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NetSuite vs SAP … Round #n. A Game Changer?

elephant-flea In my recent Suites post I said there were exactly 1.5 (one and a half) integrated full business solutions (SaaS Suite, SaaS All-In-One, SaaS ERP, SaaS SMB ERP – take your pick or  create a new one) offered as a service.   The one in that equation was NetSuite, and the half is SAP’s Business ByDesign.

The half is getting close to becoming full, bringing the total number of solutions to two.   SAP’s ByD, originally launched in 2007 was a functionally rich solution already at launch – in fact I called it the most complete SaaS Suite not available customers. And therein lies the rub.  Functionally rich, but a phantom product that only a few selected early customers could get their hands on.  And it wasn’t simply a marketing / segmentation blunder as some analyst thought, it was all about architecture: SAP missed out on the economics of multi-tenancy, and realized they could not profitably operate and scale what they referred to as “mega-tenancy” – so they went back re-architecting ByDesign.

The lost 2 1/2 years were a gift to competitor NetSuite, and they milked it every possible way.  SAP announced entry to the SaaS SMB space validated their market, and their own delay was an open invitation to NetSuite. As CEO Zach Nelson said at their recent earnings conference:

I’d like to thank SAP for being our IBM.

NetSuite never shied away from aggressive marketing (I guess that’s the Oracle blood in their veins), starting from pranks like the SAP for the Rest of Us Party during SAPPHIRE 2006 to staging a shootout at the anti-SAP Conference or releasing edgy videos a’la Mac vs Windows.  But the biggest coup, one with definite gains was the Business ByNetsuite program which we covered here:

The aptly named Business ByNetsuite program guarantees at least 50% savings to current SAP R/3 customers relative to  – watch this! – the annual maintenance fees they are now paying to SAP.  Yes, it’s not a price-to-price comparison.  With the perpetual licence model customers pay upfront, but are still forced to pay annual maintenance fees – with SaaS there is only a subscription fee, and now NetSuite proves it can be half of only the maintenance component of traditional software’s TCO.

Yes, NetSuite took deals from SAP and of course amidst all the chest-thumping they did not particularly emphasize the fact that that these were often divisional deals:  smaller divisions of large companies, often replacing legacy systems as a result of an acquisition with the parent company running SAP.  NetSuite even developed  NetSuite-to-SAP connectors for enterprise reporting, fully recognizing they won’t be replacing SAP on the corporate level.

Now of course these were relatively easy wins when NetSuite was the only game in town – and that’s about to change, as SAP is getting ready for General Availability of a new Business ByDesign in July.  And SAP CEO Bill McDermott fired a few salvos over to NetSuite in his announcement, as quoted by Reuters:

McDermott said he believes Business by Design’s sales will be able to quickly surpass those of NetSuite, which last year posted $167 million in revenue.

“When Business by Design is coming at them like a 99-mile-an-hour fastball, let’s see how tough they are,” McDermott said of NetSuite.

Winning against SAP when they had no relevant SaaS offering was one thing, going up against a functionally strong product will be another.  NetSuite is changing tone, comparing the two offerings, as show by this slide I received from NetSuite:

NetSuite SAP

This must be the first time SAP finds themselves on the wrong side of the David vs. Goliath equation (or is it the elephant vs flea?  – but who is the elephant and who is the flea in the long run?).   I have an issue specifically re. the functional shootout, which was rigged at best.

As for the rest of the comparisons, a fair summary is that neither side is a newcomer.   SAP is the granddaddy of business processes with 30 years of experience, but they are new to operating / scaling a cloud environment – something NetSuite has a head start on them.

I have reasons to believe (more on that in another post) ByD will not be a failure this time around, and NetSuite will have to adopt to competing with a real product vs. a phantom.  It will be a healthy change, with customers now having a choice of (at least) two well integrated SaaS offerings.  In the end, customers win.

(Keep an eye open for the next post on ByD and beyond…)

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FUD in the House of SaaS – More on Suites

saas myths

Recently I wrote about the evergreen Best-of-breed vs. Integrated All-in-One Suite debate again, arguing:

Call me “old school”, but I also believe in the value of having one tightly integrated system for most business needs, and I believe it’s true not only for large corporations but much smaller businesses.  I don’t have CIO’s to back it up, but that’s exactly the point: I am talking about small businesses that don’t have CIO’s at all – in fact they  likely don’t even have full time IT stuff ( a good reason for SaaS in the first place), so they clearly lack the bandwidth to deal with integration issues and multiple system providers.

It wasn’t just hypothetical speculation, what really prompted my post ( and hence the reference to CIOs) was a study conducted by Brian Sommer who contacted several large corporate CIOs about SaaS implementations, and found that despite improvements in technology, and easy integration by firms like Boomi, Pervasive ..etc, CIOs still prefer to buy an integrated suite of applications and deal with one vendor for most of their needs.   It’s not what we think, it’s what they do – and they are the customers.  Says Brian:

But, customers will do what customers want to do.

Amen. But my post attracted a detailed comment from a PR professional (a fact that took a little digging to discover):

… the Suite approach requires the business to make compromises in areas of the business, and only works if you can run your whole business on that one suite – as soon as you need some other specialist system, or acquire another operation that you need to integrate, you’re in trouble because Suites, by definition, are not designed to make integration easy…

…Force.com essentially brings cloud apps together as a Suite by offering exactly the combination of tight integration, common interface and flexibility. Many businesses can already find everything they need on the platform, even the last critical element required for a serious business system: enterprise-class finance ;-) Many companies, especially smaller ones, don’t need a full ERP suite. They need a handful of critical applications that can grow with them.

Wow… where do I even start?   Perhaps by the only statement I can agree with:

Many companies, especially smaller ones, don’t need a full ERP suite. They need a handful of critical applications that can grow with them.

Yes, of course I agree.  In fact I am a small business myself, and guess what, not only I don’t need ERP, I don’t even need or use a CRM system, or one for business accounting.  The only lightweight business system I use is invoicing (happens to be Zoho Invoice), but frankly, I could get away without it.  Yes, some small businesses will want Accounting, and Accounting only, others will need CRM and nothing else – there are many good choices for them. And yes, FinancialForce.com (which the commenter represents) is great, and we’ve given it ample coverage @ CloudAve.

But that’s where reality ends, and plain old FUD begins. There’s nothing inherent in the “Suite approach” that would prevent customization, integration with additional systems, extension by third party apps.  In fact the key difference between an integrated Suite or discrete  point applications is just how much of the core business they cover natively before  add-ons are required.

And here’s the ultimate irony: I was reading these “ex-cathedra” statements (that’s nicer words for BS) while sitting at NetSuite’s SuiteCloud conference, that was all about working with development partners, releasing a new version of SuiteCloud, the app development and integration platform along with SuiteFlow, a graphical modeling and customization tool, and a bunch of other  announcements all geared to making and maintaining a thriving partner ecosystem, that builds on the core NetSuite functionality and delivers additional value to customers.

In fact the evening before the conference, CEO Zach Nelson spent an hour busting industry myths.  Now look at the slide above: he did not talk about NetSuite specifically, he was advocating Cloud Computing / SaaS in general.  That’s the somewhat usual formula:  myth spread by defenders of the “old model” busted by the innovators – who would have expected the old-time FUD served up by a PR flak for another SaaS provider… :-(

At the conference itself I saw several customers presentations, like that of Campus Villages which replaced 38 instances of MYOB + Intuit MRI with NetSuite OneWorld, including extensions like Nolan Fixed Assets and Electronic Payments, Celigo Smartclient, and are currently evaluating Adaptive Planning.   Those are functions not provided by NetSuite, so guess what – they add third party apps, just like they would to Coda or any other system.

The key criteria for any software company trying to penetrate the SMB market will be vertical industry epxerience, and NetSuite has clearly stated their industry experience is Software and Services – everything else is open to the ecosystem.  Case in point is manufacturing:

NetSuite RootStock MRP

Suites are not customizable?  Just look at  Rootstock, a third-party developer house that created an entire MRP system on the  SuiteCloud platform.  If that’s not living proof of the system’s expandability, then I don’t know what is…

A key difference between the Force.com / Appexchange and NetSuite / SuiteCloud approach is that the former facilitates the creation of any product / utility that you can pick up from a marketplace, while programs developed on SuiteCloude all tie into the NetSuite system very closely – not only on the data but also on the UI level – i.e. the additional business functionality becomes available within the NetSuite UI. In other words they run so smoothly, the fact that parts of the system were written by a 3rd party is hardly transparent to the end user – which is just the way it should be.

So in the end, there is no hard rule that says Suites are inflexible, non-expandable: there only well-written and poorly written Suites, just like well-written and poorly-written point applications.  There will be businesses who only need a few point apps, and should not think of a Suite, and others who will benefit from the All-in-One approach.  It’s their choice.  What they need is honest information, not FUD.

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Are Suites Really Sour? The Best of Breed vs. Integrated Suite Debate.

The evergreen Best-of-breed vs. Integrated All-in-One Suite debate is back again. This will be a somewhat long post, so let’s sit back and start with some entertainment first.

Episode 2, “Suites Are Sour”  is from the mini-series SuiteMates, which I admit I find hilariously entertaining, albeit rather pointless.  Why?  It’s run by supply chain solution provider Kinaxis, but I don’t see much direct benefit to them. I’m reminded the Bill Gates – Seinfeld commercials: what’s the point?  But hey, we’re being entertained:-)

Now, back to those Suites.. are all Suites really Sour?  Fellow Enterprise Irregular Brian Summer clearly does not think so, his money is on the Suites, here’s why:

One of the biggest value drivers behind a customer’s move to SaaS is the reduced internal IT support cost a company has when using SaaS products. In the SaaS world, the vendor maintains the application not the customer. But, in a best of breed SaaS world, the customer is back to maintaining interfaces and integration aspects across a number of (SaaS) applications.

If the argument sounds familiar, it is – it was the same in the good old on-premise world, but much of it holds true in the Cloud, too.  Besides, this isn’t simply Brian’s own opinion, he has conducted a poll of large corporate CIO’s and most expressed strong preference for integrated business solutions, a.k.a.  “one throat to choke” (well, not exactly with those words…).

Call me “old school”, but I also believe in the value of having one tightly integrated system for most business needs, and I believe it’s true not only for large corporations but much smaller businesses.  I don’t have CIO’s to back it up, but that’s exactly the point: I am talking about small businesses that don’t have CIO’s at all – in fact they  likely don’t even have full time IT stuff ( a good reason for SaaS in the first place), so they clearly lack the bandwidth to deal with integration issues and multiple system providers.

This is not a popular view, after all the Millenial World View is all about open standards and APIs where best-of-breed cloud services that can seamlessly integrate and work together well.  I’m all for innovation, and hope we will get there one day – but for now the existing examples are all one-off, individual integrations between specific systems, or at best, ecosystem “satellites” centered around force.com, the Google Apps Marketplace and the like.  These are great solutions, but not enough to run a complete business on them.  In the meantime businesses are looking for available (Cloud-based) solutions NOW.  So yes,  I admit, my view is less visionary, more constrained by market realities today.

Brian cites WorkDay as a potential SaaS Suite provider: they have the right DNA, coming from the Founder who built once-successful PeopleSoft, and they are building truly Millenial Software from the grounds up as Phil Wainwright eloquently points out – but for now they still have a Human Resources / Finance focus only.  Far from a complete solution, just like the other successful SaaS players in the Enterprise arena, like SuccessFactors, RightNow, ServiceNow, and the like.

Yes, I hear you… I missed a big name: Salesforce.com, the GrandDaddy of SaaS or the Cloud or whatever the next fashionable name will be.  An amazingly successful company, and true innovators – having started as CRM company, moving on to as Platform provider, and who knows, tomorrow it may be a Media company? :-)  As long as the keep on moving to hot new areas, always picking the low-hanging fruit, the company and it’s stock price will remain hot.  Again, a great company from an Investor’s point of view.  Just not a Complete Business Solution.

One and a half SaaS Suite players

I can count the number of SaaS Business Suites that actually reached significant traction on one hand.  In fact the exact number is 1.5.  Yes, one and a half – and for now they mostly cater for the SMB segment, with undeniable ambitions to “grow up”.

netsuite The “One” in  that 1.5 is NetSuite.  Having started as NetLedger, the company has developed an integrated All-in-One solution, encompassing ERP, CRM, e-Commerce .. you name it.  Those acronyms are becoming quite useless – in that respect I agree with Dennis Howlett who says we should “dump the  disciplines formerly known as CRM/SCRM/SCM/ERP/3PL/HR/HCM/E2.0….etc” – hence I stick to the term All-in-One. Or Business Suite:-)  It’s been a long (and winding?) road for NetSuite: developing a full suite of apps you can run a business on is by far more complex than throwing out point applications.

The company also learned the hard way that with business complexity (please note, I am not talking about Software, but Business complexity) comes a more difficult, stretched out sales process.  The fact is, as much as I am a fan of the click-to-try-click-to-buy pull model, the more business areas (and stakeholders) are involved, the less feasible the fully pull model becomes.  A Business Suite is not something you simply pick up from an App Store:-)
So NetSuite experimented with more direct sales model first, gradually building towards a more channel-based model, to the recently announced SP100 program in which partner VARs get the entire first year subscription revenue.  Along the way they grew functional richness as well as market penetration, to the point that they often compete with Enterprise giant SAP directly.  Now, let’s quickly qualify that: NetSuite is not comparable to the SAP Business Suite, but it is often an ideal satellite solution for smaller divisions of large companies, many of which just got acquired and are facing the choice of a long SAP implementation vs. a SaaS solution from NetSuite (see Ray Wang’s post on two-tier ERP strategy)

I should probably mention that way back, before their IPO and the fame that came with it (from the times of NetWho?) I was an early NetSuite customer, picking it over the market leading CRM (and I mean that as a stock symbol), simply because it had a better process flow, even for Sales, which I was heading at the time. (Yes, we got p***ed learning we’d have to create Sales Orders outside the other system, even though we had quotes in the system, only to come back and re-enter the data manually).  NetSuite was simply a better CRM system, even before considering other business areas.

Parallel to our NetSuite implementation we introduced a Wiki, JotSpot, which just launched in those days (since acquired by Google) and soon we realized a lot of the support information for Sales could either reside in NetSuite or in the Wiki.  This has been bugging me ever since:

Why do structured, process-oriented systems and unstructured  collaboration tools live in different worlds?

Like I’ve said, I’m all for Suites, but the true Suite in my definition includes integrated collaboration and communication tools – I’m still waiting for that … perhaps not for long :-)

Now, if NetSuite was the “one”, who is the “half”?   It’s SAP’s very capable, but dormant Business ByDesign – which may just come to life later this year.  But I’ve been torturing you long enough, so let’s leave that to another discussion.

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Will Google Enter the Business Applications Market?

Google’s next killer app will be an accounting system, speculates Read/WriteWeb. While I am doubtful, I enthusiastically agree, it could be the next killer app; in fact don’t stop there, why not add CRM, Procurement, Inventory, HR?

The though of Google moving into business process / transactional system is not entirely new: early this year Nick Carr speculated that Google should buy Intuit, soon to be followed by Phil Wainewright and others: Perhaps Google will buy Salesforce.com after all. My take was that it made sense for Google to enter this space, but it did not need to buy an overpriced heavyweight, rather acquire a small company with a good all-in-one product:

Yet unlikely as it sounds the deal would make perfect sense. Google clearly aspires to be a significant player in the enterprise space, and the SMB market is a good stepping stone, in fact more than that, a lucrative market in itself. Bits and pieces in Google’s growing arsenal: Apps for Your Domain, JotSpot, Docs and Sheets …recently there was some speculation that Google might jump into another acquisition (ThinkFree? Zoho?) to be able to offer a more tightly integrated Office. Well, why stop at “Office”, why not go for a complete business solution, offering both the business/transactional system as well as an online office, complemented by a wiki? Such an offering combined with Google’s robust infrastructure could very well be the killer package for the SMB space catapulting Google to the position of dominant small business system provider.

This is probably a good time to disclose that I am an Advisor to a Google competitor, Zoho, yet I am cheering for Google to enter this market. More than a year ago I wrote a highly speculative piece: From Office Suite to Business Suite:

How about transactional business systems? Zoho has a CRM solution – big deal, one might say, the market is saturated with CRM solutions. However, what Zoho has here goes way beyond the scope of traditional CRM: they support Sales Order Management, Procurement, Inventory Management, Invoicing – to this ex-ERP guy it appears Zoho has the makings of a CRM+ERP solution, under the disguise of the CRM label.

Think about it. All they need is the addition Accounting, and Zoho can come up with an unparalleled Small Business Suite, which includes the productivity suite (what we now consider the Office Suite) and all process-driven, transactional systems: something like NetSuite + Microsoft, targeted at SMB’s.

The difficulty for Zoho and other smaller players will be on the Marketing / Sales side. Many of us, SaaS-pundits believe the major shift SaaS brings about isn’t just in delivery/support, but in the way we can reach the “long tail of the market” cost-efficiently, via the Internet. The web-customer is informed, comes to you site, tries the products then buys – or leaves. There’s no room (or budget) for extended sales cycle, site visits, customer lunches, the typical dog-and-pony show. This pull-model seems to be working for smaller services, like Charlie Wood’s Spanning Sync:

So far the model looks to be working. We have yet to spend our first advertising dollar and yet we’re on track to have 10,000 paying subscribers by Thanksgiving.

It may also work for lightweight Enterprise Software:

It’s about customers wanting easy to use, practical, easy to install (or hosted) software that is far less expensive and that does not entail an arduous, painful purchasing process. It’s should be simple, straightforward and easy to buy.

The company, whose President I’ve just quoted, Atlassian, is the market leader in their space, listing the top Fortune 500 as their customers, yet they still have no sales force whatsoever.

However, when it comes to business process software, we’re just too damn conditioned to expect cajoling, hand-holding… the pull-model does not quite seem to work. Salesforce.com, the “granddaddy” of SaaS has a very traditional enterprise sales army, and even NetSuite, targeting the SMB market came to similar conclusions. Says CEO Zach Nelson:

NetSuite, which also offers free trials, takes, on average, 60 days to close a deal and might run three to five demonstrations of the program before customers are convinced.

European All-in-One SaaS provider 24SevenOffice, which caters for the VSB (Very Small Business) market also sees a hybrid model: automated web-sales for 1-5 employee businesses, but above that they often get involved in some pre-sales consulting, hand-holding. Of course I can quote the opposite: WinWeb’s service is bought, not sold, and so is Zoho CRM. But this model is far from universal.

What happens if Google enters this market? If anyone, they have the clout to create/expand market, change customer behavior. Critics of Google’s Enterprise plans cite their poor support level, and call on them to essentially change their DNA, or fail in the Enterprise market. Well, I say, Google, don’t try to change, take advantage of who you are, and cater for the right market. As consumers we all (?) use Google services – they are great, when they work, **** when they don’t. Service is non-existent – but we’re used to it. Google is a faceless algorithm, not people, and we know that – adjusted our expectations.

Whether it’s Search, Gmail, Docs, Spreadsheets, Wiki, Accounting, CRM, when it comes from Google, we’re conditioned to try-and-buy, without any babysitting. Small businesses don’t subscribe to Gartner, don’t hire Accenture for a feasibility study: their buying decision is very much a consumer-style process. Read a few reviews (ZDNet, not Gartner), test, decide and buy.

The way we’ll all consume software as a service some day.

Update: As an aside, the Read/WriteWeb article that inspired this post demonstrates the “enterprise software sexiness” issue, which was started by Robert Scoble and became a Firestorm, per Nick Carr. I really think it’s a very thoughtful post, which, quite unusually for Read/WriteWeb sat alone at the bottom of TechMeme, then dropped off quickly. Now, has this not been about Accounting (yeah, I know, boring) software by Google, but, say adding colors to Gmail labels, in the next half an hour all the usual suspects would have piled on, and this would have taken up the top half of TechMeme. smile_sarcastic

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24SevenOffice Acquisition Rumors

24SevenOffice, the European SaaS provider of an integrated, All-In-One system for small businesses may be in acquisition talks with a major US vendor. The news went almost unnoticed, partly because it leaked just before Christmas, partly because the company is largely unknown outside a few European countries – not for long if a deal comes through.

I covered 24SevenOffice, a very promising SaaS provider for the SMB (SME) market several times. Their system is modular but integrated with a breath of functionality I simply haven’t seen elsewhere: Accounting, CRM (Contacts, Lead Mgt, SFA), ERP (Supply Chain, Orders, Products, Inventory), Communication, Group Scheduling, HR, Project Management, Publishing, Intranet. Essentially a NetSuite+Communication and Collaboration.

About the only thing I did not like was the lack of availability for US customers – this might change soon. The news release and blog post mentions three names: Salesforce.com, WebEx and Google, but adds a somewhat cloudy remark: “the companies here are only examples of what the rumors have outlined.” It does not explicitly confirm one of these specific companies as the potential buyer. I should also add that while I had in the past been in touch with Management, at this time I have no information whatsoever from the company, so the ideas below are purely my speculation.

Salesforce.com as suitor: A well-integrated All-In-One product would come handy to Salesforce.com which could dramatically expand their customer base this way. However, they’ve gone a long way in the other direction, trying to become a platform and extending their reach via the ecosystem built around the AppExchange. Acquiring 24SevenOffice would be a huge about-face for Marc Benioff, and essentially would mean admitting that archrival Zach Nelson of NetSuite was right all this time about the superiority of the integrated All-In-One approach.

WebEx: Their original market, the web conferencing space is being commoditized, they clearly are looking for more lucrative markets, as evidenced by the recently launched WebEx Connect (their “AppExchange”). I haven’t heard about much activity since the announcement – certainly owning a product like 24SevenOffice (btw., it really should be called 24SevenBusiness) would allow WebEx a powerful entry into the SMB applications market.

Google: No way, you might say. Google and business process / transaction oriented software are lightyears apart – at least today.

Yet unlikely as it sounds the deal would make perfect sense. Google clearly aspires to be a significant player in the enterprise space, and the SMB market is a good stepping stone, in fact more than that, a lucrative market in itself. Bits and pieces in Google’s growing arsenal: Apps for Your Domain, JotSpot, Docs and Sheets …recently there was some speculation that Google might jump into another acquisition (Thinkfree? Zoho?) to be able to offer a more tightly integrated Office. Well, why stop at “Office”, why not go for a complete business solution, offering both the business/transactional system as well as an online office, complemented by a wiki? Such an offering combined with Google’s robust infrastructure could very well be the killer package for the SMB space catapulting Google to the position of dominant small business system provider. Who’d benefit from such a deal? Google, millions of small businesses, and of course 24SevenOffice.

I admit I would feel somewhat sorry for 24SevenOfice though, as I clearly think they could have a shot of becoming a billion-dollar business on their own – the next NetSuite. Either way, if they make it to the US market this year, they’ll likely see explosive growth. When they are a well -known brand, remember, you discovered them here.thumbs_up

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Betting on the NetSuite IPO

(Updated)

Phil Wainewright at ZDNet is running a poll on whether NetSuite will have a chance to go ahead with the long-awaited IPO or it will get folded back into the Empire.

I’m somewhat surprised by the above results, but since this is an early snapshot, please check the live poll for the current vote count.

Surprise or not, acquisition by Oracle is a realistic scenario, considering Larry Ellison’s close to 60% stake in NetSuite. This is certainly fellow Enterprise Irregular Jason Wood’s take.

I tend to believe that NetSuite is better off being an independent business; there are just too many differences for a merger to work well, and I don’t mean only technical, product-related differences. NetSuite is still largely a small business (SMB) player, and that’s a market that requires an entirely different Sales and Marketing approach, amongst others, and Oracle with it’s current “legacy” salesforce just can’t reach this market profitably. If your products are different, your target market is different, your organization, corporate culture are different, where’s the synergy? Big behemoth Oracle would kill NetSuite – Larry is better off with a portfolio approach, cashing in a 10-digit returnsmile_tongue

Talk about the SMB market – there really is no such thing. “SMB” was sufficient to describe the market to avoid, but now that the software industry is getting ready to actually address the needs of this segment, it’s too heterogeneous to be lumped together.A $100M business is just as different from a ten-person startup as it is from a Fortune 1000 company. When analysts talk about SMB, they really have the mid-market in mind; when SAP is announcing new SMB initiatives, it targets $100-$200M companies.

The forgotten “long tail” represents a huge untapped opportunity: millions of (very) small businesses that can now directly be reached, sold to, serviced inexpensively over the Net – classic SaaS style. Different markets require different organizations – NetSuite serves this segment much better than Oracle (or SAP, for that matter) ever could. In fact SAP would be wise to copy this chapter from Ellison’s book: it should get it’s own “NetSuite” by investing in (not acquiring) an up-and-coming small-business focused All-in-One SaaS provider, like European 24SevenOffice. The next NetSuite.

Update (12/11): NetSuite Gets Ready For Its Close-Up by BusinessWeek.
Update (12/19): TechCrunch is running a story titled NetSuite’s Going Public, Looking for $1 Billion Valuation. I don’t know if it’s based on new information or …. (?)


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SaaS vs. Open Source for SMB’s? A No-Brainer.

(Update)
I have to take issue with Paul Gillin’s approach as he discusses whether SMB’s are better off with SaaS or Open Source Applications. If we equate Open Source to downloadable, on-premise installed software, I have no doubt, and have stated it before that the only good answer is SaaS. But, hold on, a few minutes later we’ll see these two options may not be mutually exclusive for long.

Paul analyzes several criteria:

  • cost
  • speed of deployment
  • customization
  • reliability
  • data ownership
  • vendor viability

These are all issues well-discussed on the web, and although Paul does not explicitly say, my reading is that he also leans towards the SaaS conclusion. The problem is that this criteria-by-criteria approach works well with a typical (mid-size) company where some level of IT expertise is present. Small Business America is very different from the web-savy geeky software startups; the majority are more traditional businesses with no CIO, IT department, in fact often without any IT support whatsoever. While the two main obstacles SMB’s face with any on-premise implementation are cost and (lack of) IT expertise, you can’t just translate the latter into cost – i.e. the cost of hiring full-time IT support. The opportunity cost of Management venturing into IT hiring and project decisions instead of focusing on their primary business makes this an impractical approach, leaving us with only one choice: SaaS.

Another issue not discussed in the article is integration. Open Source or SaaS, getting several packages work together requires IT and business process expertise, which typically means hiring expensive consultants. Therefore, I would go one step further: not only SaaS is the best choice for most SMB’s but they should seek to minimize the number of providers, i.e. the best choice is to use integrated All-In-One solutions.

The current undisputed leader in this field is NetSuite, but as they follow Salesforce.com’s footsteps and move upstream chasing midsize businesses, they leave an opening for up-and-coming challenger 24SevenOffice, which focuses solely on SMB’s, and covers a wider range of business functionality than the incumbent.

This is the situation today. Now, let’s revisit the original question: SaaS or Open Source? A tiny startup named SQLFusion is working on making that question obsolete. The dilemma with Open Source: a lot of good applications are available, but they are written by geeks for geeks… you really have to be quite knowledgeable to download and implement them. Example: at one of the startups I am advising I use SugarCRM over the internet. Starting to use it was a no-brainer, but when I looked at the prerequisites and the process of installing it myself, my head started spinning. No way, this is not for me! Open Source Fusion, which I hear is within days of opening for a limited beta will bridge the gap between availability and usability of Open Source Programs, by offering such apps to be used over the Internet. In true On-Demand fashion, maintenance, upgrades all happen in the background, one can start using the programs without implementing them. So it will no longer be SaaS or Open Source, but SaaS and Open Source.

The first incarnation of Open Source Fusion will provide access to individual applications, still leaving the integration dilemma for SMB’s, but the technology under the hood enables the company to later offer an integration layer between the key applications it serves up.

So the future is Open Source Software as a Service. Hm, here’s an ugly acronym: OSSaaS (?)

Update (3/6). Releated posts:

Update (5/23): Stefan over at The Small Business Blog discusses the issue; his company, WinWeb is expected to offer Open Source apps as a service soon.