NetSuite drills down on Venda deal as run rate passes $0.5 billion

SUMMARY:

Amid other headline numbers,  the one that may have had many pricking up their ears was $50.5 million, the price NetSuite apparently paid for London-based ecommerce firm Venda last week.

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Zach Nelson

The first $100 million recurring revenue quarter and a claim staked to be the first Cloud ERP firm with an annual run rate in excess of $0.5 billion.

Those were the two top line numbers picked out by NetSuite CEO Zach Nelson yesterday as the ERP company announced its Q2 results. But the number that may have had many pricking up their ears was $50.5 million, the price paid apparently for London-based ecommerce firm Venda last week.

At the time no financial information was released about the deal which in turn led to an inevitable degree of speculation which the firm took time out yesterday to quash. Ron Gill, NetSuite CFO, confirmed:

I’ve seen estimates as high as a few hundred million dollars for the purchase price and of revenue in the $40 million range. To bring things down to earth of it, I want to clarify that the total purchase price pay was $50.5 million in a combination of cash and stock.

As you can imagine at that price, the revenue estimates are also well off the mark. We did acquire a great team of people with significant domain expertise, a great product and some wonderful customers, but nowhere near that amount of revenue.

But the value of Venda comes from other things, as Nelson outlined:

I think one of the great things about Venda is the fact that now we really do have critical mass, certainly in the UK with the addition of the Venda team. The Venda location right in central London, all of those things I think will have a big impact on our ability to execute from a distribution standpoint in Europe.

The other aspect of executing in Europe [is that] we have great capabilities in One World today for companies operating really in any country, we have multi-currency, we have multi-language, our tax engine is unmatched in the world in terms of being able to comply with local statutory requirements.

But as you begin to get into some of these countries more specifically, the actual business practices and the customs differ materially. So [we have the] ability to have visibility in sort of the second and third derivatives issues around doing business, and not ecommerce business but any type of business, in places like Germany and France.

I think we’ll have much better visibility into that. We’d able to finely tune our product to look and smell and feel that much more French or German, as the case maybe, as we go to those markets.

I speculated last week that NetSuite might follow Salesforce.com’s example and park its tanks more aggressively on SAP’s lawn in Germany. While Nelson made no specific commitments on the front, it’s clear that expansion plans do include a German advance and the Venda purchase plays into that:

Over time, that will be the next big piece of investment. How do you go to Germany? Well, you go hire German sales people, German consulting, German support. That’s another large investment that I don’t think we have in front of us, but I think the Venda acquisition gives us the foundation to begin to make those investments coherently.

Together but separate

Nelson also expanded on the integration plans for Venda in relation to the wider NetSuite platform:

We already have some customers that are using Venda in conjunction with NetSuite today, so there are some integrations that exist. We’ll certainly continue to support those and we’ll support a variety of deployment options depending on what the customer sees fit.

I think more likely than not, you’ll see customers deploying Venda with legacy systems like SAP, where they don’t necessarily want to replace the ERP system. But every customer has unique strategy and we’ll certainly look to support that and the products that we own.

The Venda purchase does not mean a shift in focus away from SuiteCommerce, he added:

The focus for NetSuite is always the NetSuite core product. So SuiteCommerce globally is really the focus, and what Venda gives us there is the opportunity to invest more from a distribution standpoint in Europe on SuiteCommerce and other NetSuite products.

That said, very much like when we acquired OpenAir, there were large companies, Siemens is a good example in Germany, which is one of our largest OpenAir customers, where they had an SAP backbone and they were going to replace that. So we were happy to sell them OpenAir. So when those scenarios exist, we’re happy to provide a product like OpenAir or product like Venda.

The other thing we’ve seen certainly is we’ve done that historically is getting a foothold in those accounts with any NetSuite branded product. Actually it becomes very important when they do decide to trade out there legacy stone-age SAP or Sage implementation, because they’re already using NetSuite effectively, they’re happy. And when they do come to the ERP replacement cycle, it brings us to the front of the queue. So there were some net positives from that approach as well.


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Nelson also played up what is pitched as a competitive differentiator between both SuiteCommerce and Venda and other ecommerce offerings:

SuiteCommerce applies really to not just B2C environments, it applies almost across all of our industry groups. So you’re seeing the new B2B portal being used in our manufacturing vertical as manufacturers begin to want to do B2B transaction through an incredibly functional and beautiful website.

He cited the State of Texas as a case in point:

You’re seeing the government agencies wanting to do effectively commerce applications, but in that case to their internal audiences. So the big difference between SuiteCommerce and really every other solution on there it’s not just omnichannel, which we’ve nailed with the integration of our retail point-of-sales system and the SuiteCommerce capabilities, but also omni-business model, B2B, B2C.

So we certainly look at SuiteCommerce on a standalone basis, bSuiteCommerce also gets sold almost across all of our verticals.

Manufacturing and distribution, obviously B2B and many of those guys are expanding with B2C models as well. You’ve now seen government roll it out, and then certainly retail. So it’s a really broad application of the technology, and that’s why we say, we don’t believe omnichannel is a retail problem, it’s an every company problem.

With Microsoft’s declaration that no-one serious does cloud ERP still one of NetSuite’s favorite reference points, it was interesting to hear Nelson argue:

We’re early in all of our ERP cycles frankly. If you just look at our market share, we’ve crossed over recently on the Gartner Financial Management Systems chart into the Top Ten, but we have a lot of room to go on the market share for us. So I think that…it’s just beginning.

But the good news is that if you look at left on that market share chart and the right on that market share chart, you don’t see a single modern cloud-based application. And that’s I think the big thing that you’re seeing. You’re even seeing it from the guys who don’t have the modern cloud-based applications, all they talk about is cloud. So guess what, all anyone thinks about now in terms of deploying any application is cloud first.

That’s probably the most important thing you’ve seen happen over the last year industry-wide is you watched the SAP advertising, the Microsoft advertising, the Epicor advertising [say] it’s all about the cloud.

To me that’s a reflection of what their customers are telling them. And we’re certainly seeing that’s more customers. So I think you could be entering a period of accelerated adoption of solutions like NetSuite.

Now, again, ERP solutions are always slower to move in. I put that caveat on there, it’s the heart transplant, but more and more hearts are getting fixed certainly as every company tries to move its business to the cloud.

You really need a system that looks more like NetSuite. So I think we’re still in early adoption, but it’s clearly becoming rapid early adoption now.

 My take

A heavy focus again on growth over profit with some good revenue growth numbers to vindicate this approach.

As I said last week, the Venda move seems to me to be win-win all round and the additional clarity from Gill was welcome.