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.