Breathing Open Air at NetSuite

It has been almost two years since NetSuite Inc. (NYSE: N) went public and my analysis of that blockbuster initial public offering (IPO) event. Needless to say, much has happened at the bullish software company since.  

NetSuite positions itself as “a leading vendor of on-demand (or cloud computing) integrated business management software suites for midsized businesses and divisions of large companies.” In other words, contrary to its software as a service (SaaS) peers that excel in one departmental function (e.g., in the on-demand sales force automation [SFA] niche), NetSuite enables over 6,600 mid-market companies to manage their core business operations holistically in a single system.

Its flagship product, NetSuite OneWorld [evaluate this product], includes the realms of accounting/enterprise resource planning (ERP)customer relationship management (CRM), and electronic commerce (e-commerce). Moreover, NetSuite's patent-pending "real-time dashboard" technology provides easy-to-use views of up-to-date and role-specific business information. Lately, NetSuite has also been acting as a reseller for AdaptivePlanning’s business performance management (BPM) solution.

But the “suite” and “SaaS” themes are only two legs of a three-legged stool that represents NetSuite’s product strategy. Namely, “verticalization in the cloud” is NetSuite’s third “big idea” when it comes to on-demand software differentiation. In fact, NetSuite has made great inroads into certain industries. Particular success has been noted in wholesale distribution, with the NetSuite OneWorld for Distributors product. There is also a healthy install base amid software companies (NetSuite’s peers).

Building Cuckoo Nests Within SAP (and Oracle) Customers

One of the major developments of late has been NetSuite’s hub-and-spoke approach to divisions of large SAP (and perhaps Oracle) corporate customers. Earlier in 2009, NetSuite boldly took the fight into SAP’s “back yard” by becoming the first SaaS suite vendor to receive IDW PS 880 certification in Germany. This involved an audit of the company’s financial management software to determine whether its software complies with the German legal regulations of trade and tax laws.

Some bloggers have meanwhile taken sides in the debate about whether NetSuite is indeed a viable alternative for larger on-premise suites. Paul Greenberg and Vinnie Mirchandani have somewhat favorable views towards NetSuite’s “peaceful coexistence” strategy, while Frank Scavo and Dennis Howlett have expressed some doubts and skepticism.

Sure, both NetSuite and its foes can tout successes in stealing each other’s customers (and point to some customers’ unhappiness and departures on the other side), but the fact remains that NetSuite is now a company with about US$160 million in revenues that has lately had a few profitable quarters. In terms of mere features and functions, NetSuite is likely not the strongest solution in the market, but it is “just enough with simplicity” that wins in the on-demand world. But as a staunch “freedom of choice” proponent, I was at least impressed by NetSuite’s recent moves to support Google Chrome, Apple Safari, and other non-mainstream technologies.

Targeting Service Businesses

NetSuite has not squandered its hefty IPO market capitalization on acquisitions like a drunken sailor, but has rather used a couple of prudent acquisitions to provide vertical on-demand solutions for service-based businesses. Those businesses, whose revenue is primarily derived from delivering time- and project-based consulting offerings (e.g., professional services, legal, accounting, business process outsourcing [BPO] management, media-agency organizations), comprise a large segment of the global economy, particularly in developed nations. In my earlier blog post, I concurred with the general feeling that the “Services Economy” is the future of developed nations, especially in light of their manufacturing having been moved offshore in recent decades.

But despite apparent opportunities (i.e., an 8 to 10 percent annual growth rate according to IDC), services businesses are undergoing a major transformation. These companies face an array of complex and volatile business dynamics such as widely fluctuating local demand for resources, global pricing pressure, and revenue recognition management constraints of complex, locally negotiated services delivery contracts. In this context, making uninformed bad decisions can significantly impact profitabilitycash flow, and customer satisfaction.

As in the manufacturing sector, the current economic climate has been driving extreme scrutiny of profit margins and staff utilization. At the same time, the ability to deliver services globally is central to success. But unlike manufacturing-based industries, global services businesses have traditionally lacked the integrated business management tools necessary to truly manage corporate performance on a global basis.

Cumbersome spreadsheets and outdated homegrown systems offer a dangerously opaque view into subsidiaries and divisions, making it difficult to weed out unprofitable projects. Finding the right resource with skills, experience, and availability to work on a project can be like finding a needle in a haystack. Gauging demand and backlog across diverse geographies is a guess at best.

These businesses also face a number of complex multi-currency billing, expense, and revenue recognition management issues across various tax jurisdictions that can drain time and resources, and increase financial risk. And all of these issues must be dealt with while trying to ensure ongoing prompt project delivery, billing, and receivables across dispersed divisions and subsidiaries.

NetSuite’s OpenWorld for Services Progression

NetSuite introduced the OneWorld for Services Companies edition in April 2006. While that product had solid project management and project accounting features, it lacked manyof the professional services automation (PSA) and project portfolio management (PPM) features needed to be a serious competitor in the services market.

Therefore, NetSuite pioneered the services resource planning (SRP) software category with its acquisition and integration of OpenAir in May 2008, providing services businesses with the solution to streamline the complete services lifecycle throughout their business. This cycle ranges from sales and marketing via proposals and orders, projects, services delivery, charges and expenses, and billings and invoices, to revenue management.

NetSuite OneWorld SRP was introduced in October 2008 as a suite that integrated PSA, CRM, e-commerce, and financial management. However, the product was only suited for single-entity/single-site businesses. In other words, global services businesses could not yet achieve comprehensive real-time visibility, integrated financials (consolidation), resource optimization, and services management from corporate, to subsidiaries, down to the individual project level across geographies, currencies, and tax jurisdictions.

Still, by being able to replace a so-called “hairball” of interfaces within the portfolio of disparate applications, the combination of NetSuite and OpenAir has thus far resulted in about 35 customers. Many of these customers previously had an accounting system from, e.g., Microsoft Dynamics, a PSA/PPM & timesheet system from, e.g., Deltek or Tenrox, some pesky spreadsheet-based software for customer support, a SFA/CRM system from e.g., or Sage SalesLogix, and Miva Merchant Web shopping cart software, and so on and so forth.

NetSuite OneWorld SRP was able to replace such hodgepodges with a single suite, and one can only imagine the complexity of handling and integrating multiple divisional “hairballs” in global service enterprises. NetSuite’s customer survey touts that SRP has resulted with improved customer service, decreased cancellations, reduced IT costs, and increased utilization and bid wins at its services-based customers.

Riding On a SuiteCloud

For its part, OpenAir PSA [evaluate this product] has leveraged the parent company's global infrastructure, and the PSA provider expanded to Europe, the Middle East, and Africa [EMEA] and Asia in early 2009. In April 2009, NetSuite launched its SuiteCloud platform as a second core business in addition to OneWorld.

While there are many similarities between NetSuite’s SuiteCloud platform and’s equivalent platform (as well as between NetSuite’s SuiteApp marketplace and’s AppExchange directory), there are some different approaches too. For one, although named SuiteScript, NetSuite’s multi-tenant development language is basically JavaScript versus’s proprietary Apex code.

In addition, while is still largely betting on the law of large numbers  (LLN) and free-for-all (survival of the fittest) partnering approach for and AppExchange, NetSuite has been much more selective when identifying strategic partnerships. The idea is to have a smaller number of partners that can help with a particular vertical industry, such as Rootstock Software and Configure One for manufacturing.

An Acquisition (or Two) Done Right

Most recently, in late October 2009, NetSuite announced the availability of NetSuite OneWorld SRP, the first cloud computing-based comprehensive business management solution for global services businesses. The SuiteCloud-based integration between NetSuite OneWorld and OpenAir has resulted in a best-of-both-worlds combination of the two product’s strengths.

With its automated multicurrency management, built-in support for international tax, compliance, and sophisticated revenue recognition management, NetSuite OneWorld SRP eliminates arduous manual processes, shortens period-end close cycles, and allows more accurate revenue forecasts. And because NetSuite OneWorld SRP is a native cloud solution, the software enables global services businesses to unlock these benefits with minimum capital expenditure (CAPEX), thus ensuring faster deployments with leaner requirements for ongoing system management. "Anytime, anywhere" access allows services teams on the road to stay connected, with offline access via mobile devices enabling them to submit time and expenses (T&E), as well as update and monitor project performance.

The product promotes a local subsidiary’s autonomy in measuring its key performance indicators (KPIs) such as project cost, profitability, and margins, but with integrated global line-of-sight visibility that is necessary to allocate resources efficiently, improve project delivery and profitability, and streamline T&E processes to drive cash flow. Visibility exists from the corporate level, to the subsidiary, and all the way down to individual projects.

To enable this combination of local autonomy with global insight NetSuite had to tightly integrate reference data and transactional data between OpenAir and OneWorld. To that end, the customers, projects, purchase orders (POs) & billing rules, users, expense items, and services reference data fields from OpenAir have been mapped to the following reference data fields in NetSuite: customers, projects, sales order, users, expense categories, and service items. In a similar manner, the expense reports, invoices, and revenue recognition transactional data from OpenAir have been mapped to the following transactional data in NetSuite: expense reports in accounts payable (AP), invoices in accounts receivable (AR), and journal entries.

In addition to SuiteCloud-based integration and integrated role-based and real-time dashboard viewing capabilities, other key attributes of NetSuite OneWorld SRP are a single sign-on feature and global business management (financial consolidation). In this environment, while the corporate office can focus on globalization, regulation, consolidation, profitability, and overall demand management, each division or subsidiary can follow its revenues received, local resource management, billing & invoicing, and project profitability.

Talking the Talk and Walking the Walk

The “local autonomy with global access” has been experienced at OpenAir following its acquisition by NetSuite. I met the fledgling company at’s event several years ago, and at that time OpenAir had only about 20 employees and as many customers. Now the company has about 100 employees (including the intact management team following the acquisition), and has about 1,000 corporate users with 80,000 paying subscribers. Its recent user event in Boston was well attended, vibrant, and with overflowing rooms for breakout sessions and keynote addresses.

The integration to remains intact, albeit not via but rather via application programming interfaces (API's). OpenAir has meanwhile even converted some CRM customers to NetSuite, because of the integrated SRP story, even with support for earned value management (EVM). For the majority of joint and OpenAir customers that will likely stay put, NetSuite aims to connect to's cloud via its SuiteCloud Connect tools.

In mid 2009, NetSuite also acquired QuickArrow, another on-demand PSA provider and OpenAir’s competitor for the install base. The intent is to maintain the QuickArrow install base as long as they are happy to stay on the product, and to migrate the rest to OpenAir. This elimination of a direct competitor has made NetSuite as the biggest on-demand PSA game in the town, with Appirio remaining as the other viable SaaS PSA competitor. Appirio touts its Professional Services Cloud offering that was written on, which will soon mean the availability of the just unveiled Saleforce Chatter social platform.

“Cloud and Soil” – Best of Both Worlds?

While I fully agree with Brian Sommer’s praises for NetSuite’s cloud-to-cloud integration capabilities and approach shown at the OpenAir user event, it is the on-demand to on-premise integration that impresses me the most. Namely, recent keynotes from the Oracle OpenWorld 2009 mega-event have at least shown that former staunch proponents of “on-premise only” and “on-demand only” might be softening their stances and coming closer to a middle ground in realizing that the real world will inevitably involve some mix of both applications.

In early November, RedPrairie Corporation announced that it will offer pre-integrated application modules on the NetSuite SuiteCloud platform, helping customers of RedPraire get on the cloud faster by delivering a warehouse management solution (WMS) and supply chain execution (SCE) cloud solution. RedPrairie's E2e software suite helps manufacturing, distribution and retail companies around the world in the following three categories: inventory, transportation, and workforce management.

As described in my recent blog post, RedPrairie has over 20 global offices providing services to over 40,000 sites in 50 countries. Therefore, this is a significant partner announcement and endorsement for NetSuite.

RedPrairie currently offers pre-built integration to SAP, Oracle, and Microsoft Dynamics suites (and to some other lesser-known ERP products) so those ERP users can have simpler access to RedPrairie’s best-of-breed SCE applications. The vendor will now be offering this same type of integration to NetSuite customers.

Since NetSuite is the leading on-demand ERP product for the mid-market, RedPrairie felt it was a good expansion of its integration program. This integration has not been built, so there are no joint customers yet.

RedPrairie will likely use the SuiteCloud tools for the NetSuite integration, but it will not impact RedPrairie’s core applications. In other words, RedPrairie is not going to run on SuiteCloud, just integrate to it. Therefore, the idea of multi-tenant SaaS SCE solutions is totally separate from this. Whether or not RedPrairie decides to go the multi-tenancy route in the future, I highly doubt it will be going after the low-end WMS market that SmartTurn is pursuing (this on-demand WMS software company has also recently struck a partnership with NetSuite).

NetSuite is that rare SaaS provider offering an integrated business suite covering the core operational needs of businesses. Well, if one does not count in Plex Systems that focuses on complex manufacturing where NetSuite is not really competing, and at least until SAP Business ByDesign becomes more generally available and while the on-demand ERP solutions from (formerly CODA 2go), and Datasul stay relatively unknown or local, NetSuite is in a good position to act on the all-in-one-suite need.

We will have to wait and see how this value proposition will further be explored by NetSuite. Your views, comments, and opinions are as usual welcome in the meantime.
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