Netsuite reported another loss yesterday but you’d hardly know it from their earning’s call. They say the average per customer annual revenue is $38,000. I believe their customer license count was flat (so they lose them as quickly as Sage NA recent earnings reports said they do – http://bit.ly/bHw9wI ).
Except for the use of Cloud Computing this seemed like a similar call that Sage or Microsoft could have held.
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NetSuite is targeting verticals though they didn’t spend much time saying which ones (I believe it’s wholesale distribution, software companies (same vertical as Intacct) and professional services).
The company is definitely moving away from servicing the low end (seemingly those paying $10,000 or under annually) due to churn. They claim that the users they lost were replaced by better (aka higher paying) licenses.
Recurring commissions are 30% (initial sale and renewal) to the channel. Only 20% of sales are through a channel ( a number which I think is unchanged from prior years).
Interestingly if I read the call right – the flagship (aka high end multi-company consolidation in real time) OneWorld offering ended the year with 50 users. Back in April 2008 when it was unveiled ( http://bit.ly/9Ev49E ) they claimed 38. So that’s a growth of 12 in about a 1.5 year time period. I am not 100% certain this is the same OneWorld flavor since on the call they refer to it was OneWorld SRP (services something or other).
UPDATE: I re-read the call and it looks like NetSuite has a product called OneWorld SRP and the 50 users represents those accounts using both OneWorld and Open World. Personally I find these product names too confusing and similar… but then again isn’t that what ERP has evolved to – using smoke and mirrors to sell…
Going forward Netsuite is changing their internal customer account managers so they each manage less customers. Previously it was a 100:1 ratio and Netsuite sees it moving closer to a 40:1. I think this is probably due to increasing complexity of their deals.
Of those buying the suite – 70% implement CRM.
I believe we have one of the best channel programs in the world and during 2010 it will even get better. -Zach Nelson CEO NetSuite
Nothing I read made me think Netsuite was an opportunity for any but the largest VARS with a heavy vertical tilt who would use Netsuite to complement but not be their complete service offering. This is the same thing that has been on display the last two years at the IT Alliance. The NetSuite partners on stage who tell of their experiences are all using NetSuite as a complement to other service offerings (financing, accounting, mergers, venture capital) and not as a traditional VAR model where they sold software/service plus implementation.
I think cloud computing is still coming and as VARS we’ll have to adapt – though adapting probably means developing a model where the services we offer are not the same ones that the publisher will offer (namely support, training, implementation). Unless we can add some “special sauce” there’s little reason to get back on the treadmill of selling a highly commissioned SaaS offering only to see the commission rug be yanked 10 years down the road when growth in the industry slows (as it will).
Read the full transcript:
In truth they are losing them much faster than they add them, Customer adds for the quarter are down by 16% from last year, ASP is up 10% to $38,000 per customer, and revenue is little better than flat versus last year. The only way the math works is with very large churn in the entry level business. Is it 20%? 30%?
one interesting thing. If you look at their list of partners at http://www.netsuite.com/portal/partners/main.shtml – they have solution providers (that seem to sell, support, implement), system integrators (that perform a “business function”) and what looks like ISV's (that develop vertical/horizontal solutions). What is even more interesting is that the latter two, the companies are listed. Solution Providers ARE NOT LISTED – you have got to contact NetSuite first. It goes to show that NetSuite sees their own channel as competition. What is the likely-hood that a customer filling out this form actually gets sent to a partner? Probably close to zero. Talk about channel conflict.