SuiteWorld reveals cloud computing ERP’s mainstream moment
NetSuite bloomed this week, in part because of a very well produced user meeting, SuiteWorld, held in San Jose but also because there can no longer be any doubt that the market for ERP technology is turning to the Cloud.
What was once unthinkable — that ERP could or would ever be delivered as a cloud solution — has been gaining acceptance over the last couple of years and NetSuite has been the most aggressive of ERP vendors at promoting it. According to CEO, Zach Nelson, the company’s revenues, cash flow and profits are up significantly year over year and the company is projected to operate at a run rate of more than $400 million by the end of its fiscal year.
Negative growth rates at other ERP companies, notably ERP enterprise leader, SAP, whose license revenues declined more than nine percent according to financial analysts from Barclays, speak volumes and contributed to the overall good news for NetSuite. Cloud based ERP is now a value proposition that competes so well that many companies are taking the plunge rather than renewing maintenance contracts with the ERP leaders.
There’s nothing surprising in this. Much the same thing happened in CRM and today all CRM vendors have some form of cloud computing solution that they can promote when seeking new business. They may say they offer hybrid approaches but if you review my last two posts on the subject — “End of the Beginning” and “IT’s Ethical Dilemma” — you might conclude that hybrids are not much more than a fig leaf for those who need to defend their on-premise virtue.
The reasons for the surge in cloud ERP can be traced to market dynamics. The early adopters and early majority buyers have spent the last dozen years buying and installing cloud ERP and now that they can prove success, there appears to be a stampede forming to bring the later adopters into the fold. This is also not controversial. If we’re passing the inflection point of this market, the second half will happen at about twice the rate of the first. My contention is that only very specialized and conservative companies will persist with exclusively premise based ERP roughly three years from now.
Of course this does not mean that premise based ERP will simply go away. Companies like NetSuite and Microsoft have developed surround strategies that might keep premise based ERP going for a while but I would be surprised if there were many net new premise based ERP implementations from here on. The condition will mimic mainframes. There are many still in service but who buys one these days?
All this is not to say that NetSuite is acing the exam, though they are the smartest kids in the class. I’d prefer to see them take an approach that recognizes the importance of best of breed strategies for one thing, and for another, their CRM stance is, to put it mildly, puzzling.
Company founder, Evan Goldberg, and CEO, Zach Nelson, both extol the virtues of SuiteCloud but mostly as a customization vehicle. In fact it is that but it is also a primary integration hub for partners and thus the moral equivalent of a platform in the Force.com mode. I suspect, though, that the company’s approach to SuiteCloud plus its messaging about offering a single integrated system is more out of respect for a customer base that consists of finance and operations people whose job is to make the trains run on time. Leave the swashbuckling social media, best of breed, and customer experience messaging to the likes of Marc Benioff and Salesforce.com for the time being, we have bigger fish to fry, I think, is the unwritten assumption.
Speaking of all things CRM, there was an interesting exchange between my esteemed friends Esteban Kolsky and Zach Nelson over NetSuite’s CRM position. Kolsky inquired at a press conference why Nelson paid so little attention in his keynote presentation to CRM (a true statement). Nelson returned serve and opined that the ERP system is the real customer relationship management system for the obvious reason that it contains real “customers” i.e. mortals who have placed an order whereas conventional CRM as we know it is really a prospect management system.
Messrs. Kolsky, Paul Greenberg, Brent Leary and myself might have begged to differ and in fact, the debate about the C in CRM was settled while Mark Zuckerberg was still in college. But let’s cut this baby in half. Nelson has a point about customers and given his company’s focus on eCommerce as a logical extension of ERP and its function as a customer facing solution, his argument does hold water.
However, this fails to explain how Nelson’s ERP customers handle, let us say, their proto-customers or prospects for that period of time when they are interfacing with a company, on its event horizon so to speak, but have not yet placed their first orders. For them the answer might very well be Salesforce.com, which explains the importance I attach to SuiteCloud and all the rest. I suspect it is also one reason that Accenture, Deloitte, and Cap Gemini have devoted practice areas to the cloud and NetSuite. Nice hat trick, Zach.
But that’s small potatoes in the big schema. For now let’s say that ERP is hard to do and this has contributed to NetSuite’s relatively slow start compared to Salesforce. Both emerged from a discussion in Larry Ellison’s office as legend has it but Salesforce is a multi-billion dollar company today while NetSuite has a run rate of about $400 million. ERP might be hard but its time in the cloud is at last here and I look for more good news from Goldberg, Nelson, & Company simply because it’s now their time and because they’ve done the hard stuff to make their solution viable in a demanding market.
From time to time I accept free travel and accommodations from vendors so that I can attend their conferences. You ought to know this by now but it bears repeating. NetSuite paid the freight FOB Boston and covered my expenses for SuiteWorld. It was an enjoyable experience that, nevertheless, did not influence my ability to write objectively about what I saw. What kind of analyst would I be if it did?
Yesterday Zuora, the billing and payment solution company for subscription businesses did a smart thing, at least I think so. At NetSuite’s user meeting, SuiteWorld, Zuora chief Tien Tzuo announced that his trademark product is now pre-integrated with NetSuite’s financials. But that wasn’t what’s smart, only the thing that enabled the thing that is smart.
You see, Zuora comprehends a business problem that is bigger than the solution it can provide on its own. Subscription billing is a different animal from conventional billing for products. It’s as different as a horse and a zebra. They might look the same through a picket fence but you wouldn’t want to saddle a zebra.
Subscription billing is like that. Each type of vendor has to attend to all of the details of the customer relationship that impact billing. But where a conventional vendor might sell a product and bill in full, the subscription vendor sells a potentially different product every time the customer decides to change the configuration. One of the powerful aspects of selling subscription services is that by reconfiguring them you can deliver a potentially different branded product — if your billing system can keep up.
There are subscription costs that we’re all familiar with like the number of seats deployed but that can change at any time. There are also any number of one time fees and costs that may not fall in the same billing cadence as the subscription. It goes on and on and it gets funky.
There is also the little issue of renewal. The product vendor thinks in terms of cross sell and up sell but the subscription vendor thinks in terms of all that plus keeping the customer — every day. I have seen data that says that customers base their loyalty decisions in part on how easy their vendor is to deal with and billing is one of the key points of contact post sale in the subscription world. There are different metrics that need to be tracked too — monthly recurring revenue, total customer value and the just alluded to churn.
Vendors of all stripes have discovered how hard this nut is and early subscription vendors wrote their own billing systems because there was no other game in town. But as much as Zuora is a good fit for subscriptions, it still needs support from CRM for effective sales and marketing and back end financials for managing the customer payables and then some.
So, Zuora’s bit of brilliance on display at SuiteWorld has been its admission that it needs other solutions to deliver to the customer an end-to-end solution and then delivering its part.
This is very interesting to me. Several years ago I thought the same kind of convergence needed to happen in sales (still do). SFA was and is the workhorse solution for sales but it is increasingly ill suited to the demands of this marketplace. Solutions from a great variety of sales enablement vendors offer help to consolidate an end-to-end process. But people on both sides of the divide seemed cold to the thought of declaring a process and one’s alliance to it.
Now, to be fair, just about every sales enablement vendor has integrated with Salesforce and at least some of the other SFA products and in those parts of the world something like an integrated end-to-end solution exists. But the end-to-end sales process is still elusive in many cases, I think.
A few weeks ago I gave a short talk as part of a webinar for Sage. The subject was CRM and why small companies need it, as they surely do. In it I said that we treat our money very well in business by way of ERP systems. We know what’s been sold, to whom, for what, when it was delivered and when the money is due. In contrast many companies still track future money — a.k.a. the sales process — on random scraps of paper and in idiosyncratic documents.
The Zuora-NetSuite announcement is important because it goes after that discrepancy. Zuora, with its new connector as well as its Z-Force connector to Salesforce offers the promise of uniting front office processes in a choice of Salesforce or NetSuite CRM and NetSuite financials on the back end thus delivering the end-to-end process that I crave. I suspect I am not alone.
So good on them — all of them — as my Aussie friends might put it.
NetSuite has been putting on a rather good show at its user, press and analyst meeting and I will have more on that in a separate post.