, which is more crowded.

I don’t have any good answers here or prognostications, just these observations.  Salesforce has always been in the business of inventing the future and while they’ve been successful they have had their stumbles along the way too.  Other companies have been content to stick to their knitting, but the future rarely keeps to a script.  There are many markets just opening up, at least in part because there is reliable and low cost software available to support them and that says good things for both companies’ chances.

The big question to ponder is whether there is enough demand for in-house development to support Salesforce’s vision.  It groups are notoriously backlogged and it is unclear to me if the backlog is a result of too much demand or inefficient tools.  For decades we have argued that it is the tools and we’ve seen generation after generation of tools that promised to fix the problem.

Tools are important but if you read “The Black Swan,” which I recommend, you might get the notion that backlogs are inherent in what we do, in part because we do such a poor job of understanding and planning for future requirements.  If so, one of the next logical acquisitions for either Salesforce or NetSuite should be a company that focuses on improving forecasting and planning methods.  Does such an animal even exist?

Software cash for clunkers, nice idea NetSuite

NetSuite put its tongue squarely in its cheek today and announced its own “Cash for Clunkers” program.  You can probably guess what the program entails — converting from premise-based ERP and CRM to NetSuite.  But the concept is funny and memorable and gives a broader context to the effort.  Not only does NetSuite assert that it can help companies to save money, it also shows them how to save energy — just like its namesake.  Nice concept and nice merging of green ideas and business savvy.

NetSuite summer announcement

The headline on the press release read: “NetSuite Offers Sage Partners Major Incentives to Begin Growing their Business on the NetSuite Cloud” and I figured, it must be summer.  For the last few years, Sage has announced an offer like this.  For the last couple of years it was a take away program for salesforce.com customers.

I like NetSuite, they offer a good package of ERP and CRM software delivered as a SaaS service.  They’ve made a lot of smart moves in the last couple of years including their IPO (which was not just smart but brilliant) and an apparent decision to move up market from their original SMB focus.

Going after larger companies made sense because I think NetSuite found out that their then target market didn’t have all of the resources — human and financial — needed to implement such an all-encompassing suite of software.  Though the product is good, any ERP implementation comes with a great deal of thought work that’s needed to rationalize business processes before automating them.  I think some small companies just choke on the effort.

Now it looks like NetSuite is trying to go after the SMB space again, this time with a full court press on Sage’s partners.  Just as I like NetSuite I like Sage too.  As a company Sage certainly has product and partner issues, but any company does.  What’s interesting to me about the NetSuite PR is the hyperbole it exudes.

Though the PR has several quotes from Sage partner take-aways the text is over the top.  One paragraph starts with, “NetSuite expects this program will find a warm reception in a Sage channel partner community wracked with fear, uncertainty and doubt about the future of on-premise applications…”

Wracked with fear?  Really?

I have to say I used to wonder about Sage too and about when they’d get their SaaS act together.  They’ve been late to the party, but not AWOL, they have products, especially in the CRM world.  Lately, though, I’ve concluded that Sage might know something about the space that I’ve been missing.  It’s a rather conservative market from the perspective of new product adoption.

The obvious success of SaaS in CRM may be enough to move the ERP partners but maybe not.  Undoubtedly some will move, the PR is proof of that.  But building a successful partner program is something that takes a great deal of investment in time and money.  And although NetSuite has been in the partner business for some time already, I think they’ll have to execute very well to make in-roads here.  It’s a conservative market and it’s summer.  In a recession.

As the Zen master says in an old joke, “We’ll see.”

NetSuite: Game on

I had been skeptical of the on-demand ERP market for several reasons; the biggest is that ERP is a very different animal than CRM.  You can sequester CRM in the front office where most processes have been manual until recently and if something goes wrong with CRM you can always fall back.  The same is not true of ERP.  As we have seen again and again in the last several decades, if ERP doesn’t work or doesn’t install cleanly, you will need to change your name and move to Texas.

So in ERP the idea of providing it on-demand somehow looks like adding a layer of complexity rather than taking one away as is the case with CRM.  All that may be changing now as NetSuite appears to have gotten its game on.  The company offers a soup to nuts array of ERP, CRM and eCommerce delivered on-demand and after some early stumbles — and despite the recession — appears to be pulling itself together very nicely.

From my vantage point, it appears that one of the big success factors is that the company is doing a better job of picking its customers.  When it was founded as NetLedger, the company had a decided bias toward the SMB market.  And while the executives might still point to that virtue the financial reports show a move up market to a place where customers are big enough to have staffs that can take on an ERP implementation and where budgets have enough room for the training and services necessary for success.

NetSuite also has taken on the cloud computing trend with gusto and though they are much smaller than Salesforce.com, they have aggressively gone in for a culture of building and customizing within their tool set.  They have also brought to market several industry tuned versions of their whole product line.

Yesterday, NetSuite announced its Q1 2009 numbers and they were good overall though the street will be expecting more soon.  Q1 is the second quarter in which NetSuite declared a non-GAAP profit though by GAAP standards they are still manufacturing red ink, but that’s improving.  There was a respectable revenue increase (up 22% to $41.6 million) and an eye-popping 542% sequential increase in non-GAAP operating income.

To be fair, these are not the kinds of numbers that make you a household name but given the state of the marketplace, the economy and the time in its life-cycle, you have to tip your hat to Zach Nelson and his team for going strong.

Actually, you need to tip your cap to Larry Ellison too, if you want to.  It’s Larry’s company and his imprimatur is all over it.  The idea of a suite of end-to-end products and the move to take things up market are two strong indicators of Ellison’s approach. 

What’s especially interesting to me is that Ellison has put so much into building a mini-replica of Oracle’s applications suite approach for the SaaS market with NetSuite.  If I didn’t know better, and who says I do?, I would say that NetSuite is an attempt to build an applications business on-demand that could some day be the obvious transitional choice for thousands of Oracle application customers who finally get the on-demand religion. 

NetSuite is a public company with Ellison as the principal shareholder and the day could come when Oracle absorbs NetSuite and operates two divisions, one for the database and one for the applications.  That’s not very different from the way things are but it does offer the benefit of building up a new applications division that is based on on-demand computing while keeping the on-premise business humming until the time is right.

Time and circumstance will tell if my thoughts are even remotely in line with what is really in the offing.  For the time being, NetSuite is on schedule to make money and prove its mettle as a free standing company.  They’re moving up market and bringing out the kind of additional functionality they would need to become part of a more elaborate plan. 

The people are nice too and they’re fun to watch.

NetSuite integrates Salesforce.com

NetSuite announced that it will integrate its back end financials with Salesforce.com’s CRM product this week.  That sounds like a good idea to me.  NetSuite has a lot of customers and some of them are using Salesforce already so the integration will only benefit NetSuite.  On the flip side, Salesforce now has another back-end accounting and ERP system that its customers can access to complete a front to back office portfolio. 

Some people might wonder what this means for NetSuite’s CRM product and that’s a tough call.  For the time being I expect no change and I think it would be smart of NetSuite to maintain a credible CRM offering for several reasons.  Keeping a viable CRM offering helps NetSuite maintain a certain amount of independence and it does not preclude the company from making similar arrangements with other vendors.  It also helps the company keep a larger percentage of any deal.

This is not the only such integration I have seen.  RightNow, for example, has SFA but usually does not lead with it.  The integration company Cast Iron Systems does good business offering integration appliances to companies that want RightNow’s call center and Salesforce’s SFA, for example.

This all looks like what it should look like—cloud companies are continuing to support multiple platform integration in an effort to ensure that the paradigm succeeds.  I can’t think of a better way to ensure that success than for everyone to play nice.