NetSuite heads into SuiteWorld on solid quarter and Gartner data points

SUMMARY:

Strong revenue growth for NetSuite’s first quarter as Gartner bumps the firm up its Financial Management leaders ranking.

Zach Nelson
Zach Nelson

With SuiteWorld just around the corner, NetSuite’s heading into its annual user conference with something of a spring in its step after turning in a strong first quarter.

The cloud ERP provider reported a first quarter net loss of $29.7 million, up from $22.7 million year-on-year, on revenue of $216.6 million, up 31% year-on-year.  Subscription and support revenue for the quarter was $173.33 million and services sales were $43.24 million.

In the post results analyst call, NetSuite CEO Zach Nelson flagged up new Gartner data points that position NetSuite as the fastest growing financial management software in the top ten providers, growing by 40%, three times the rate of the next nearest. He said:

Looking at the Financial Management segment, we have had great success to become the 6th largest provider of financial management systems, but on a relative market share we are relatively small.

He added:

Furthermore in Gartner’s top 15 vendors of financial management software, there isn’t another pure play card provider other than NetSuite on the list. NetSuite also achieved the number one revenue gainer spot in the entire worldwide financial management systems vendor market segment adding more than double the revenue of the next gainer. On the opposite side of the spectrum SAP was the biggest revenue loser dropping $443 million in revenue according to the report.

That said, Nelson reiterated his long-standing message that NetSuite is a business system, not just a financial system:

My view on the enterprise is I don’t think enterprises have a burning desire to switch out their financial system. I don’t think the problem in larger enterprises, if you go to talk to any of them, is what happening in their General Ledger (GL). When you talk to companies about replacing financial systems, I think they’re really talking about an old world approach to running a business. NetSuite certainly has a GL, we certainly are used by all of our customers to generate financials, but the GL is not the center of our system.

The center of our system is really the core business record that drives every business – what did the customer buy, what should we promise them in terms of services and then all of the financial aspects spin-off the business priority. So when we look at large enterprises, I don’t think any multi-billion dollar company is interested in replacing their GL. I think lots of multi-billion dollar companies are interested in figuring out how they automate their business operations, how they process orders more quickly, how they interact with customers more efficiently. They do that very urgently.

He added:

If you’re building and accounting application in the cloud, I don’t think you’re going to be very successful.

Plenty of accounting applications in the cloud [are] just spinning their wheels at $50 million to $60 million. They’re not growing or at the very high end of the market, if [they] have a GL-centric view of the world.

Nelson said he was speaking from experience:

At NetSuite we started the world as NetLedger as that sort of early generation of product as a GL-centric product and it wasn’t until we expanded the suite to address business process concerns that we took off.

Integration

Away from the financial management pitch, Nelson provided a bit more detail about the progress of integrating cloud-based retail marketing firm Bronto Software into the NetSuite portfolio:

I think it’s fairly well integrated into the company and our processes and our approaches. We certainly are still selling it on a standalone basis, but I think what was interesting in the quarter was the attach rate of Bronto systems to NetSuite systems in Q1. About 20% of deals Bronto sold were into the NetSuite customer base either way and that’s the highest level yet in the short history that we’ve been together, so that’s a great positive.

On the product side of course we’re bringing the technologies closer together and trying to figure out where the intersection points are with the SuiteCommerce architecture, from a UI standpoint and a data integration standpoint.

Of course we never really intend to have billions of emails sent out of the NetSuite core, so all of that great infrastructure that Bronto has built up over the decade to manage enormous mail volumes and customer interactions will stay as it is. But finding really tight integration points in the B2C world, primarily between SuiteCommerce and Bronto, is something we are still working on from a development standpoint.

With SuiteWorld keynotes looming, Nelson gave a hint as to some of the messaging to expect, specifically the diversity of customer organizations. He cited a recent meeting in Amsterdam to illustrate his point:

One company is making a next generation wallet called Secret. This isn’t a digital wallet, it’s a physical wallet. It protects your credit cards from being ripped off when you are in the subway. It’s a great product and they are absolutely killing it. Then sitting across the table from them was an airline called Transavia which is a joint venture between KLM and Air France. You couldn’t have two more difference businesses sitting across the table and the one common thing that united them was the fact they were able to build these amazing businesses on NetSuite.

So that’s really the great marketing pitch – nobody on the planet is doing the things that our customers are doing and NetSuite is the core part of how they can transform these industries, transform their products and offerings. Really that’s the core marketing efforts that we’ve always had at NetSuite and that’s the core marketing that we will use going forward.

My take

More to come at SuiteWorld.

Disclosure - At time of writing, NetSuite and SAP are premier partners of diginomica.