I have seen way too many large vendors under-leverage their acquisitions. They mostly benefit from the incremental revenues but lose talent and value of the acquired IP. The week prior, I was impressed by how Rob Enslin has started to coalesce SAP’s cloud acquisitions like Ariba and SuccessFactors, and how that group of business unit leaders leverages each other and the “bigger SAP” as one called it. It has taken SAP years to get there, so I was curious how Oracle is doing with NetSuite a year into the purchase as I went to SuiteWorld in Las Vegas. But I did not have to pry much. NetSuite and Oracle executives were eager to share how the integration is going. It is going well enough for Phil Wainewright to call it a love affair.
Here is my analysis:
After the acquisition was announced last year, Oracle co-CEO Mark Hurd suggested a demarcation of customers with less than 1,000 employees as the likely NetSuite “sweet spot”. SuiteWorld reflected that tighter focus at NetSuite. 81% of companies represented at the event had less than 1,000 employees. Unlike in prior years, there were few large Qualcomms or Shaw Industries (the world’s largest carpet manufacturer) on stage. There were few large SIs in the partner pavilion (one exception – Deloitte was a “Titanium” sponsor)
The theme of the conference was Growth which is a hot button for most SME executives. The keyword showed up everywhere at the event, even on seat cushions! In several slides in EVP Jim McGeever’s keynote NetSuite associated itself with fast-growing companies.
I have a feeling the demarcation will be increasingly blurred. In certain global markets, the NetSuite brand will actually play better even with larger customers than Oracle’s cloud applications. In other markets, the NetSuite offering is far better integrated than Oracle apps which are more positioned along market categories like HCM and SCM. How Oracle handles the boundaries for NetSuite will be interesting to watch. The good news for now is in the current sweet spot, NetSuite can easily become the 800 pound gorilla in the SME market.
Significant growth in global footprint is the biggest boost NetSuite has seen from its new parent. While NetSuite execs proudly bandied the fact that customers have deployed their product in 199 countries (even though NetSuite only has offices in 15), to me the progress they are making in China and other emerging markets is far more encouraging. Another is NetSuite’s ability to leverage Oracle’s growing cloud infrastructure, as they plan to with a German data center this year.
What I would like to see more is around “two-tier” deployments. Many MNCs would like to deploy a lighter package like NetSuite in their smaller markets, with necessary integration with their Oracle (or SAP) at regional and global headquarters. Today, they have to do the plumbing on their own. Oracle and NetSuite could potentially make that a no-brainer with some investment on their part.
This is an area where NetSuite has been cautious to not match Oracle’s reach. Oracle with its databases and infrastructure touches every vertical under the sun.
I had a one-on-one with Paul Farrell, VP Product Marketing to discuss the industry focus at NetSuite. He re-affirmed industries NetSuite has previously committed to including software, services, advertising and media publishing, not-for profit, manufacturing and wholesale distribution. He also said “We have an industry that we call general business where we primarily sell financials. But these can also be incubator industries.”
What was more interesting was his comments on “micro-verticals” – deeper in or adjacent to the sectors above. He called it “a bowling pin approach”. Pins knocked down increase coverage, and often help knock each other down. So, the move in retail into health and beauty shops leverages traceability features from process industries. But the micro-vertical coverage is gradual. Paul, told me in manufacturing they focus on high-tech not “oily” sectors. About aerospace he said they did not see enough of an OEM market. I cannot fault NetSuite for being disciplined for now – as EVP of Development Evan Goldberg told me “we have barely penetrated even 5% of the markets we are focused on”.
The reality is the verticals NetSuite and its cloud ERP and CRM peers have developed “books of record” for leave massive sectors such as utilities, insurance, hospitality and healthcare mostly untouched. That’s a lot of white space for new entrants to target.
NetSuite has data from 40,000 customers in the cloud, while most of Oracle’s application data is scattered around on-prem locations of its customers. On the other hand, Oracle has a growing cloud infrastructure around the world and an impressive stable of data scientists and machine learning experts. Towards the end of his keynote, Evan showed the promise of the best of NetSuite and Oracle coming together in unique use cases like “Searchandizing”
They have to play the party line and they did say the right things about Oracle Cloud Infrastructure (OCI) , but NetSuite execs have to be a bit wary that Amazon, Microsoft, even Google, IBM and Alibaba have more traction than Oracle in the IaaS market. Not much they can do about it, other than leverage the infrastructure to their much larger cloud customer base.
During a Q&A, Mark Hurd was asked where he would invest his life savings – in quantum computing, an Elon Musk type Mars colonization expedition or to reverse aging. He smartly, and with a fine sense of comedic timing, deadpanned he would invest in Oracle stock. I would venture to say if another NetSuite came along he would likely consider investing in it.
This has been fruitful and educational relationship so far. Ok, maybe even a love affair.
(Cross-posted @ Deal Architect)