NetSuite IPO Shows Acceptance of SaaS Model for ERP

Ann All

This week's NetSuite IPO has reawakened interest in using software-as-a-service to deliver enterprise resource planning (ERP) to SMBs that can't afford pricey ERP suites from Oracle and SAP.

 

Yet NetSuite may not be as well positioned as some other vendors to offer a hosted ERP solution to SMBs, writes Research 2.0 analyst Kris Tuttle on SandHill.com. NetSuite's annual revenue per client of $20,000-plus indicates that NetSuite may be too rich for companies on the "small" end of the SMB spectrum, notes Tuttle.

 

Such companies might want to look at alternatives like NetBook, a company recently profiled in InfoWorld. NetBook's software costs just $200 a month or $1 per hour for five users. Included in the price are unlimited support, upgrades and access for a company's bookkeeper, accountant and "marketing coach." It offers marketing, sales, inventory and finance applications, along with payroll services from partner PayCycle and shipping through UPS Online Shipping.

 

Due to its limited ERP functionality, opines Tuttle, NetSuite is best suited for four market segments: wholesale distributors, professional services firms, IT resellers and other software companies. While it lacks the industry-specific focus of SaaS offerings from SAP and Microsoft, it's possible that NetSuite will gain industry-centric features through partnerships.

 

NetSuite doesn't break out its consulting, training and expanded services revenues, making it tough to tell whether NetSuite's model is more akin to SaaS providers like Salesforce.com or to more traditional software vendors like SAP, says Tuttle.


 

In Tuttle's positive column for NetSuite: 10 years of experience selling to SMBs, an SLA promising 99.5 percent uptime, a developer toolset called SuiteFlex and two respected back-up hosting providers.

 

In an interview on BloggingStocks, Mike Braun, the CEO of NetSuite rival Intacct, says that the IPO shows that the industry is largely over the reliability and security concerns that once dogged SaaS.

 

While NetSuite presents itself as offering a full spectrum of ERP applications, Braun agrees with Tuttle that NetSuite's software lacks some key ERP features. His take, however, is that "the Internet and the SaaS model make the concept of an all-in-one suite as outdated as the client/server computing model that spawned it in the early '90s."

 

The clear implication: NetSuite's marketing pitch is more like those of traditional software vendors than best-of-breed SaaS providers.

 

Braun offers some interesting predictions for 2008, including increased interest in SaaS solutions from VARs and systems integrators that sell to SMBs. This view seems to be confirmed by a recent IDC survey in which 70 percent of such solution providers said they view SaaS as an opportunity.

 

The last big uptick in interest in ERP delivered via SaaS came last summer when Workday, a startup founded by former Oracle executive Dave Duffield, announced it would offer financial and supply-chain applications. The move led some pundits -- including Nicholas Carr -- to speculate that the industry could be heading for "the end of ERP as we know it."

 

A recent SYS-CON article about Workday notes that, while Workday intended to sell its software mostly to SMBs, it has signed some pretty big customers like Lifetime Fitness (17,000 employees) and Chiquita (25,000 employees). The article's author, the president of consulting firm Wohl Associates, says such customers show that SaaS appeals not just to companies seeking lower costs, but also to those seeking less complexity and more flexibility from ERP software.

 

A recent report from AMR Research predicts that midsize companies' interest in SaaS is growing, with 39 percent of large midsize companies (500-999 employees) planning to purchase SaaS or on-demand software in 2008. Midsize companies will also boost their ERP budgets an average of just over 5 percent, according to the report.



Add Comment      Leave a comment on this blog post
Dec 25, 2007 3:17 AM Carl Zaldivar Carl Zaldivar  says:
I work for what I consider to be the only true alternative to Netsuite on the market - BizAutomation.com and I've been telling people for years, that Netsuite isn't a small business product.We're about to transition from beta within the Jan-Feb time frame, and would like to let people know "Hey come check us out, you'll be pleasently surprised". Hopefully the media takes note - There's a new kid in town. Reply
Jan 3, 2008 4:57 AM Rich McClain Rich McClain  says:
As a PM and lead analyst for 25+ years, I've implemented many ERP packages (Oracle, Peoplesoft, SAP) and other enterprise apps (Maximo, CustomerOne, Banner), and the primary challange has been their overly-complex and poor application/data base designs, one-off interfaces, and further complicated by user customizations. Infrastructure was the least of our headaches. SaaS didn't fix the problem because they are delivered as a service (which really relates mostly to infrastructure), they are better because they are simplier designs, built with better Xth-GL tools, open interfaces.....and the discipline to "just say NO" to customizations. If they were premise-based installations, they would still be better. Other than needing a good process for distributing software updates (ask Microsoft if you need help), SaaS or premise-based are equally powerful. Does SaaS save money on hardware & related maintenance/ support? Maybe enough to affect the really small SMB's bottom-line. Does SaaS offer the same level of user support as an on-premise support person?...have you called an off-shore help desk lately?So IMHO, SaaS is primarily a marketing fad perpetuated by magazine writers who have not spent much (any?) time actually implementing systems. Let's give the credit to the girls and guys who actually designed these great applications, and even before them the folks who provided some great software development tools! If you think it's easy, ask the Bizautomation fellow who just finished his Beta testing. And go ahead and splurge on hiring a bright young high-school/college grad and challenge them to become your local user support guru. They might even find ways to help your business make some more money. Reply
Jan 5, 2008 3:03 AM charles Moore charles Moore  says:
True SaaS is not as easy as many think...Beta to real product for an accounting engine can be 3 to 4 years ( typical regualtory requirements, accreditations, testing approvals etc)..NO business wants to use beta accounting systems, they dont want their payrolls to be wrong, as in most countries this can lead to very expensive fines and loss of employees.As a benchmark our Web office suite of sevrices have been developed over the last seven years ( ~1/2 Mill lines iof code) the first four years were spent just getting the SaaS and regulatory stuff done..But with this said...SaaS has real benefits to all involved, typically 30% less to develop, can be upto 50% less to support ( from a customers perspective), and upto 80% less to deploy..Our typical price for a full featured system is less than US$10/employee/month..Enjoy.. Reply

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