Gerry Morton, CEO of EnergyFirst, a maker of protein
shakes, has been using
NetSuite products to run his 10-employee business for
three-and-a-half years. The way he sees it, NetSuite's attempt to
raise $75 million through an initial public offering (IPO) could be
a good thing for customers."They'll have more money to invest in making the software
better," Morton theorised. "I understand there is going to be a lot
of cost and overhead associated with it and the company could
potentially get defocused, which is not good. But I hope that is
offset by the [money] they'll have to throw at improving their
technology."
Founded in 1998 by Oracle Corp. CEO Larry Ellison and Evan M.
Goldberg, NetSuite's chairman and chief technology officer since
2003, NetSuite offers Web-based accounting and other business
software to small and medium-sized businesses (SMB) like
EnergyFirst. In recent years, NetSuite has been gaining ground with
companies that could not afford and did not warrant the kind of
customised, enterprise-level business software offered by companies
like Oracle.
Ellison owns the lion's share of the startup -- about 61% and an
additional 13% in blind trusts set up for two grown children,
according to Securities and Exchange Commission (SEC) documents
filed July 2. In the hours after the
NetSuite IPO was filed yesterday, Wall
Street and technology analysts speculated on Ellison's potential
conflict of interest, given his role at Oracle, and whether
investors will take his competing interests into account.
"I can't help but think you're going to have a certain segment
of that community that likes the way Larry runs a business," said
Gartner analyst Gene Alvarez, who has followed NetSuite since its
inception and covers e-commerce at the Stamford, Conn.-based
consultancy. "There are others who might think Larry might not be
the best person to run this company, because it takes his focus off
Oracle."
A successful IPO should be good for SMB clients, just as Morton
believes, Alvarez added. The extra cash will bring stability and
more brand awareness to the company, and that's helpful in
particular for divisional departments of large enterprises that
might be using NetSuite even though the centralised IT department
is not.
NetSuite hasn't yet turned a profit. It reported a loss of $23.4
million in 2006 and a first-quarter 2007 loss of $3.7 million.
Still, its faith in the midmarket is proving prescient. SMBs
accounted for about one-third of the approximately $12.7 billion
spent by North American companies on ERP, customer relationship
management (CRM) and supply chain management software applications
in 2006, according to Gartner. Gartner projects SMB spending on
these business applications to grow 11.3% annually from 2005 to
2010, compared with 5.8% for large enterprises, the filing
notes.
New releases, new status
As a newly public company -- NetSuite hopes to raise $75 million
in an auction-style IPO scheduled for September -- plenty of
attention will be focused on its upcoming 2007 product release.
"I expect that to be phenomenal because it's a release right
before the IPO," Morton said. "I wouldn't expect them to put out a
poor release right before the IPO. If I got the next release after
that and the software wasn't any better than the previous release,
then I won't be too happy."
NetSuite customer Jeff Thompson, CEO of Towerstream Corp., a
Middletown, R.I.-based provider of WiMax service, said he had faith
in NetSuite's leadership.
"As a CEO of a company, you always have to worry about your
shareholders," said Thompson, whose $7 million company has used
NetSuite's CRM product for two years. "The thing they're going to
have to be concerned about is the long-term growth and long-term
profitability of the company. This is a growth stage for them. It's
good for their visibility and it's going to give them the capital
to grow quicker. It will also give their customers a better look at
their company."
Olympus NDT Corp. chief operating officer Fabrice Cancre has
been expecting NetSuite to go public for two years. "It's not a
surprise at all because a successful dot-com or Web 2.0 company has
to do an IPO," he said. "It's fashionable."
Cancre has been using NetSuite's CRM product since 2001, when
the Software as a Service (SaaS) market was still emerging. "It
certainly was a leap of faith," he said. His Waltham, Mass.-based
700-person division of Olympus Corp. manufactures nondestructive
testing equipment for aerospace, energy, automotive and consumer
products.
Some proceeds from a NetSuite IPO would go toward improving its
sales distribution and extending its geographic reach, according to
the SEC filings. NetSuite will also be able to beef up research and
development on its software. Research dollars at SaaS companies in
general go further than at companies that develop licensed software
products, which are developed to accommodate multiple
platforms.
"A dollar investment in R&D in the SaaS model is worth more
than $1 in R&D in an on-premise environment, because there is a
piece of that on-premise investment that has to go to all the
platform- and infrastructure-related support issues," said
Gartner's Rob DeSisto, who covers applications strategies and
governance. NetSuite has focused on broad functionality, he said. A
cash infusion should help make the suite "deeper and therefore a
more viable offering for more companies," he added.
Let us know what you think about the story; email:
Linda Tucci, Senior News
Writer or Shamus
McGillicuddy, News Writer