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.

FULL DISCLOSURE: Schulz Consulting is a Sage Business Partner so we are not independent or impartial with respect to our thoughts. Use the information here as the starting point for your own good independent thinking and forming your own conclusions.

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:

NetSuite Earnings Call via Seeking Alpha

The numbers are just arriving overnight from UK and it’s really tough to tell whether they mean a heck of a lot given this crappy economy.

The US had a 10% revenue decline (net earnings seem ok and have been kept afloat via cost cuts) with a 20% EBITA.

Most interesting is the commentary in Sage’s regulatory filing which indicates they’ll be going after the support area with renewed vigor. This is something VARS who’d been paying attention already figured out in August when Sage appeared to outsource nearly their entire maintenance and support area.

The company taking over the North America support and renewal effort, ServiceSource, appears by their web site to be largely a commission based services (support/maintenance) renewal company raising speculation from multiple partners that Sage’s renewal efforts could become increasingly aggressive.

Since most VARS make the lions share of their money from service and support, any move by a vendor to cut off this revenue stream would likely not be greeted with open arms by the VAR consulting channel.

My read on this (between the lines) is that we will see Sage re-doubling their efforts almost immediately to sign users to added telephone support agreements in addition to software maintenance agreements.

Personally I think that’s a tougher road for Sage US to travel as their marketing of support puts them directly into competition with their channel.

I LOVE the part about re-invigorating the channel….selling support against them certainly would do that!

Here’s the wording from the Sage UK site:

http://www.investors.sage.com/news/regulatory_announcements/?id=55685

North America

Total revenues in North America contracted 10%* to £576.4m (2008: £637.3m*), reflecting the difficult economic conditions. Organic revenue contracted 8%*. Organic subscription revenues declined 2%*, while organic software and software-related services revenues declined 23%*.

Phase 1 of the changes to our North American business has been successfully completed with the new management team in place and an appropriate reduction of the cost base. Operational improvements planned in Phase 2 are underway including reinvigoration of the channel, growth in premium support offers and several product launches. We are making good progress in these areas and have seen increases in customer satisfaction scores across our product lines.

Sage North America is organised into 3 divisions, Sage Business Solutions Division (“SBS”), Sage Payment Solutions Division and Sage Healthcare Division. SBS declined organically 11%*, the downturn particularly impacting our mid-market accounting products, CRM products and Sage Timberline Office which serves the construction industry. Our entry-level accounting products (Peachtree and Simply) delivered resilient performances with continued growth of Peachtree Quantum. Non-Profit Solutions performed well in the challenging market conditions and grew modestly. Sage Payment Solutions Division saw a 15% increase in the number of merchants served but lower volume per merchant leading to a fall in revenue of 4%*. Payments revenue from cross-sell to our existing customers grew, from a small base, by over 100%* in the year and we regard this as a substantial future opportunity for Sage.

Sage Healthcare Division has improved its EBITA† margin in the year to 17% (2008: 8%*). We have improved customer service levels and so reduced customer losses in our Medical Manager base. Although Healthcare revenues declined overall by 5%*, revenue from the Intergy product line, including Electronic Health Records (“EHR”) capability, grew by 13%* to £71.2m. Intergy, with its accredited, market-leading EHR solution, is well positioned to benefit from incentives within the American Recovery and Reinvestment Act for the adoption of EHR.

The EBITA† margin of Sage North America, including restructuring charges of £10.7m incurred in the year, was 18% (2008:18%*). Excluding restructuring charges, it was 20%.

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Sage Announces 2009 Earnings

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