Platform wars, implementation speed, Groupon as a customer, and other highlights from NetSuite's first ever annual user conference.
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NetSuite’s First Ever User Conference—Informal and Open
Given its size (over 10,000 organizations run by NetSuite) and the fact that NetSuite has been around for over a decade—a relative veteran among Internet software companies—it was surprising to me that they had never had a user conference before this year. Their first ever conference was quite well attended, with over 2,000 attendees and there was an atmosphere of enthusiasm by customers, employees, and the partners who were exhibiting. It was an open and informal affair, for instance during a demo of one of their partner’s WMS systems, NetSuite’s founder Evan Goldberg (right) donned a hard hat and orange vest to play the role of warehouse worker. No corporate stiffness here.
Customers were quick with praise, but also not at all shy to speak up about the areas they wanted to see improvements. The NetSuite product managers seemed to be willing to have that dialog about their shortcomings with customers out in the open public sessions—many other vendors try to keep those types of conversations behind closed doors, lest competitors or the press highlight them too much. It will be interesting to see whether future events become more tightly orchestrated or retain the ‘town hall’ feel.
In the opening keynote, NetSuite CEO Zach Nelson (left) noted that their revenue in Q1 2001 was $124K, compared with $53.4 M revenue in Q1 of 2011. That comes out to 83% CAGR over 10 years . . . quite impressive. They are profitable, and they are adding cash to their balance sheet. Nelson said that they grew 80% in their financial management systems sales over the last three years to become the 8th largest vendor of financial management systems, during a period when the revenues of other players in this space (SAP, Microsoft, Sage) were actually shrinking.
SuiteCloud and the Platforms Wars
Many years ago, there was a fairly clean difference between the types of functionality provided by software platforms (OSs like Windows, Unix, etc.) and the applications that ran on those platforms. No more. Nowadays it seems that almost every decent sized application software vendor has a platform /IDE strategy, designed to lure other software vendors to integrate onto their platform. “Platform Thinking” was the central theme of Manhattan’s conference last year; Salesforce has their Force.com; SAP, Oracle, Ariba, and JDA/i2 all have their platform strategies. In 2009, NetSuite launched their platform “SuiteCloud.” This was a major point of CTO Evan Goldberg’s keynote address and appears to be pivotal to NetSuite’s strategy going forward.
Often these platforms start life as the application vendor’s own developers’ internal tools for integrating their application into other applications. Then they open up these tools to other vendors in an effort to attract them to integrate their complimentary applications, providing a complete IDE (Integrated Development Environment), support environment and services, and marketing and sales assistance programs. Here the owner of the platform acts as a sort of “anchor tenant application,” wooing a variety of partners, to create a rich suite of applications that will offer much more of a total solution than the vendor itself could develop. In this sense, the platform battle between major application providers is really a battle of who can create the most appealing extended suite of applications, using their ecosystem partners as an extended development team. And it becomes a self-reinforcing cycle as a richer application suite attracts more customers, and a larger number of customers attracts a broader set of vendors to decide if it is worth their while to integrate onto the platform.
NetSuite is clearly a key participant in these platform wars. But it’s not quite a zero-sum game. For example, Ariba is on both the Salesforce and NetSuite platforms. And SuiteCloud offers a SalesForce.com connector. We expect there to be an increasing number of integration points between these competing platforms, especially within the cloud, which should provide more choice and flexibility for customers.
One of the critical attributes of successful SaaS software is a high level of configurability—customization that requires no changes to the code base and is problem-free every time the vendor ‘throws the switch’ to bring online the next version of their base code. This philosophy of configurability was evident in Evan Goldberg’s remarks about how NetSuite’s SuiteCloud platform enables partners and customers to extend the data model, and how SuiteCloud “. . . is far more customizable than traditional applications ever were. Every customer runs their business differently and SuiteCloud enables that.” He said that SuiteCloud was the key to NetSuite’s future growth and that within the next two years, NetSuite’s own developers will be developing new functionality only on SuiteCloud.
SuiteCloud consists of several components:
Data Center/Infrastructure-as-a-Service—Developers leverage the same underlying multi-tenant infrastructure used to run NetSuite’s own application
SuiteCloud Developer Tools—this is their IDE with rapid development and debug tools, along with deployment tools, all sitting on top of the NetSuite Application Suite and SaaS infrastructure
SuiteCloud Developer Network (SDN)—support, technical services, co-marketing and lead generation programs
SuiteApp.com—online marketplace for SuiteCloud applications
Within the SuiteCloud ecosystem there are about 4,000 developers who are busy extending the application horizontally and vertically, creating third-party solutions that look like they are just part of the NetSuite application suite.
The Battle for the Middle
In his keynote, CEO Zach Nelson said that NetSuite’s target is the “. . . Fortune 5,000,000, the engine of small and midsized companies that drives 50% of the economy.” NetSuite has its roots serving small companies that were outgrowing QuickBooks. More recently they have been moving upstream to the higher end of the mid-market. Back in September 2008, NetSuite launched OneWorld, which added support for multi-language, multi-currency, and multi-divisional organizations. At SuiteWorld, they announced the launch of NetSuite Unlimited for larger enterprises, which includes unlimited modules, users, subsidiaries, third-party SuiteApps, and storage. Nelson also announced NetSuite’s partnership with Accenture, to resell to large enterprises. Qualcomm, Accenture's and NetSuite's first joint customer, was also announced. This does not mean that all of Qualcomm will be converting to NetSuite immediately. Rather Qualcomm is starting first in their incubator, Qualcomm Services Lab, where NetSuite will be a good fit for running their internal startups.
SAP, Oracle, Ariba, and many other software companies that have traditionally served the F500 have also made aggressive moves downstream to court midsized firms. So, we see a real “battle for the middle” heating up across a broad array of software vendors. It is a good time to be a growing mid-sized company, with so many software companies wanting your business.
Catering to the Jack Rabbits
Nelson made a compelling case that NetSuite is ideal for fast growing companies. About a third of the companies in the JMP HOT 100 and the OnDemand Top 100 use NetSuite. And then there’s Groupon, easily the fastest growing company ever—likely exceeding $1B annual revenue run rate in less than 2½ years . . . mindboggling. Groupon is expanding into 46 countries and 500 markets. They were growing so fast, they ended up with multiple systems and wanted to get onto one platform. Groupon wanted to implement at “Groupon Speed,” with a goal to roll out to 24 countries in 3 months. They looked at SAP and Oracle and decided that that pace of implementation was just not possible. So, they started looking at SaaS vendors and settled on NetSuite, among other reasons because of NetSuite’s multi-national support. The ability to transact in the local language and currency was critical for Groupon. They signed the contract in February 2011, went live in five countries within 6 weeks, and will have 10 countries by the end of May and 26 countries by the end of Q2. That is a very impressive demonstration of implementation speed. It shows that a highly configurable SaaS product like NetSuite can be implemented at a speed much faster than traditional systems.
In Part Two of this series, we will look at what NetSuite is doing in Wholesale Distribution and Manufacturing, as well as some other new developments highlighted at SuiteWorld 2011.
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