Posts Tagged ‘Zach Nelson’


This week Zach Nelson, CEO of NetSuite, a.k.a. Larry’s other company, took over the Marc Benioff chair as guest antagonist but given the relationship between the companies the vibe was more sedate.  For instance, no one went to the talk at the Lam Theater in Yerba Buena Gardens wondering if Nelson would be controversial or if he would utter the words, “We come in peace,” as Benioff once had.  That much was a given.

Nonetheless, Nelson served roughly the same purpose as Benioff; he was the emissary from the cloud.  He functioned as a third party thought leader pointing off in a future direction that Oracle itself could not for various reasons.  Nelson’s direction and his talk cemented one of the key elements of cloud computing for large enterprises contemplating — what to do about the growth of increasingly expensive and hard to maintain ERP systems.  In an era where data and decision-making are continuously being pushed down the chain of command conventional on premise ERP has a flexibility problem and that was the subject of Nelson’s talk.

For at least the last year various vendors have been talking about their two tier strategies in which they provide a second layer of ERP support or they cooperate with other vendors to do so.  Nelson used his time to describe the advantages of using a product like NetSuite in a variety of ways that demanded a second tier of ERP.

For instance, a large multi-national company might use a second tier of ERP systems to capture local or regional data, convert currencies and adhere to local regulations before rolling the results up to corporate in a more tidy bundle.  The two tiers could in practice be all NetSuite but Nelson’s point was to also support heterogeneous environments in which Oracle or SAP might be the corporate standard.

Finally, an question that is on lots of minds during a merger, acquisition or sale of a division is what to do about the financials.  I have to confess that this is not top of mind for me but I can understand how it can be for the principals.  Nelson’s point is that his product, by virtue of its cloud residency, can spin up a company very quickly and enable the separation or merger as the case may be.

The two tier strategy is a happening thing and I expect that we will hear more about it over time and not just from ERP vendors.  Much the same argument could be made for front office conversions.  As multiple conventional CRM systems begin to age out we might see SaaS CRM vendors trying to ease the transition for their own products.

Finally, two tier provides other benefits to companies such as limiting the growth of conventional ERP and initiating a transition that will move some to the cloud eventually and away from big ERP systems.  That’s what Oracle can’t say on its own because as much as it would like to surround SAP systems with NetSuite and eventually convert them, it would not like to see the same thing happen with, say, Microsoft ERP surrounding and ultimately ejecting Oracle from an account.  NetSuite has an inside track right now because it runs a complete Oracle stack which will make conversion easier while keeping it all in the family.

Zach Nelson’s talk was a success.  He presented an appealing vision of ERP in the cloud and for that I think it’s a lock that he’ll be invited back.

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Moneyball is a good movie and I recommend it.  The tie in with the software industry is NetSuite whose logo is all over the dugout and prominent in several scenes.  The central character of the drama is Oakland A’s general manager Billy Bean and most of us know his story about actually using statistics in baseball to predict how a team will play.  Based on Michael Lewis’ true story book about the 2002 baseball season it’s a good way to spend a couple of hours and because Brad Pitt plays the lead I had no trouble dragging my wife to see it.

The point of this short post though is NetSuite.  This is a movie so devoid of product placement that the soda machine, which features prominently in two scenes, is called the soda machine and not the Coke machine.  Nonetheless, because the NetSuite logo is plastered on  the dugout in real life, it’s there in the movie too.  Zach Nelson and the team at NetSuite should get props for being lucky.


A company’s first user group meeting is a kind of coming out party.  It validates the faith its customers showed early on in going with a startup and marks an important statement in the company’s maturation process moving it from kid to adult, removing the training wheels and such.  So I was eager to see how NetSuite would pull off its first user group meeting in San Francisco this week and I was impressed with its success.

The company is on a two hundred million dollar run rate and has been public for several years so it cannot be termed small any more, though in the classic definition of SMB it belongs there.  What impressed me most was the quantity and quality of the announcements its CEO rattled off in his keynote presentation

Representatives from 20 countries attended eighty sessions.  Ten thousand companies use the ERP products running eighty different currencies through it.  According to Gartner NetSuite has one of the fastest growth rates 80% over three years in its survey.  Its nearest competitors have growth in negative numbers.

At the show super cool CEO, Zach Nelson announced new big partners like Qualcomm, partnerships with Accenture, Callidus and Zuora and many others — about eighty announcements in all.  Nelson announced new products for the upper end of his market and technology improvements all around.  Most interesting to me, Nelson told us NetSuite was installing one of Oracle’s Exadata storage devices to further improve perfoprmance and throughput.  Exadata combines small-ish spindles with huge memory and a processor to give phenomenal database performance, but ultimately I think it will be superseded by flash driven machines.  Nonetheless, it’s an important demonstration of the company’s commitment.  It also does not hurt that Larry Ellison owns about 55 percent of the company’s stock.

All of these things and more paint a picture of a cloud ERP company emerging as a leader in its space and as a challenger to established rivals like Microsoft and SAP.  NetSuite emerges at an interesting time in the ERP market lifecycle.  As I have written before, we’re in the middle of an ERP system replacement cycle when systems installed at the turn of the century to deal with four digit dates are aging out and being replaced by newer, more robust and less expensive solutions.

Most of all, the prevailing strategy from its competitors suggests a multi-tiered ERP solution that places smaller systems in charge of regions or countries and leaves legacy vendors largely intact in central locations.  This strategy may be good for the customer and it may be good for legacy providers who hope to sell their solutions for satellite systems.  But it is unquestionably good for NetSuite which, by virtue of its cloud heritage and multi-tier architecture introduced several years ago, can compete effectively with the others and due to its more favorable economics will most likely pick off business from its rivals.

About the only discordant note I can find is the utter lack of focus on CRM — at least on the first day.  I was not able to attend day two and understand that CRM was on the docket then.  I was on a panel with Brian Solis and Paul Greenberg that dealt with social CRM issues mostly at the end of the first day and I think I learned a lot.  These guys rock, pure and simple.  It’s important to know when you are in the presence of greatness and I was.

CRM is important to NetSuite for several reasons.  First, without it the company is really a financials company and it’s hard to see how it lives up to its name and the rationale that its products are engineered to work together thus eliminating the issues of integration faced by many other cloud vendors.  But that’s only if CRM is real and credible.  I have no data but my unofficial research implies that companies that like cloud computing often take NetSuite for financials and Salesforce for CRM.  A cottage industry has grown up around integration with specialty providers like Pervasive and Cast Iron providing solutions and niche players like Zuora offering integration for a purpose.  Engineered to work together ought to be re-engineered around the concept of design and standards.  If everything is engineered to the same standards you get the result that NetSuite is looking for and more importantly you play nicer in the sandbox.

My long term vision tells me that solutions like Zuora will become increasingly important not for pure integration reasons though the integrations provide important plumbing.  Instead, I think purpose built integrations between NetSuite and Salesforce, Zuora, Callidus or Xactly and many, many others are important for another reason.  They give the end customer in a best of breed approach the ability to support good, fast and cheap end to end business practices that enable smaller companies to keep up with larger companies that can afford to hire integration houses to build plumbing for older systems.

I think and expect smart vendors will begin to brand these extended business processes and make the point that their solutions are superior because of the integration rather than offering integration as an after thought.  Salesforce has proven the effectiveness of this approach though few vendors in the AppExchange position themselves aggressively enough, in my opinion.

But this kind of process branding rather than static product branding might turn out to be important as we proceed.  We’ll have to watch of course, but based on this week I would say NetSuite will be giving us a reason to watch for a long time.

NetSuite busting myths

Posted: April 15, 2010 in Technology
Tags: ,

It was great to hear NetSuite CEO, Zach Nelson’s keynote yesterday as he spoke about the true nature of cloud computing.  In some ways, NetSuite is a year or two behind other cloud providers because it’s primarily an ERP solution though the company also offers integrated CRM.  In ERP the non-cloud competition is slinging the same mud that we saw in CRM a little while ago.  Competition is saying things like SaaS doesn’t scale or it isn’t customizable or that it can’t handle complex processes.  Poppycock.  So it was refreshing to hear Nelson take on the challenges one by one offering plenty of data to confront the noise.

Of course the established vendors of ERP solutions aren’t going to give up without fight so the result is half way product attempts that can certainly confuse the market.  There are plenty of solutions that offer to take over the hosting and management of servers and systems but the reality is that those approaches only move the data center down the street; they don’t do anything to provide true cloud computing.  I call this paradigm extension simply because it enables those vendors to continue business as usual without much additional investment.

The cloud data center approach preserves the one license to one customer model and is a reincarnation of the ASP (application service provider) model that first burned bright and then burned out ten years ago.  Back then the economics made it impossible for a vendor to make money on a hosted solution simply because you couldn’t put enough users on the servers to break even.  That’s why SaaS became so popular.

Today ASP is attempting a comeback.  Applications have been rebuilt in browsers and the number of users that can fit on a server is much larger.  However, the cloud data center approach still segregates customers using a single tenant model meaning it’s still very expensive to operate and therefore buy.

If this script plays out as it did in CRM, I think the conventional ERP vendors will  eventually scramble to do real multi-tenant cloud computing.  By then it will be late in the process and I expect a few vendors will have business model issues as they try to explain to shareholders why revenues are in freefall.


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.