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Ellison’s Double Dip: a Conflict of Interest? No.

Netsuite LogoMatt Marshall at SiliconBeat is wondering whether Oracle CEO Larry Ellisons 60% ownership (*) in NetSuite, preparing for a $2B IPO represents a conflict of interest.

I don’t think so.  Oracle dipped into the On-Demand market before,  it did not quite work, so Ellison decided to tackle it differently, through his investments.  He is a Warlord battling in different theaters and maintaining two separate, not directly interchangeable armies.   This is still true, even though Oracle’s second attempt in the SaaS space will likely be successful, especially after absorbing Siebel.

The issue isn’t so much On-Premise vs. On-Demand anymore,  but the market segment they go after: NetSuite is still mostly an SMB player, although more the “M” than the “S” piece.   The SMB market requires a totally different Sales and Marketing approach, amongst others, and Oracle with it’s current “legacy” salesforce can’t reach this market profitably.  It’s the Business Model, not only the technology, that requires a separate “army”.

For the above reasons I’ve long been advocating that SAP also should invest in it’s own NetSuite-equivalent (or better, and I happen to know who ) to tackle the SMB market.

Back to the Ellison factor, Jason  still contends that “NetSuite could get scooped up by Oracle before it ever sees the light of the public markets.”

* (I think it’s actually less than 60%, but more than 50% – but that’s irrelevant here.)

Update (4/2)Vinnie agrees:I have always believed if Larry had invested in every one of Oracle’s alums, he would be a far richer man than Bill Gates…. Maybe Larry should similarly invest in Open Source, Third Party

Maintenance, BPO, Search, Web services start-ups. They represent the

growth and the innovation in the market, not the company he founded.”

Sramana Mitra‘s post is also worth reading.

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Comments

  1. Anonymous says:

    Zoli,

    It’s actually 57% if memory serves. Either way, I think there are compelling arguments on both sides of the NetSuite debate. But ultimately if Larry wants to maximize shareholder value (his own and others), I would lean toward letting NetSuite come public.

    If NetSuite delivers 100% growth and prints $80mm in 2006 as a public, SaaS-y company attacking the low end (where ORCL, SAP, etc…are lesser threats), I think investors could fall in love with the stock (not necessarily the company) and it would see a lofty multiple (take a look at where companies like KNXA, CNQR, ULTI are trading).

    If NetSuite becomes part of Oracle, how are investors going to factor that into Oracle’s behemoth structure? Then it become a small, but fast growing subcomponent of a large cap software company struggling to break out of single digit growth in its core market.

    Either way it’ll be of great interest in the coming quarters…

  2. Anonymous says:

    Jason, exactly, NetSuite would suffer from a valuation point of view, and also be forced into a corporate culture that can’t handle the “low end: of the market efficiently. Note the “” around low-end… there’s gold in large number of small customers served in a highly automated, web and telecommunication-based fashion 🙂

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  4. Anonymous says:

    I don’t know if this is true of Oracle elsewhere, but the UK organisation never seems to mention or register NetSuite on their radar. I was talking to the business systems manager of one of our top 10 accounting practices who had visited Oracle recently talking on demand and hosted solutions. When asked about NetSuite as a competitor the questions were almost sidestepped. I can’t see that marriage happening.

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  6. Anonymous says:

    I was checking out NetSuite and they prominently announce they’re SAS 70 certified.

    I was wondering how much value this certification is, really, to the end customers of the service. Do buyers consider this certification a requirement?

  7. Anonymous says:

    I have no idea, but hopefully some of my accountant readers will chime in …

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  1. […] 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 […]

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