NetSuite's earnings fire a warning shot to the incumbents

I can't get on the call for this evening (my time) earnings call with NetSuite. Be that as it may, the top line results are better than expected, as reported by Larry Dignan. My take away on this is different to the usual discussion about company specific performance. I am more concerned about the trends.

NetSuite's blow out numbers follow success at Workday in raising $85 million plus holding a very successful user conference. But before we get ahead of ourselves, the business apps market is in an upswing. Given the power of the incumbents you'd think the cloud players would fare less well. That's not turning out to be true. All boats are rising. Given the SaaS/cloud players did well in the depths of the recession you have to wonder why they continue to fare well in the good times.

As NetSuite and Workday plow ahead in building reputations as class players in the enterprise space, the incumbents must be concerned. If not then they are fooling themselves. The characteristics of the new kids on the block stand in sharp contrast to what the incumbents have to say.

Earlier today, I read a report from Brian Sommer entitled: SaaS: Now serving large, complex enterprises. (PDF registration required.) Inter alia he said:

SaaS application technologies have matured in recent years. Many solutions support global operations and functional needs of some of the world’s largest businesses. - The implementation costs of SaaS solutions are routinely half or less of an onpremise solution. - Executive committees will not green-light on-premise application implementations as capital is still constrained in most firms. - SaaS decisions create partnerships unlike the typical software vendor relationships.

Those words were written in early/mid 2010. If my research, based upon the deals I see, is correct, then those words were prescient.

SaaS/cloud vendors seem capable of continuing to grow regardless of the economic conditions. There can only be one explanation. The total value proposition is more compelling than that offered by the on-premises vendors.

That spells one thing - a changing of the guard that no amount of incumbent maintenance revenue can protect. It represents disruption the incumbents cannot match with outdated, antiquated business models that do not match today's realty.

I'll be a tad bold here: two or three more quarters of a similar kind and it is game over for the incumbents. They will not go away but they will become irrelevant to those businesses committed to growth.