Some strange thinking about NetSuite

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I picked up an odd report from AccountancyAge this morning entitled: NetSuite urged to join online software group where it is claimed:

Talks are under way to persuade the UK’s biggest provider of web-based accountancy software to join a new industry group campaigning to promote the service.

This is fundamentally wrong. The report does not quote any objective research on the topic but draws its conclusion based on a quote from Baker Tilly:

John Oates, partner at Baker Tilly IT advisory services, said: ‘Because NetSuite are perceived as the market leaders they may think that they don’t want to give credibility to their competitors. They may even choose to set something up in competition.’

[My emphasis added]

NetSuite’s 10K for 2008 stated that it earned 19% of revenues from non-US sources. That’s $29.1 million. It also states that no one country outside the US accounts for more than 10% of its revenue. That would be $15 million for the year. No further analysis is provided. It is reasonable to assume that since NetSuite has made heavy investments in Japan that a reasonable proportion of business is coming out of there. But then we should also consider what revenue might be earned in Canada and other largely English speaking countries.

In the UK, NetSuite only names 19 customers. While I am sure there are many more, eight are specifically named as financial accounting customers though in many cases there is a suite approach to the deal so it is not clear cut.

In the last earnings call, NetSuite said:

“Continued selling price increases, reaching an average of $34,000 per customer…increased 20% in the year. We saw the average number of users per customer increase. OneWorld has reached 200 customers and accounts for 35% of new business bookings. When you look only at OneWorld business, the value goes up to $100,000 per customer.”

This represented a significant shift in the company’s model where previously it had many what it terms low value customers. That muddies the waters as well.

It is very difficult to be certain what NetSuite’s UK position is but I can say that it never shows up on UK calls I field. Of itself, that doesn’t mean a thing. There are other factors to take into consideration. Where NetSuite does turn up, it is often in the context of CRM. That would fit with what I see happening generally and the fact that saas CRM has been the real bright spot. Salesforce.com, the true global leader in saas generally, turned past the $1 billion barrier in 2008.

Let’s be generous. Let’s assume that the UK accounts for the whole of the 10% mentioned in the 10K and then apply the ratio of 8/19 to that number. You come out at $6.3 million which at today’s exchange rate is something around £4.4 million for financial applications. Even then we need to discount somewhat because NetSuite also provides implementation services which also muddy the waters. These are not broken out separately using NetSuite’s criteria for revenue assessment but again, let’s be generous and assume no more than 15%. That brings the number to £3.74 million.

Taken with the top line figure of $34K, which was the best average deal numbers achieved, that means NetSuite would have had to do at least 185 deals in finance to reach my £4.4 million number (remembering they are quoting gross.) It is feasible but unlikely given what I know about competitive situations where NetSuite is not just up against say a Twinfield but BusinessOne, Exchequer and Microsoft Dynamics NAV, the latter of which has been doing very well. I could easily be wrong but having sliced and diced the numbers a number of ways and weighed against deal flow information I have, I don’t see it. Especially as Opal Telecom is regarded as NetSuite’s largest UK customer.

I have previously reported that Winweb has UK revenues of £5 million based on a very large user base but I also said the criteria for measurement can be assessed in multiple ways. And while perceptions matter, that’s not the same thing as hard evidence or methodologically sound extrapolations.

The problem, as I’ve noted before is that all marketers want to tout the No.1 moniker, but they don’t get to do that without some scrutiny.

For the sake of full disclosure, one of the vendors involved in the establishment of a saas trade group approached me asking if I would call the person who penned the report because they were concerned about accuracy. I duly called and also sent an email where I provided links to things I’ve said here about the industry. I was told that numbers had been obtained from IDC but I can find no evidence to suggest that such numbers exist. At least not for 2008. In fact I would be surprised if they did given that many of the vendors are very small and as I emphasized at the time, the UK saas market is nascent, albeit growing rapidly.

It’s worth repeating what I have said to others: while I am a huge fan of saas as a potential game changer, we are far from seeing that happen and it is a tiny fraction of the whole market for accounting applications. That means anyone making claims needs to be very careful.

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Tagged as: John Oates, netsuite, Salesforce.com