Out From Oracle’s Shadow: NetSuite

Ten minutes on the phone. That’s all it took one day in 1998 for NetSuite (formerly NetLedger) founder Evan Goldberg and Oracle founder Larry Ellison to come up with the concept for the birth of NetLedger, an online, on-demand application service provider delivering accounting software to small businesses.

At the time, neither could have foreseen the disastrous downfall of the dot-coms and associated demise of the ASP industry (define) that came along with it. It was, after all, 1998, and all things IT were hot.

As the slowdown in IT spending really took hold and ASP and dot-coms began to disappear in droves, NetLedger, which was backed by Ellison both financially and as a member of the board, made a deal with Oracle to supply the software that would become the Oracle Small Business Suite (OSBS). But there was a problem.

While the online solution sold well, NetLedger was being slowly but surely subsumed by Oracle. Indeed, for a time, NetLedger’s only product was the OSBS and it needed to retain the Oracle name to attract skeptical buyers, which it did. Thousands of them.

Today, however, NetSuite has a new name and product line that has nothing to do with Oracle.

NetSuite’s “NetSuite” is an integrated CRM (define) plus ERP (define) application, still delivered online but now heralded as an “on-demand” application. Even though it still sells the OSBS for Oracle and Ellison is still the majority stockholder, most of NetSuite’s clients are buying NetSuite, not OSBS. And the company no longer looks to its larger partner for marketing and branding muscle.

“Certainly from a messaging perspective we were very, very integrated into (Oracle’s) messaging about the (OSBS) suite,” said Goldberg, who used to work as a vice president for Ellison at Oracle. “The thing that’s changed, from a positioning perspective, is when we first did the deal with Oracle really everything was focused on the (OSBS) suite. Our entire product line was OSBS for all intents and purposes. But now OSBS is really a relatively small part of the low-end of our product line.”

Goldberg said much of the success of NetSuite actually belongs to Zach Nelson, the company’s CEO and also a former Oracle VP who came onboard in 2002 and immediately, along with Ellison, began rebuilding the company’s identity.

And now that IT budgets are loosening, Goldberg sees a bright future for what was once known as the ASP industry. But, today, while the whole idea of hosted software delivered remotely is the vision of Ellison and many others, it will be the specialty ISVs (define) that take fullest advantage of the “on-demand” model, predicts Goldberg.

“It’s more difficult for an [ISV] with a legacy of client/server delivery to move to this approach,” said Goldberg. “The desktop-delivered applications will be limited to the ones that need the horsepower and graphical capabilities of a Windows desktop application. So things like CAD, it will be a long time before those types of applications are Web-delivered. But a typical application that has a standard interface of forms. Those applications are really going to be rapidly moving to the Web-based approach.”

The next step for the company is to become consistently cash-flow positive. Right now, some months are and some months aren’t. But, if Goldberg and Ellison are right and software ultimately becomes a deliverable instead of a package buy, it could be sooner rather than later. But there is a long road between here and there. Even Goldberg admits legacy apps have a funny way of sticking around.

“Definitely, it’s a line-of-business sale,” said Goldberg. “But we see the CIOs and the heads of IT being on our side and being advocates for us within the company. If I would say what the biggest barrier we see in companies is, generally they have an entrenched application already for doing their finance.”

Adapted from CIO Update, part of the EarthWeb.com Network.

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