Larry Ellison, CEO of Redwood Shores, Calif.-based Oracle Corp., continues to exert his influence on the CRM market. The database and applications vendor has been on a CRM acquisition spree in recent years, snapping up competitors like Siebel Systems Inc. and PeopleSoft Inc. -- and according to the S-1 filing with the SEC, Ellison and his venture firm own 74% of NetSuite.
NetSuite will sell its shares via an auction process -- the same method search engine giant Google used in its IPO -- opening the offering to the public, not just major investment institutions. The company expects to raise $75 million with the move, part of which will be used to repay debts to its controlling stockholder in Ellison as well as for capital expenditures, according to the filing.
The arrival of a third on-demand or Software as a Service (SaaS) CRM vendor on the public markets is a validation of the model, according to Denis Pombriant, managing principal of Stoughton, Mass.-based Beagle Research Inc.
"You need to keep in mind on-demand computing isn't a new idea. It's a new paradigm for computing," he said. "This pushes us all far along toward the point of utility computing."
In addition to its CRM product, NetSuite offers on-demand ERP and e-commerce. In its filing, and in some of its recent marketing materials, NetSuite targets enterprise applications giant SAP AG as its primary competitor -- though NetSuite is focused on small and medium-sized businesses (SMBs), which it defines as businesses with up to 1,000 employees, while SAP has historically focused on enterprise CRM.
But SAP has released its own SaaS CRM offering and is preparing to offer a full, on-demand ERP suite for SMBs, dubbed A1S. NetSuite's approach of taking on an established enterprise software company struggling with SaaS is a sound strategy, one that worked well for Salesforce.com when it targeted Siebel, Pombriant said. He doesn't, however, expect a market war between NetSuite and other SaaS vendors such as RightNow or Salesforce.com.
"Interestingly, I think the three of them [NetSuite, Rightnow and Salesforce] have always done a pretty good job of carefully picking their niches so they have minimal overlap with each other, and I think that continues to be true," he said. "One of NetSuite's strong points is its e-commerce capability. E-commerce for SMBs has not been an area that's been heavily saturated. That's one area they can play in without a lot of contention from other on-demand players."
NetSuite also names Epicor Software Corp., Intuit Inc., Microsoft, the Sage Group plc and Salesforce.com as competitors. In its filing, NetSuite warns that its brand name may be influenced by competitors.
"Our efforts in [maintaining brand recognition and customer goodwill] have, on occasion, been complicated by the marketing efforts of our competitors, which may include incomplete, inaccurate and false statements about our company and our services that could harm our business," the filing reads. "Our ability to respond to our competitors' misleading marketing efforts may be limited by legal prohibitions on permissible public communications by us during our initial public offering process."
The S-1 also contains some interesting insight into the company's strengths and weaknesses. NetSuite warns that it uses a single data center to deliver its services and any disruption at the facility could harm the business.
As of March 31, 2007, NetSuite boasts over 5,300 active customers and employs approximately 495 people, according to the filing.
Revenue at NetSuite increased from $17.7 million in 2004 to $676.2 million in 2006. For the first quarter of 2007, which ended March 31, revenue was $23.2 million. For the year that ended December 31, 2006, and the first quarter of 2007, the company had net losses of $23.4 million and $3.7 million respectively. As of March 31, NetSuite's accumulated deficit was $193 million. Revenue the first quarter of 2007 grew 72% over the first quarter of 2006, according to the filing.
Credit Suisse Securities LLC will act as sole book-running manager for the offering, and WR Hambrecht and Co. will act as co-manager. The number of shares and a price range for the offering have not been set.