According to this story, the fly in the ointment for getting the Oracle acquisition of NetSuite completed is a large institutional shareholder, T. Rowe Price. While I know some people at NetSuite we haven’t been talking and I have not been following the situation very closely. But as an outsider looking in, it seems like Price might be trying to apply some M&A techniques from the late 20th century to squeeze a few more bucks out of Oracle. Good luck with that I say.
While it’s normal to want to optimize or even maximize a deal, Price might be on a fool’s errand given the numbers involved. I am not talking about the $9.3 billion price tag for the acquisition. I am referring to the fact that deals like this have piles of analysis that support the price set by the offering party. Sure there’s some grey area and deals have been known to be sweetened but I don’t think this is going to happen this time.
Larry Ellison’s part ownership including friends and relatives is substantial but not a majority. Since Ellison also owns a significant part of the acquiring party he’s got a dual responsibility to ensure he gets a fair price and that he doesn’t over pay. If he fails in either responsibility there will be stern discussions in one boardroom or another.
So at this point I think it is what it is. The offer expires on November 4 and while it may look like a game of chicken between Ellison and Price, I have a feeling that Ellison isn’t losing any sleep.
You had to believe this day was inevitable. Oracle announced it was buying NetSuite a cloud ERP provider with over 30,000 customers worldwide for about $9.3 billion. Oracle founder, Larry Ellison also had a large part in founding NetSuite including being one of its top investors. I have always looked at it as Larry’s experiment in cloud computing and I think that is key.
Eighteen years ago, when NetSuite got going, Oracle was already a very big company dominating the relational database market as well as the market for enterprise business applications. Oracle’s challenge then was best summed up in Clay Christensen’s book, “The Innovator’s Dilemma,” though it never mentioned Oracle or NetSuite explicitly. The dilemma being when should a successful company consider cannibalizing its own business to avoid enabling new entrants to the market to do the honors.
The dilemma stems from the fact that successful companies had, until the last 20 years, been loath to change their secret sauce, the thing that made them successful. But a series of disruptions initiated by cloud computing pioneers like Salesforce, showed that standing pat was as dangerous as playing with matches around your balance sheet.
So that was Oracle’s dilemma and you could see it unfolding as then CEO and founder Larry Ellison carefully launched what was then called NetLedger under the leadership of trusted lieutenants Evan Goldberg, CTO and founder, and Zach Nelson, CEO. NetSuite was a lifeboat strategy intended to provide a safe place to pour customers, cash, and expertise if the need ever arose.
As a startup NetLedger morphed into NetSuite and had far less overhead and bureaucracy to contend with than an established company like Oracle and so its innovation cycles were quick and nimble. Taking no chances, Oracle plunged ahead into cloud computing building its own platform and applications, which would eventually displace its traditional products. It also bought a slew of other cloud companies too because buying companies is less risky than trying to fund a similar amount of development in house.
So in this regard, buying NetSuite can be seen as just another cloud company acquisition by Oracle but it’s much more than that. It’s the culmination of long-game thinking—precisely the kind that few public companies can invest in today given the short time horizons of quarterly earnings reporting.
This long game approach is what critics lament is no longer practiced in the Fortune 500. But today, one of the founders of a Fortune 500 company (#77 if you are counting), a brash, fast talking, America’s Cup winning, technology industry showman, pulled a rabbit out of his hat. This shows that planning and execution still count for a lot in business if you know how to adapt.
End of year brings out some interesting goodies from various workshops competing with Santa for big kids’ attention. Some of it is pretty good stuff. Here’s a sampling of the best end of year product announcements from the cloud community designed to put you in the post holiday, already-back-at-work spirit.
Xactly, the sales compensation experts in the cloud, announced Xactly Inspire the other day. It’s the kind of tool that managers will love because it gives them both insight into what’s happening in the sales funnel while providing advice about how to use it. For a very long time, sales managers could have one but not necessarily the other so this announcement should please the sales manager who has everything except quota.
This cloud-based coaching and on-boarding solution enables managers to monitor and predict sales activity based on the data flying around in the SFA and compensations systems. So what, you might say, we could always do that in sales meetings, what’s the big deal? Ummm, it’s the meeting part that I think is most interesting.
We’re always talking about ways to boost sales rep productivity but it rarely dawns on us that one less meeting could do a lot to put reps in the field and maintain their managers’ sanity and blood pressure. This is essentially an analytics application designed to derive meaning from the chaos that is sales—something that could actually accelerate the sales process. So, I’d give this innovation 5 out of 5 reindeer in my magical mythical year-end scoring system.
Yes, we’re not going in alphabetical order this time. I do this to discourage entrepreneurs from naming their companies AAAAsoftware and the like, an idea that comes directly from the analog world of the yellow pages and bail bondsmen.
Anyhow, NetSuite has for many years aimed at providing a back office suite in the cloud that enables any size of enterprise to manage a global empire completely in the cloud from any terrestrial location. That’s a tall order considering business models, ecommerce strategies, currencies, languages, accounting rules, and global opportunities.
NetSuite has just put a marker down on a slew of new and improved products with names like Multi-subsidiary management, Multi-location inventory management, Multi-book accounting, global item and vendor records and more. I don’t understand some of this but it looks like the people who need to, indeed do.
NetSuite is on the threshold of being a billion dollar company and this functionality should do a lot to propel it to that club. If you’re counting, that would be 2 billion-dollar companies for Larry. Not too shabby. NetSuite has been a solid 4 out of 5 reindeer company for a long time but this introduction deserves an extra Rudolph so it’s 5 out of 5 for me here.
Several years ago Salesforce passed a tipping point, which makes it virtually impossible for it to not introduce products, so big has its footprint in platform technology become. It also doesn’t hurt that Salesforce buys compatible companies with leadership teams and technologies that bolt together into its vision.
One of its latest wrinkles is to offer an array of solutions for both the enterprise and the SMB markets, the better to maintain its pricing at the higher end, I think. This week, Salesforce introduced Opportunity Management for its SMB service and support offering, Desk.com. The idea is on solid footing. In small companies especially, employees wear multiple hats, the situation is more fluid and people take on the responsibilities that excite them, at least in my experience.
Opportunity Management for Desk.com relieves service people from the bureaucratic overhead of telling customers that they can’t take an order but that they can connect you with the sales desk which will only place you on a brief hold with—pick your least favorite music, it’s always there.
Seriously, though, the lines have been blurring for a long time between sales and service and this introduction simply follows the trend of enabling SMBs to be more responsive to commonsense customer needs. Another solid 5 out of 5 Reindeer performance for the company.
Speaking of commonsense, the Selfie-mirror provides a bit of comic relief just when you might need it. Not in line with the holidays, my first impression of the mirror was straight out of the Brothers Grimm—“mirror, mirror on the wall…” that should be enough to give you the concept though you can get more here in a short video. Is this finally the future of the telephone beyond your pocket?
The futurist in me saw huge possibilities. The mirror has an HD camera, hi-fi sound, and Internet integration built in. Some of its uses include recording and transmitting anything you record in the mirror, which would make video blogging or social media participation a snap. The mirror also has home security benefits that enable the user to monitor anything happening in front of it at any time.
What’s impressive about this, to me, is merging multiple advanced capabilities into a single product unimaginable just a few moments ago. It is a great example of niche creation and of supply creating its own demand. Selfie Mirror gets 6 out of 5 reindeer for innovation. Don’t ask me how you get 6 out of 5, it’s part of the magic of the season. Enjoy yours!
Sage and Salesforce put on a love fest on Tuesday to announce their partnership in which Sage has developed Sage Life, a product to enable small companies to connect their “customer, accounting, payroll and finance data into one system, accessible from any device, anywhere,” according to the press release. The wording leaves it unclear if the customer data is held in Salesforce’s traditional CRM or if it refers more broadly to ERP data. Sage Life will be out later this year and will likely be shown to the public at Sage Summit, a user meeting in New Orleans in July.
The shared press conference between CEOs Stephen Kelly of Sage and Marc Benioff, Salesforce, shed no new light on the continuing controversy over whether Salesforce was being pursued by a third party as an acquisition. For all we know Salesforce is or is not being pursued by an anonymous third party but certainly all of the likely contenders—i.e. vendors who can afford such an acquisition—have demurred when asked.
The fireside chat was held at a restaurant not far from Salesforce headquarters in San Francisco. Even if this was not the acquisition announcement many had expected, it was still certainly a news-worthy event. Sage is the second largest software company in Europe behind only SAP and the vast majority of its customers—85% according to Kelly—are still users of on-premise computing solutions to run their small businesses. This should be seen as a significant opportunity for both companies.
For Sage it is a significant upsell opportunity, albeit one that will go through its resellers. The danger for Sage is that its partners or customers will abandon the brand in favor of other cloud solutions such as NetSuite, FinancialForce, or other cloud solutions. On the other hand, Sage’s huge installed base represents a large community of potential users of Salesforce’s platform, Salesforce1 upon which Sage Life and any future products would be based.
Kelly was careful to note that he regards Sage customers as customers for life and that he wants to be their supplier into the future. It was his way of telling them that while cloud computing is the future of the industry, Sage would not be twisting arms to get its customers to upgrade. This is both good business and fine logic because it will take time to educate and motivate Sage’s existing partners to make the switch.
Still Sage Life offers many modernizations that Sage customers might gravitate towards such as its ability, thanks to Salesforce1 to integrate collaboration, social, and an array of other apps on a single handheld device. Significantly, Kelly said that the new application and its underpinnings is as important as the introduction of the iPhone for his customers.
Benioff had no comment when asked about potential acquisition rumors, a position which he, as the CEO of a publicly traded company must take to keep from running afoul of the SEC and Justice Department. Nonetheless, Benioff’s demeanor and business casual dress suggested that this meeting would not produce the kind of news some had expected. When asked specifically about Microsoft, a company once rumored to be a suitor, Benioff praised CEO Satya Nadella as an, “Incredible partner,” for his openness and the mutual effort to get the two software giants working together over the last year.
Benioff noted that Nadella’s Microsoft, is the “old Microsoft” that would reach out to software development partners to help them incorporate its products—such as office, Azure, Outlook—deep into their own to provide users with a well integrated experience. This is a posture that Nadella has taken with other software companies including NetSuite just last week in making a joint announcement during SuiteWorld. Some had seen this as a flirtation that would precede acquiring Salesforce but they were likely reading too much into the gesture.
At the same time, there was no mention of a Salesforce purchase of a minority interest in Sage, from time to time Salesforce has taken a minority position in other software companies; but not today. Others, like me, had expected this to be part of the announcement. For the most part the Q&A centered around relatively safe topics such as the need to treat customers well, the powerful combination of Sage and Salesforce in the market, and Kelly’s coming effort to transition Sage’s business model to reflect the recurring revenue aspect of cloud and subscription models.
It will be interesting to see if Sage Life is only the first of multiple cloud offerings based on the Salesforce1 Platform, or a one off. A lot depends on being able to convince partners that the time to get to the cloud is here, even for them. Failure is not an option for this transition and if the current partner base fails to seize the moment, Sage may have to consider either new recruits or a different business model.
It takes prodigious amounts of moola to launch a company these days and that’s especially true when trying to insert a new idea into the collective consciousness. Salesforce spent well over $100 million to convince us that SaaS CRM was real, Zuora has raised nearly 2X that amount defining the subscription economy, and cloud ERP is following suit.
Today FinancialForce, a cloud ERP provider based on the Salesforce1 platform announced a financing round of $110 million from lead investor Technology Crossover Ventures (TCV) and Salesforce Ventures, Salesforce’s corporate investment group. This follows on the heels earlier this quarter of smaller investment announcements by CPQ providers Apttus, and Steel Brick. So what does it all mean?
I think you need to pay attention to the concentration of money and deals in a tight space of ERP and related back office apps. They’re all cloud companies and it strikes me that the investment community is making a decision about ERP granddaddy SAP in the process.
SAP has tried several times to bring forth a suite of front and back office solutions based on modern cloud technology and they’ve been only modestly successful. Microsoft has made greater strides in bringing its multiple ERP products closer to the cloud but progress has been measured. Time’s up and small ERP providers like FinancialForce, IntAcct, and not so small NetSuite have been gathering strength over many years. The economic conditions are right and the market is, I think, making a call that there’s no more runway for legacy ERP vendors to get to the cloud; it’s time to seek out the next generation of solutions.
The succession plan for replacing legacy ERP is well under way with a surround strategy that first positions cloud ERP as a helper application that can consolidate data, process it, and feed it up to the legacy system. This is a meta-stable state and will eventually result in the surrounding solutions supplanting the legacies, achieving over time what a much despised rip and replace would ordinarily accomplish without all the wailing and gnashing of teeth.
Much of this is still in the future but for now, FinancialForce has taken an important step in preparing for a larger role in what is likely to be a big fight. The objective of the fight will be to secure stable cash generating relationships for many years to come.
Finally, more than once Marc Benioff, CEO Salesforce.com, has said he had no interest in building ERP but it looks like ERP is coming to his company regardless via the powerful platform technology, Salesforce1, that his company provides. Apttus, FinancialForce, Steel Brick, and other financial apps all coexist with Salesforce1 and some, like FinancialForce, are completely rooted there. Their success is also great validation for the platform.
I’d really hate to be a legacy ERP provider today.