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SuiteWorld 2014: NetSuite’s Cloud Ebullience Goes On
SuiteWorld 2014: NetSuite’s Cloud Ebullience Goes On
August 11 2014
is the real deal in the enterprise applications space”—the main message of the recent
conference—was proven by CEO Zach Nelson during his keynote speech citing recent growth figures in the enterprise cloud software space. The company experienced over 50% growth last year, compared to a modest 5% for
and a measly 1% for
was even negative 1% if one considers just ERP software license growth.
NetSuite’s growth could probably also be deduced from the fact that SuiteWorld 2014 had 6,500 attendees, as compared to 5,000 last year, and 3,500 and 1,850 for the respective two years previous to that. NetSuite now has more than 20,000 companies and subsidiaries as customers, well over 3,000 employees, and 700 partners (100 partners were present on the conference expo floor this year). Nelson revealed that 70% of implementations are now done via partners (though NetSuite does not pass leads to its partners, a service other cloud vendors charge partners for). Partners also develop their own expertise and sell—currently 40% of new NetSuite revenues come via partners.
Catering to Multiple Verticals and Company Sizes
In fiscal 2014, NetSuite projects revenue to be over $545 million (USD) and approximately $20 million (USD) profit. While the profit margin might not be that impressive, the company had over $65 million (USD) in operating cash-flow, and currently sits with $479 million (USD) in cash on hand. Initially, NetSuite was mainly a best-fit solution for “Fortune 5,000,000” companies (the lower end of the market), but it is now becoming suitable for the Fortune 500 ones, such as Qualcomm, and is using global system integrators (SIs) such as
Deloitte, Accenture, Wipro
to service those. NetSuite is targeting companies that will spend at least $10,000/year (USD) on software and have growth potential. Integration, documentation, testing, and other value-add services are offered to larger clients—the company is not interested in merely having its products be a replacement for
The Dow Jones tracks 40 startups
valued at over $1 billion, and 20 of these companies now run on NetSuite. NetSuite claims to be a “real deal” Tier One cloud financials system—with multi-language, multi-currency, multi-tax, and regulations capabilities. The vendor’s claim is that a global Tier One company can in principle have
ERP at its HQ to handle all of its local profit and loss (P&L) reports and then consolidate them to HQ reports. NetSuite even has its own flexible tax engine—while
can handle only some special niche requirements (e.g., luxury goods tax in New York) or e-filing for taxes if necessary, NetSuite can do both value added tax (VAT) and state sales taxes in the U.S. (though local partners must take care of taxes in places like Brazil or India, where it gets very tricky).
Regardless of size, the challenges are basically the same for all companies in the realms of professional service automation (PSA), customer relationship management (CRM), financials, e-commerce, manufacturing, and distribution. Companies in these areas can benefit from having all those capabilities on the same cloud platform (see the figure below). They also like the unification of search and reporting in the cloud.
A sizeable number of software companies are NetSuite customers, and the vendor rules that space, which generates about 10% of its revenues. There is also a very strong install base in the professional services automation (PSA) space via the
(the very first acquisition by NetSuite, back in 2008). The recently launched new
product is the evolution of the acquired OpenAir PSA product and the services variant of the core NetSuite ERP. While Open Air is for pure service businesses, NetSuite SRP is for
companies selling both physical products and people-centric services
(projects, time, etc.), offering both ERP and PSA on the same platform.
NetSuite is also strong in wholesale distribution, competing with
Infor SX.e, IBS, Epicor Activant
, etc. Omni-channel retail is also a strength, via
(a lighter and simpler equivalent of over-engineered
IBM WebSphere Commerce
for distributed order management (DOM), and
for cloud point of sale (POS) capabilities,
while assortment planning comes via
and other partners. There are currently thousands of e-commerce NetSuite customers, and that number will easily get much bigger via the
Nelson believes that SuiteCommerce is the future of combined ERP and CRM—the system must recognize the customer regardless of the channel or the touch point. NetSuite is able to do that because of its unified cloud platform and the same database. There has been 70% new business growth in retail, with companies like Williams-Sonoma, Pottery Barn, PB Kids, West Elm, and others using SuiteCommerce to run their global businesses while presenting their local brands in regions accordingly.
Tackling Cloud Where It’s Not Easy: ERP and Omni-Channel Order Management
At the SuiteWorld 2014 event, CEO Zach Nelson kept harping on the point that NetSuite did cloud computing back in '99 exactly in the area it is the most difficult—full-fledged ERP with order management at its core, rather than in some fringe applications areas such as CRM/sales force automation (SFA), payments, or human capital management (HCM). He mentioned how customer service calls are usually about incorrect billing, the wrong products or quantities, products delivered to wrong addresses, call centers being unaware of customer records, etc. Those kinds of inquiries cannot be helped by traditional SFA (lead-opportunity-contact management) apps, especially if they do not have integration with the back office and order management.
In addition to the aforementioned multi-channel ramifications, the lines are also blurring between traditional product- and service-based businesses, as well as between retailers, distributors, and manufacturers. Everyone is encroaching onto each other's businesses, and thus companies can never know who their competition will be tomorrow. As the next figure shows, with the omni-business model, including business to consumer (B2C), business to business (B2B), B2B2C, government to government (G2G), and anything to anything (X2X)—with machines and devices becoming channels, a special omni-business system is required, and
NetSuite is ready for that
NetSuite has a unified billing engine for mixed-mode businesses (product-based, services-based, subscription-based, usage-based, or a combination), whereby bills can be delivered as printed paper, via emails, Web sites, electronic data interchange (EDI), etc. Purchase contracts are coming in the future as well as site management capabilities with site versioning, the latter based on the late 2013
content management software acquisition.
While retail, software companies, and PSA are already established verticals, manufacturing and distribution are horizontal industries that NetSuite is trying to develop before partners can go into micro-verticals via their solutions and intellectual properties. NetSuite is no longer only good for outsourced (contract) manufacturing, as there is a demand-driven manufacturing resource planning (MRP) module now that incorporates Drum-Buffer-Rope (DBR), 6 Sigma, the Theory of Constraints (TOC), and other lean concepts to reduce the traditional MRP nervousness (frequent exception messages).
are partners for manufacturing execution system (MES), quality, scheduling, sequencing, and similar plant-level capabilities.
is the product lifecycle management (PLM) partner, and the two cloud vendors now have about 20 joint customers (some even doing digital prototyping/3D printing, direct to consumer [D2C] delivery, etc.). NetSuite and Autodesk seem to be learning from each other and validating each other—for example, Autodesk's resellers are now learning how to sell cloud solutions after their decades-long focus on desktop computer-aided design (CAD) and perpetual licenses only.
Customization and Globalization
At the SuiteWorld conference, CTO and co-founder Evan Goldberg gave a very animated in-depth technology presentation on what is coming up for NetSuite. In the pipeline is SuiteGL, an engine for DIY general ledger creation for companies to tailor to their needs and industry (see figure below). Users will be able to customize on three levels: segments, lines, and transaction types. That gives users the chance to do, say, fund accounting and many more accrual types. Add to that SuiteScript (Java development), SuiteTalk (web services integration), and SuiteFlow (workflow/business process management [BPM] engine), and companies and partners will be able to do lots of creative things here.
NetSuite is also developing three new pluggable application programming interfaces (APIs): Tax, Payment, and Shipping. The API route is the right way for the vendor to tackle globalization, since local partners will help address global requirements.
Last year, I noted that NetSuite’s user interface (UI) looked a bit dated, but that
has been fixed
. Regarding platform as a service (PaaS) and app store plays, as opposed to
marketplace, where it is all about quantity, NetSuite has been much more selective about which partners it wants to work with. Currently, there are 7,200
SuiteCloud Development Network (SDN)
partners, with over 23,000
installed, and a “Built for NetSuite” program with the top 40 rollout apps. Next step is a PaaS, and that is where the business process outsourcing (BPO) story fits in—if, for example, Deloitte can deliver a Financials BPO service to its clients cheaper with NetSuite than with Oracle or SAP, why not
go for NetSuite
Room for Improvement?
Although the UI issue has been resolved and there are many new customizable additions on the way, NetSuite is still lagging somewhat when it comes to mobility, as it only covers iOS devices at this stage (Android support is slated for some time in 2015). And during group briefings, analysts keep beating up on the vendor for not having native marketing automation or business intelligence (BI) capabilities, but Nelson says that NetSuite is waiting for those markets to shake out, and it will be partnering once the situation gets clearer.
is a major BI partner, while marketing software vendors include
Marketo, Act-On, Silverpop
, and others. The Internet of Things (IoT) will also be handled via partners, such as field service management (FSM) software partners
ClickSoftware, VSI, Fieldaware, FieldOne
While NetSuite’s international business is currently growing faster than business in North America, there is still lots of room for improvement. I was surprised to learn that in spite of 19 UI language translations, NetSuite is mainly present in English-speaking countries and Japan, whereas in China, Brazil, India, and other regions partners sell and represent the vendor. Sales in the Asia-Pacific region are doing well, while NetSuite’s usage in EMEA is improving slowly. The RetailAnywhere POS product is English-only, although with multi-tax capabilities, and there is a similar situation with TribeHR. Although the HCM product is on a different platform (PHP, mySQL, etc.), it will be integrated with NetSuite ERP, but will also continue to be sold separately—it’s currently at over 500 customers, over 50 joint with NetSuite.
In conclusion, NetSuite seems to be hitting its stride and the aforementioned growth figures are very impressive. The vendor may have sub-verticals like complex tax compliance that few play in and it can grab market share there. While product feature depth will become important, the short-term growth seems to be coming from simple implementations. But once one starts to deal with really complex issues, evaluations will include all the usual suspects and their marketing machines. Unfortunately, the best products don't necessarily win all the time. Coming back to growth numbers, NetSuite is still a relatively small company. As companies get into the billion dollar range, growth becomes much harder, and the question is whether NetSuite can maintain its impressive growth rates then. But for now, the vendor seems unstoppable.
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