NetSuite: Time to scale up the cloud ERP business truly globally

NetSuite is among the few global players that offer cloud-based ERP. Founded in 1998, the company now has about 30,000 companies, subsidiaries and organisations using its software. Its FY16 revenue is expected to flirt with the $1bn mark at group level.

The business experienced significant growth in Europe over the past 5 years, adding close to 900 people in EMEA. However, NetSuite’s overall revenue shows that 75% of its business comes from the US; Europe remains a mostly untapped opportunity for the company.

The partnership with Capgemini – announced in 2015 – is starting to pay off with a joint win at Transavia – JV of KLM and Air France – for the implementation and integration of NetSuite OneWorld earlier this year. PAC believes that an increased collaboration with systems integrators (SIs) to resell and implement the solution is key to success in the region.

This early win may trigger interest from other large SIs, as more and more of their business is becoming cloud-related; NetSuite can be one business solution platform in their arsenal. However, to make this happen, NetSuite must become more attractive to systems integrators by positioning itself as much as a provider of business applications as of a development platform [for such business applications]. The example of Salesforce.com shows how important this is: the Salesforce.com platform goes beyond providing CRM and marketing applications. NetSuite, in fact, with its SuiteCloud Platform, provide integration capabilities with the likes of Salesforce - integration praised by customers -, SAP and Google Apps as well as maintaining compatibility throughout the yearly upgrades. However the SuiteCloud platform remains little known.

So, what’s next for NetSuite? The company seems ready to launch the next step of its expansion strategy and the advanced talks with Oracle seem particularly timely.

An obvious white spot in Europe today is Germany. Although a few NetSuite partners are present in this large and important ERP market, the solution is hardly visible there. This is likely going to change in the future. Jason Maynard, Head of Strategy at NetSuite, spoke of NetSuite’s strength in the SMB market and that geographical expansion is seen as the immediate opportunity: “We just need to open more stores”.

This being said, what the future brings very much depends on the strategy Oracle has in mind. The software giant announced its intention to acquire NetSuite – currently valued at [a healthy] 10x revenue – and a deal could reasonably be expected to close in late November.

Some uncertainty about NetSuite’s future in this context is inevitable. However, NetSuite is very complementary to Oracle’s portfolio, as it brings cloud-based revenue as well as access to the mid-market. The customers we talked to seemed unfazed by the expected Oracle transaction and consider positively the strong financial backing that such a move would bring to the company.

Oracle’s customer base could also prove key in NetSuite’s ability to win larger projects – even if out of bounds in the short term. Larger clients would trigger greater need for implementation and integration work and therefore generate a virtuous circle with systems integrators.

On the product side, we would expect Oracle to combine its own cloud-based solutions, e.g. for marketing automation, with NetSuite’s cloud ERP system. NetSuite could be used as Oracle’s cloud platform for the development of vertical applications and add-ons. This platform business is attractive for customers, systems integrators, other cloud vendors and ISVs offering complementary, NetSuite-based services or solutions. A more comprehensive set of analytics capabilities could fuel further growth. Again, Oracle may provide technology here.

NetSuite could replace existing ERP backbones within large organisations, but its strength may lie in cementing its place as a very neat “tier-two” ERP for international subsidiaries of such companies. Also, large companies with existing ERP systems may look for new solutions to support new business models. The main growth area for the cloud ERP vendor will be medium-sized businesses as well as young and fast-growing companies.

Bottom line: NetSuite benefits from some strong assets to keep growing and expanding its revenues and global reach as cloud-based solutions transform the software market. The Oracle transaction does bring an element of uncertainty, but comes at the right moment in the company’s development. NetSuite is in a position of strength. No doubt that Microsoft, Infor and Sage will follow NetSuite’s progress with interest in the coming months and strongly push their own cloud ERP initiatives.

Please also refer to our previous blog about NetSuite on its course to join cloud's $1bn club.