NetSuite vs. SAP – really a question of back office economics
Show me the money
NetSuite is announcing later this week a program that offers some SAP R/3 users (or potential users) a chance to use NetSuite’s applications at a price point equal to 50% of the maintenance fees SAP would have charged them.
Moreover, NetSuite has already got a customer moving onto to its suite.
The real issue here is more than an aggressive sales promotion, though. NetSuite is making a lot of hay out of SAP’s forced upgrade of its customer base to a higher maintenance service level (and with it a potentially higher maintenance cost). In light of the current economy, SAP’s timing on this cost increase was unfortunate at best and a strategic blunder at worst. Raising customer costs in a down economy is a gutsy thing to do unless you are absolutely sure of your customers and their willingness/ability to pay more.
Another aspect of this announcement is found in a customer’s comment re: their move to NetSuite. The quote states: “We were spending 3% of our revenue on SAP. By switching to NetSuite, we reduced that cost to 0.1% of revenue”. If your firm is spending 3% of its hard earned revenue on an application software suite for its back office needs, I think you’re spending too much. In studies completed over the last decade or so by groups like Hackett, CIC and others, most large firms (the kind that use software like R/3) are often spending around 1.5% of revenues on their back office processing. That figure includes software and labor. Granted that’s an average but top quartile firms often report costs in the 1% level while best in class can be at the 0.4% level. If that customer was truly spending 3% of revenue, they probably had the wrong software or configured it poorly to drive up their costs so much. This customer probably needed to move off of R/3.
Should the average R/3 user cutover to NetSuite apps? I’m pretty doubtful this is a good idea. The best candidates for this campaign would be divisions, plants or other business units that don’t need all the functionality that their parent company is getting out of R/3.
Will additional campaigns to attract Infor, Oracle or other users?