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This hasn’t exactly been a stellar earnings season for enterprise software companies, but cloud software provider NetSuite managed to defy the prevailing winds with its Q2 earnings, which grew substantially and handily beat analyst expectations.

Take a breath, because it may be months before such words are written again.

Put all other inconvenient facts (like missed targets) aside for a moment and consider these most recent quarterly Software-as-a-Service (SaaS) numbers: 35 percent growth in top line revenue for NetSuite; 28 percent growth in Salesforce revenue; 171 percent growth in SAP cloud revenue; 61 percent growth in Workday revenue; Oracle HCM (human capital management), CRM and ERP cloud revenue were up 50 percent.

Also consider that NetSuite’s numbers aren’t an anomaly. Last quarter, the company’s revenues grew 32 percent, and all of its key financial metrics beat analyst expectations. Its stock has been trading in the 90s — an all time high — for the better part of the last quarter. Workday’s stock price has been hovering at its highest numbers (near 70) within the past month also.

Just so there’s no mistaking the point, there’s been a shift afoot. The point might seem predictable, and the making of it perhaps even condescending to those plugged into the cloud hype, but it has hardly been a foregone conclusion.

Even taking together the full year outlook and annualized run rate numbers (just to be generous) of the biggest enterprise cloud software providers (including the SaaS part of Microsoft, but excluding companies like, say, Jive Software or Adobe) and maybe the number stretches to about $10 billion annually.

That is a mere fraction of the overall enterprise software market, which Gartner projects at $304 billion for 2013. IDC predicts that cloud software spending will reach $67.3 billion by 2016, accounting for just 20 percent of software spending.

In other words, before spending the rest of the summer singing funeral hymns for the bedraggled software makers, let’s acknowledge there’s still work to be done.

NetSuite has done the hard work, selling ERP SaaS for 13 years, serving mostly small and medium-sized businesses in handful of industry segments, where its competitors have been companies like Sage and Microsoft (mostly Microsoft’s Great Plains ERP software, acquired in 2000), and deal sizes have been in the five- or low, six-digit range.

But now NetSuite is starting to move up market. CEO Zach Nelson says his company is now bumping up against SAP, for whom ERP has been the crown jewel. (Disclosure: Nelson is an investor in PandoDaily and while he and this writer can both trace ancestry to Sweden they are, as far as they know, not related.) Nelson says he means NetSuite is competing with SAP’s core ERP software, not just SAP’s Business ByDesign, the cloud-based product SAP created for mid-sized businesses, and which Nelson claims has failed three times (SAP says Business ByDesign has more than 1,100 customers, but yes, it sure has gone through major reconstructive surgery and even self-flagellation).

During NetSuite’s earnings call on Thursday, and in one-on-one conversation, Nelson ties this evolution, in part, to the company’s OneWorld suite, a more horizontally-focused version of the company’s ERP solution designed to help multinational corporations manage global business processes and financial consolidation. It supports hundreds of currencies, multiple languages and dozens of tax and compliance entities.

Nelson also points to NetSuite’s success in what he terms “two tier” implementations, where a larger enterprise keeps running its core business on SAP or Oracle ERP, but finds that solution overkill for departments or subsidiaries, which subsequently turn to NetSuite. The average deal size for NetSuite is up 20 percent year over year.

Not surprisingly, Nelson believes on premises software is a dead end. “If you’re not building on a cloud-based infrastructure, you’re not going to be competitive in the modern world,” he says, and not just because the cloud is a more cost-effective software delivery mechanism, but because it can help companies transform.

Nelson draws the distinction between cloud-based solutions and an on premises solution like SAP, whom he is constantly obliged to use as his “before” picture: The SAP ERP back end is “designed to prevent access from outside the firewall; it is actually designed not to communicate; payment data, invoice data, order data can’t be exposed [to customers],” say to track a shipment, or ensure payment.

The cloud changes the customer expectation, Nelson says. “Whether you’re a business buying from a business, or you’re a consumer, the web site should treat you as if they know everything about you.” Traditional retail businesses used to have a completely different infrastructure for what was in the store and what was on the web site. NetSuite consolidates the back end and just changes the front end experience depending on whether the customer is in store, online, or using a call center, he says. “That experience will be impossible to deliver with SAP.”

(Impossible is a strong word; perhaps expensive to build and integrate.)

CIOs have become more bullish on the cloud but they are still cautious. Many want the flexibility to move some applications or workloads to the cloud, to change the software delivery model incrementally. SAP and Oracle are offering just that in hybrid software models, but pure-play cloud companies aren’t.

Since NetSuite uses the Oracle stack to run its cloud and deliver its application experiences to customers, it wouldn’t be a stretch to deliver NetSuite in a hybrid model. Nelson admits that NetSuite’s architecture would allow for this, but the company has “never given into the temptation.” The problem with the hybrid play, he says, is that “SAP is never going to build a true cloud solution if they do that . . . [they are] still on the drug of selling systems that you use and manage yourself.”

As impressive as NetSuite’s growth has been, it has still taken the company 13 years to become a $400 million company (which it will easily exceed this year) — about equal to Larry Ellison’s annual personal real estate budget. But Nelson is patient. ERP, he says, is the most crucial piece of software, and it’s difficult to build. “There’s no shortcut.” In other words, nobody’s going to catch up; time is on NetSuite’s side.

Changing out CRM is easier, Nelson says, comparing it to a knee replacement: “if it didn’t work, the patient didn’t die.” But ERP is like a heart transplant: it’s a core business system, a “very considered purchase.” Kenandy, an ERP SaaS startup built on Salesforce.com’s Force platform will never perform, Nelson says, because it is built on an abstraction layer.

While NetSuite keeps growing at a 30+ percent clip, it is also collecting cash, adding an expected $55 million to its coffers in 2013 (total cash should be about $455 million). NetSuite has made a number of smaller purchases over the years, and Nelson says that while he won’t ever rule out a large acquisition, his preference is to buy domain knowledge — that is, building out the technology’s capability deeper into vertical markets, where the company has had so much success.

Meanwhile, deals coming from systems integrators like Cap Gemini and Accenture will likely begin to kick in, Nelson says, and these will likely be toward the higher end. NetSuite also grew its headcount 44 percent from this time last year, on both the sales and the product side.

It’s hard to argue with success. After many quarters of growth, maybe it’s time to stop saying “we’ll see.”

Image: Glassdoor