For several years now I (along with a number of my colleagues) have been predicting that Oracle would acquire pure-play cloud ERP vendor NetSuite.
This wasn't exactly a rocket-science prediction to make -- both NetSuite's founder, Evan Goldberg, and its current CEO, Zach Nelson, are Oracle alumni. Add to that the fact that Oracle's founder, Larry Ellison, actually funded NetSuite originally (back when it was called NetLedger) and is still a significant shareholder, and the links were obvious. Not to mention the fact that Oracle has stated an intention -- after years of denying the cloud -- to be a substantive player in the space, along with the fact that NetSuite is increasingly seeing traction in terms of so-called "two-tier ERP" (when organizations use a product like NetSuite for branch units and roll financials up into a big ERP).
Oracle is paying a premium on NetSuite's share price, and the deal, which is for a heady $9.3 billion, will see Larry Ellison and his family's interests net a cool $3.5 billion profit. To allay claims that there was bias and ulterior motive in this decision, Oracle was quick to inform the world that the deal was decided upon by a subcommittee consisting of only independent directors of the company.
I awoke to the news, and almost instantly received a number of emails from NetSuite's competitors and ecosystem players opining on the deal. First up is Rob Reid, the CEO of midmarket ERP vendor Intacct. By way of context, Intacct's product generally appeals to customers slightly smaller than NetSuite's, but as Intacct approaches an eventual IPO, it is trying to move up the food chain.
Said Reid in a comment that avoided what must have been a tempting opportunity to add snark to the news: "This move underscores the importance of pure-play cloud ERP services and solutions, and of the midmarket. It validates the success of Intacct's strategy in both these areas, where we have No. 1 position in customer satisfaction and 40% sustained growth. Focus on innovation and customer satisfaction is our magic sauce because at the end of the day it is customers who matter and must benefit."
FinancialForce is another NetSuite competitor -- in its case, built upon the Salesforce platform. Indeed, Salesforce is a shareholder in FinancialForce and the two companies are seen as diametrically opposed in terms of their view of ERP. FinancialForce CEO Jeremy Roche dived in with significant lashings of snark.
"One of the biggest issues plaguing organizations is the FrankenCloud, and today we've learned that Oracle's will grow into an even bigger monster as it gains more bolt-on appendages including another cloud technology stack and another set of ERP and CRM apps," Roche said. "NetSuite customers are at risk of being drawn even more deeply into the nightmare of the FrankenCloud. Oracle's ERP and CRM acquisition track record and string of casualties including PeopleSoft, JD Edwards and Siebel applications will only add to customer uncertainty."
Roche couldn't help himself (and who can blame him) but add a quick sales pitch for his company. "As a native ERP vendor on the Salesforce platform, we allow companies to run both their front and back offices on a single platform and it is all centered around the customer," he said. "FinancialForce has been battling FrankenClouds created by mergers and acquisitions like this from day one, and is ready to help concerned NetSuite customers to gain the true benefits of cloud computing."
Finally, from within the industry comes a comment from a slightly more neutral player, Handshake CMO Mike Elmgreen. Elmgreen reflected more on what this deal signifies in terms of Oracle's ambitions and future plans.
"This is another clear signal that Oracle is trying to increase its relevance in the cloud and increase its percentage of revenue from SaaS in order to maintain its appeal to the street," he said. "However, it does nothing to address business customers' growing demand for mobile commerce and productivity solutions. Coming on the heels of Salesforce's acquisition of Demandware, the Oracle and NetSuite deal shows that the titans of software are willing to pay a high price to deliver a unified platform for ERP, CRM, and commerce.
"It will be interesting to see if this approach is effective with enterprises accustomed to buying best-of-breed solutions," he continued. "For existing customers of both firms this deal is likely to have little impact on them in the short term. While Oracle has a history of acquiring and integrating businesses over the past two decades, the process of bringing NetSuite into Oracle will likely slow down NetSuite's pace of innovation as they sort out the overlap in products and people as a result of the acquisition."
This deal makes total sense. No matter what anyone says, NetSuite is getting traction and growing the two-tier customer base it has. Culturally NetSuite is a good fit within Oracle, and its approach toward sales, go-to-market, partnerships and product is pretty aligned with Oracle's.
Roche does have a valid perspective when he criticizes the siloed nature of NetSuite's increasing product breadth. Nelson has often been heard to critique his competitor's "hairball" of disparate components; the reality is that, to a certain extent, NetSuite has created its own hairball over the years, and this deal will increase that perception. That said, the reality as vendors move up the food chain is that deployment and integration of solutions requires a big service element, so this "hairball issue" is perhaps less real than many would suggest.
NetSuite will see massive traction uplift from this deal, while Oracle will be able to further points about its transformation into a true cloud/SaaS player. This is a deal that has been a long time coming, and it will be fascinating to watch it develop.
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