How SAP Ended up Promoting NetSuite

NetSuite, the provider of perhaps the best hosted integrated software solution for the SMB market tried to rain on SAP’s parade during SAPPHIRE 06 in Orlando. They planned to host a cocktail party in a hotel suite right across the Convention Center. The party’s theme was “SAP for the rest of us” and the email invitation posed a question/answer: “Who will become the SAP for the midmarket? (It Ain’t SAP),” Cute.

Of course SAP got p***ed and enforced it’s contractual right to cancel competitive events in any of the SAPPHIRE venues. SAP’s Spokesman Bill Wohl called NetSuite’s move “guerilla marketing“.

Now, what’s wrong with Guerilla Marketing? It’s fun … if you have humor to appreciate it. Last week SAP didn’t. The result? NetSuite CEO Zach Nelson laughed off the “loss” and will hold a web-conference instead. This being a juicy story of course it got picked up in the media and quite a few blogs – the media blitz lasted a few days, then will start again around the web-conference … so basically SAP’s decision to kill the party provided NetSuite with a fair amount of publicity – exactly what it needs as it ramps up for its IPO planned later this year. Zach should send a thank-you note to SAP.

Here’s what I think SAP should have done: let it happen, and set up their own counter-party. Had it been allowed to proceed it would have been a noon-event. Not that NetSuite is a negligible company, in fact they have an excellent product. Some say is just a glorified contact manager relative to NetSuite, and I tend to agree. (I put my money where my mouth is: in my last corporate job I became a NetSuite customer, after careful comparison to Salesforce). That said, NetSuite is targeting strictly the SMB market, in fact more the “S” than the “M”, while SAP despite all their SMB initiatives is still largely the Enterprise Company – SMB is just not their sweet spot. SAP had their own SMB people in Orlando (I interviewed Gadi Shamia, SVP for SMB Solutions, and intend to write about it soon) – they should have set up their own party right next to NetSuite, and present SAP’s vision for that market segment. In fact they could have embraced the NetSuite event (steal their show) and make up SAP logo’d signs pointing to both events.

The impact of the NetSuite party, especially in an environment where most participants are already biased towards SAP would have been minimal. In fact NetSuite had more to gain from the cancellation and the resulting media blitz then actually proceeding with the party … so much so, that I wonder if NetSuite intentionally leaked the news to SAP – a brilliant PR coup, if you ask me.

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Software 2006: Questioning the McKinsey Study

McKinsey and Company in collaboration with the Sand Hill Group, organizer of the Software 2006 Conference released their Industry Study (pdf) that I have to take issue with. (yes, I know, who am I to disagree with McKinsey?)

“Business Model Discontinuity: Software as a Service (SaaS) and Open Source. Two major business models are vying for an growing share of software spend: Software as a Service and Open Source. …SaaS has already gained traction in number of application areas – such as payroll, human capital management, CRM, conferencing, procurement, logistics, information services, and e-commerce) – and should make gains across a much broader cross-section of applications over the next 3 years. Out of 34 application areas we have examined, only nine are unlikely to see some SaaS adoption over through 2008”

Apparently McKinsey tells us that Financial Applications are the back-office function most unlikely to see SaaS adoption for years to come. Hm … I know the trendy app now is CRM, but there were widely-used web-based packages long before CRM. Intuit, NetSuite (originally NetLedger), Intacct, 24SevenOffice, WinWeb ..just to name a few.

Perhaps these companies can jump in here, and tell us what they think of McKinsey’s prediction that SaaS will not take off for financial apps?

Update (4/7): Dennis Howlett has a really good point bringing up Document Management, the other “unlikely” area per McKinsey. As to confidentiality concerns: the numbers in the financial apps are the result of real business activity that may very well have been in other hosted systems, e.g. CRM, Procurement..etc. Document Management? Oh, well, our external interaction is often on hosted platforms (email), sales contracts are largely in hosted systems (CRM)… I could go on.
Interestingly enough businesses lost more confidential data stored “safely” inside the firewall due to disgruntled ex-employees than due to “exposure” to SaaS providers.

But the point I made about Accounting systems, that this isn’t subject to predictions, it’s already happening, or has happened largely: accounting was available On-Demand before CRM was “born”.

Update (5/31): New McKinsey paper bullish about SaaS model. (hat tip: Nick Carr. Free registration required to read).

Update (8/17): Dennis points us at Gartner’s Hype Cycle for Software as a Service.

On-Demand Financial Management Applications and On-Demand Sales Force Automation are said to be at the peak.”

Interesting. McKinsey says it’s not coming for years, Gartner says it’s already at the peak. Go figure …

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