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NetSuite: SuiteWorld 2013 - Nothing Sexy, Just Steady Momentum

Posted by Andrew Dailey
Andrew Dailey
Andrew Dailey is a Managing Director of MGI Research
User is currently offline
on Monday, 03 June 2013 in SaaS

NetSuite hosted its SuiteWorld user confab in San Jose, CA on May 13-16, 2013.  Well-attended, the event underscored NetSuite’s strong position in its core market. The major news, a product entry into manufacturing, will impact the generic ERP suites, a market ripe for replacement.  Execution now is the major issue facing NetSuite for the next two years.

NetSuite’s annual user conference, SuiteWorld, continues to grow in size and importance to the NetSuite customer and partner ecosphere. NetSuite (N) claimed 5,000 registrations, although it felt more like 3-3500 customers/prospects plus 1,000 partners and N employees.  While it has not become an industry gathering like DreamForce (salesforce.com), OracleWorld (Oracle), or SAPPHIRE (SAP), SuiteWorld is clearly growing and meaningful to those who matter most – NetSuite customers, prospects, and partners in the midmarket (i.e., organizations and business units that are under $3Billion in revenues – with the sweetspot ranging from $50 million - $250 million).

The big news is that NetSuite launching a manufacturing module.  While NetSuite has long claimed an “ERP” module, in reality the product was a financials and order management suite – and not capable of running a manufacturing facility with functionality like production planning/scheduling, execution and quality management.  With NetSuite’s entry into manufacturing-specific functionality, the company nearly doubles its market potential.  The approach is to deliver generic manufacturing functionality and have partners fill the gaps and customers develop one-off features on top of the NetSuite platform. The announced product functionality will be discrete oriented, targeting make to stock/assemble to order discrete manufacturing styles.  There is no MRP – only demand planning. Years ago, PeopleSoft (now Oracle/PeopleSoft) tried to do the same thing with Red Pepper, and failed to make significant inroads into manufacturing-centric deals.    NetSuite also announced partnership with Autodesk for sharing PLM data. The demo provided a glimpse into how easy it may be to exchange engineering design plans with the NetSuite ERP platform, and even move images in/out of SuiteCommerce.

Like all new products, NetSuite for Manufacturing is going to take time to mature. It is unlikely to displace an existing on-premise manufacturing-intense solution like QAD, or even a cloud-based solution like Rootstock or Plex in the near to mid-term. Rather, lightweight assemble-to-order style companies in the US that are committed to the NetSuite platform are the obvious initial prospects.  In competitive deals that are driven by manufacturing and not the back-office, NetSuite will have to ramp its domain expertise and bolster its sales channel with greater industry depth.  That being said, NetSuite has a large and expanding sales channel – now numbering over 200 direct reps and over 200 channel partners.  NetSuite’s opportunity in manufacturing is to deepen its product functionality, increase the domain expertise of its team, and attract discrete manufacturing resellers focused on the midmarket.

Competitively, the announcements from SuiteWorld and NetSuite’s plans going forward will impact the entrenched midmarket-focused on-premise applications vendors that are slowly moving to SaaS offerings, namely the Microsoft Dynamics family of products, Sage, Epicor and Infor.  These competitors will be disheartened to hear NetSuite’s promotion of its two-tier approach (i.e., that SAP and Oracle customers should consider NetSuite for small and midsize locations and business units).  This two-tier positioning is not new to the market – in fact Microsoft and Epicor in particular have significant installed bases of acquired products that succeeded with precisely the two-tier rationale. We believe this positioning is spot-on, and if well-executed, NetSuite could easily double its revenues by uniquely focusing on this opportunity.   NetSuite is not going to challenge the likes of Oracle and SAP for large, multi-site, multi-country deals, but it certainly can compete for line of business and single country deals that are beyond the reach and fit of the installed corporate ERP solution of choice.

Also of note was the lightweight promotion of SuiteCloud – NetSuite’s version of Force.com.  NetSuite wants to be viewed as having a competitive alternative to salesforce.com’s Force.com platform. At the same time, the lack of aggressive marketing leaves one questioning either the depth of the product or its priority rank within the expanding NetSuite product family.  More and more customers desire a single interface for their enterprise applications, and many are smitten with the concept first introduced by Force.com that they can build applications on top of a preferred platform and integrate 3rd party applications into the platform. A consistent user interface and paradigm makes it much easier for employees to become more productive users of the system – and dramatically increases the user’s dependency on that system/vendor.  NetSuite needs to have a viable development platform for customers and partners to build on top of the NetSuite platform if the company is serious about delivering on its product vision and lofty financial targets.

Customers we spoke with appreciate the integrated financials, CRM, and ecommerce functionality of NetSuite. A number of customers commented on the UX of the product.  "It's a little dated, and can be overwhelming for new employees.”   Both are fair comments.  All of the customers we spent time with intend on spending more money with NetSuite – a positive sign for investors and users alike.  While NetSuite competes against many companies, few, if any, have the equivalent set of functionality in midmarket-focused SaaS offering.

In summary, SuiteWorld was in many ways a reflection of NetSuite as a company. The midmarket has never been sexy, and NetSuite lacks the glitzy appeal of the large enterprise MOSS vendors (Microsoft, Oracle, salesforce.com, SAP).  In the market for business applications focused on SMB, NetSuite faces direct competition from salesforce.com in CRM and from Microsoft in CRM and financials. Yet, the larger players – SAP and Oracle, do not present much of a threat to NetSuite in this core marketplace. Given the current condition of its real competition, NetSuite faces a massive market opportunity in its primary focus area of CRM, financials and e-commerce. By expanding into manufacturing, NetSuite is widening its potential customer reach.  The challenge for the company going forward is to prove that it can scale its business and can continue to grow into its market capitalization.  We remain unconvinced that Oracle will acquire NetSuite in any near future. With Street expectations already high and rising faster than reality and stock priced for perfection, probability of an eventual miss is meaningful. Still, the SuiteWorld event, clearly demonstrated that the underlying customer demand for NetSuite products remains intact.

 

Note: Netsuite common stock is a component of the MGI Cloud 30 Index.

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