Cloud ERP vendor NetSuite is embarking on a massive global sales push to give its parent company, Oracle, a dominant position in cloud.
“Larry (Ellison, chairman and billionaire founder of Oracle) believes that everything is going to the cloud. He believes it to his core,” says Jim McGeever, who heads up NetSuite within Oracle.
“This is a golden opportunity for Oracle. None of their competition are anywhere close to having the cloud apps they do. They think they can dominate the landscape over the next couple of years. They want to hire as many people as they can and go for a land grab in the enterprise.”
Oracle, which spent US$9.3 billion on the acquisition, has US$60 billion in cash to fulfil its dreams (that’s not a typo – sixty billion).
How will NetSuite change to conquer this once-in-a-lifetime opportunity? It will grow at a phenomenal rate; McGeever says they want to double the size of the sales team as quickly as possible and add many more partners. NetSuite will open field offices throughout Europe and Asia, add data centres in Australia, Japan AND??, and expand development teams.
McGeever wouldn’t say how much the company was spending but it must be scores of millions.
While NetSuite will maintain a level of independence within Oracle as a separate global business unit, it will need a sales-hungry mentality to achieve its enlarged targets. It will be interesting to see how much of Oracle’s culture and reputation as a highly aggressive sales machine will pass over to NetSuite.
The juciest targets will be converting on-premise ERPs to the cloud. Oracle dearly wants to steal market share from SAP, the leader in on-premise ERP. However, NetSuite sales reps will receive the same commission for taking out one of Oracle’s own on-premise ERPs. The mantra is “take everyone to the cloud, asap”.
McGeever says NetSuite will maintain its focus on the mid-market but inevitably it will start hunting elephants where the commissions are so much fatter. This was most obvious in the product announcements. The banner was the addition of SuitePeople, an HR management module that sits just below Oracle’s human capital management (HCM) products, and the plan to integrate Oracle’s cloud software into NetSuite.
Remarkably, given the frenzy in the cloud accounting market, there was not a single mention during the keynotes of AI or machine learning. I asked Oracle CEO Mark Hurd, Evan Goldberg, NetSuite’s EVP of development at NetSuite, and McGeever why they weren’t introducing AI into their financial module. Wouldn’t SMEs would be reluctant to move from AI-powered cloud accounting software to manually reconciling in a cloud ERP? I gave the example of Australian e-commerce company Kogan using Xero and an inventory app Unleashed to sell $170 million of goods a year.
Their responses were revealing.
Goldberg, sounding slightly exasperated, replied, “We’re not automating the financial functions. We’re automating entire business processes. When you’re adopting NetSuite you’re adopting more than a financial system. They experience the same thing (i.e. siloed databases) that caused me to build NetSuite in the first place.”
McGeever said that if cloud accounting software was a consideration then NetSuite was in the wrong competition. “Companies in the US don’t normally choose between NetSuite and QuickBooks Online. There are some unicorns like the one you mentioned but it is a different market.”
(Hurd didn’t understand the question and gave an answer about machine-to-machine applications in mission-critical systems. The guy runs a company with 40,000 employees and turns over $40 billion a year in revenue, so you’ve got to give him a break.)
The answer in short was that NetSuite had so much opportunity with the product that it has today that the AI revolution in small business accounting software is not relevant.
It’s true that, from Oracle and NetSuite’s perspective, competition from cloud accounting software does not matter. They are standing at the foot of an enormous mountain of larger, more profitable prospects.
And it will have its work cut out chasing all the companies using on-premise ERPs from Oracle and SAP. Many product announcements at this week’s SuiteWorld conference added new functions or expanded existing ones to make it more comparable to the heavily developed on-premise solutions.
It’s fair to say that NetSuite is the furthest developed of the cloud ERPs; it’s definitely the oldest and has the largest number of customers. Clearly then the cloud accounting apps will discover practical uses for AI in financial systems for a good while before it appears in ERP.
I would expect that once AI delivers auto-coding of transactions, invoices, bills and receipts it will make it a little harder for an SME to leave cloud accounting software for an ERP. How much harder? I guess that depends on how well AI works.
If it lives up to its potential, AI will eventually strip out many accounting functions. It would be a difficult proposition to upgrade to a larger system that depended on manual processing.
Hurd, McGeever and Goldberg are clearly thinking of all the opportunities in the upper mid-market and enterprise. The vendor’s attention will follow their leadership. NetSuite will always claim to want the small mid-market and SME but I’d expect that over the next couple of years the smaller fish are likely to be overlooked.
Disclosure: Sholto Macpherson travelled to SuiteWorld in Las Vegas, USA as a guest of NetSuite.
Sholto Macpherson
Hi Sholto – thank you for this very stimulating article, I do however think the culture in ERP organisations is very different from that of the SMEs that are using Xero/QBO etc and that A.I. and/or machine learning would operate very differently in that environment.
Take for example Expenses/Supplier Bills – in the SME world, the majority of bills are coded against one GL account. However in an ERP organisation you start the process with a draft purchase order – often auto generated via MRP/EOQ/Min Order qty/Supplier lead times etc, These are converted to a purchase order which contains account coding, supplier fulfills the order and their bill is matched to the purchase order for payment – this is a fairly automated workflow and automatically pulls data from multiple sources to reduce data input (and thus user error and user time) throughout the lifecycle. So I am not sure that your statement about depending on manual processing is true – the automation is different.
Additionally many ERP organisations would have profit centre tracking – there are certainly challenges trying to use AI here and I don’t think this is going to work too well in the Xero AI world
I have just been going through a selection process for one of my clients who needs to move off a Reckon Accounts and Xero/Unleashed solution to an ERP solution. Out of the 7-8 systems I looked at only 2 were Cloud, the remainder were all on-premise or hosted. However, again I am not sure how mission critical it is for a cloud solution in an ERP organisation – generally a vpn connection is set up enabling remote access – not as flexible for sure but the anywhere, anytime, any device functionality is not such an issue. The organisation will still have the hassle of upgrades, will still need to look after backups, and provide IT infrastructure but until the entire business becomes cloud, the business can support this with minimal hassle
Have you had a chance to look at Sage 300 (formerly Accpac) – this is a cloud ERP solution, how does it measure up from a functionality perspective to NetSuite
You mention Australian e-commerce company Kogan using Xero and Unleashed to sell $170 million of product per annum. My client acquired a company in Brisbane using Xero and Unleashed and whilst it is a good solution, it is not ERP and they are hitting walls – they make product and need to cost in labour and overhead to their BOMs, they need to record landed cost on imported products, specification of general ledger accounts for integration is too limited and very importantly, Xero cannot handle their transaction volumes, An organisation with a straight forward business model regardless of turnover, can operate very efficiently in a Xero/Unleashed environment but my client with maybe $18m a year turnover just cannot
I did note that out of the 8 products I evaluated for my clients,most did not have bank feeds but MYOB EXO apparently uses the BankLink functionality as in Account Right
Thanks Margaret. Just on the bank feeds, I’m 99% sure that MYOB Advanced has bank feeds. I would definitely look at that first over MYOB EXO.
I’m still (always!) bullish on cloud for ERP even if user experience is not as important as a cloud accounting app. Two reasons; cost and hassle. Organising servers to run any software is something a business just shouldn’t have to think about. Who wants to worry about running a server room in their office? Kogan ended up going with an on-premise version of SAP and runs it on Amazon Web Services which is the best way to do it, but if you have feature parity then I don’t see why you would bother. Kogan felt that the SAP ERP needed less customisation than any of the others.
Great points about how automation would work in ERP. I still think there are plenty of opportunities in there. Eg. companies with a large sales team that generates a lot of expenses entertaining clients. AI could pull events from a sales rep’s calendar, search for the client name and time-match any receipts during that period to the client. Developers for QBO said they were exploring this at QuickBooks Connect last year.
Add the work done by Xero, Intuit, MYOB, etc. on bank feeds and verifying contacts and doing credit checks with Veda, etc. I’m sure there are and will be lots of things that could be applied to ERP.
I forgot to comment on Xero transaction limits. Kogan was processing all transactions in Unleashed and rolling them up into a single daily transaction that was posted to Xero. That’s how they did it. If your client is dealing with BOMs and local manufacture it’s more complex than the Kogan model which (AFAIK) is only online retail, and a lot of that is drop-shipping from warehouses in China. So no BOMs.
Sholto, so so true: “If it lives up to its potential, AI will eventually strip out many accounting functions. It would be a difficult proposition to upgrade to a larger system that depended on manual processing.”
Accounting tech companies tend to “swim in their own lanes” – as you describe, opportunities are large enough they focus on their modern day target clients and don’t think to much about who they’ll be chasing 5 or 10 years from now.
The naivety is extraordinary. The mere existence of NetSuite Add-ons such as Nolan and ERP Fast Forward (better bank rec than native NetSuite) is comical to me and just shows how far removed from the future NetSuite (and others in the mid to enterprise space) remain.
As you so rightly point out, how can businesses give up automated Accounts Receivable payments via automated bank feeds (noting in Australia most B2B payments are received at bank NOT via cheque or Credit Card as it is in the US – which is the framing how NetSuite think)?
Xero, who use NetSuite themselves much to their own chagrin, see the opportunity in moving up market and keeping their customers much much longer than entry level players have in the past – this is where Xero and Intuit are diverging in their strategies. Intuit keep looking down at the expanding self-employed market, regardless of the churn or the small LifeTime Value – they just see the pure volume play. Xero look at the absence of functionality and the LifeTime Value of the mid-market and drool (my maths has NetSuite LTV around $800k, whilst Xero is currently ~$2k)!
Its going to be interesting to see how this all plays out, that is for sure.
Thanks for the comment, Matt. I think I scored an Evan Goldberg eyeroll when I asked him about bank feeds at the SuiteWorld press conference. Maybe it was the lighting.
Re: Intuit, I wouldn’t underestimate its ambitions. Once they have the volume play under control – and they are clearly racing to establish first-mover advantage – they could turn around and start heading up. Rich Preece told me that Google used QuickBooks desktop up until they had 500 employees…