Netsuite May Enter Large Enterprise Market

Bolstered by its success in the small- to mid-sized business market, Netsuite may now start to take on giants like Oracle and SAP.
Posted April 14, 2009

- Reuters

BOSTON (Reuters) - NetSuite Inc has developed programs targeted at large corporations, a person familiar with the strategy said, in an effort to move the software maker beyond the small- to mid-sized business market.

The person, who requested anonymity since the products have not been announced, said NetSuite wants to sell the software to divisions of large corporations that use software from SAP AG and Oracle Corp.

To date, the company has focused on products for small- to medium-sized companies (SMBs). But NetSuite is eager to get a slice of the enterprise market as corporations account for the bulk of sales of business application software, which researcher Gartner estimates at about $89 billion a year.

The new programs -- dubbed "SuiteCloud Connect" -- allow corporate divisions to run their businesses on a high-end version of NetSuite's Web-based software, then easily roll up financial data into their parent companies' SAP and Oracle systems, the person said.

Shares of NetSuite rose 2.54 percent to close at $12.10 on the New York Stock Exchange.

A spokeswoman for NetSuite, which is majority-owned by Oracle Chief Executive Larry Ellison, declined to comment.

SAP and Oracle sell traditional software, which companies buy and run in their own data centers. The bulk of the world's biggest corporations either use SAP or Oracle.

That approach can be more expensive than buying a subscription to NetSuite's hosted, Web-based software, said Rebecca Wettemann, an analyst with Nucleus Research, who had not been briefed by the company on the new product line.

Analysts said they expect the new product will be well received by corporate technology managers looking at NetSuite's software-as-a-service offering as a low-cost alternative to installing an SAP or Oracle system.

"It is clearly making it easier for customers that might need to do something, but are unable to do something given the capital constraints," said Wedbush Morgan Securities analyst Michael Nemeroff, who had not been briefed on the new product.

He added that corporations have more money to spend on technology these days than NetSuite's traditional customer base.

"If you are going after deals, it makes sense going after customers that have cash, as opposed to SMBs that are cash strapped these days," Nemeroff said.

Analysts expect 11-year-old NetSuite to post its first profitable year in 2009 as the San Mateo, California-based company's revenue grows 15 percent to $176 million, according to Reuters Estimates. By comparison, they expect SAP to post revenue of 11.8 billion euros ($15.8 billion) and Oracle to report full-year revenue of $23 billion.

The source said NetSuite would soon announce the connection software for SAP, but hold off on unveiling the product that works with Oracle. NetSuite may choose to downplay its efforts to take business away from Oracle due to the Ellison connection.

While Ellison and his family own about 61 percent of NetSuite, his influence over operations is limited. Prior to NetSuite's December 2007 initial public offering, Ellison put the 52 percent stake in NetSuite that he directly owns in a "lockbox" company, effectively stripping him of voting powers, and thereby reducing concerns that his involvement with Oracle could create a conflict of interest.

NetSuite developed SuiteCloud Connect using tools known as application program interfaces, or APIs, that are already built into SAP and Oracle programs, as well as software from most vendors.

Those APIs are open to all programmers and have previously allowed NetSuite customers to develop their own integration software for rolling up financial data into the parent company's computer systems.

But SuiteCloud Connect offers a standardized set of tools designed to save businesses the time and expense of doing that customization on their own.

The programing was partially based on customization work done to help integrate Asahi Kasei Corp's SAP programs with subsidiary Spandex America's NetSuite software.

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