Poll: Will Larry let go of NetSuite?

Poll: Will Larry let go of NetSuite?

Summary: NetSuite has been preparing an IPO since early this year. But will majority owner Larry Ellison, CEO of Oracle, be happy to let NetSuite go? Or would he prefer it if Oracle bought the SaaS vendor?

TOPICS: Tech Industry

I'll be meeting Zach Nelson, CEO of NetSuite, on one of his visits to the UK tomorrow night, so I thought why not present him with the results of a special ZDNet readers' poll? The topic: whether NetSuite's planned IPO will ever go ahead. To cast your vote, see below.

Oracle boss Larry Ellison owns over half of NetSuite's equityNetSuite, founded in 1999 with seed capital from Larry Ellison, CEO of Oracle, has been preparing for an IPO for most of the year, and first reports suggested it would come to the market before the end of 2006, which hasn't happened. Whenever it does come, there's no doubt it would be the most talked-about IPO of any SaaS vendor since Salesforce.com's IPO in 2004. Word on the Street now, though, is that March-April next year is more likely. There's nothing odd about a delay of that scale. IPOs are a bit like packaged software upgrades — they always turn out more complex and long-winded to finalize than you expect to start off with, especially in these days of Sarbanes-Oxley and other compliance requirements.

But there's a persistent rumor circulating in Silicon Valley, which suggests another explanation for the delay. It says that Ellison, who still owns a majority 60% stake in the business, would much rather fold it into Oracle (in which Ellison holds a 23% stake). According to the rumor, therefore, the purpose of the delay is to allow time to prepare the acquisition.

Proponents of this line of thinking argue that acquiring NetSuite would give Oracle a ready-made solution with which to go after the SMB market — one that its rival SAP is due to target aggressively with a new solution of its own next year. (For some background, check out a couple of blog postings from earlier this year by fellow Enterprise Irregulars Jason Wood and Zoli Erdos).

On the other hand, Oracle might well feel that it already has good penetration of the midmarket through its JD Edwards products. It's true that it lacks a decent SaaS offering — its Oracle OnDemand hosting unit is more of a SoSaaS play and the CRM OnDemand unit that it inherited with Siebel now runs on the same infrastructure and is increasingly being positioned as an adjunct to Oracle's core ERP suite — but then SAP is equally mired in the SoSaaS model.

Moreover, NetSuite tested a marketing alliance with Oracle a few years back, when it was sold rebadged as Oracle Small Business Suite in a licensing deal. The company found the Oracle brand held little sway among small businesses and Nelson quietly buried it in favor of a marketing strategy that positioned NetSuite as the SMB equivalent of SAP.

There's also the consideration that Ellison is on record as saying he wants to see Salesforce.com's stock (in which he has about a 4% holding) go to nothing. Staying independent — especially with the receipts from an IPO to draw on — would bolster NetSuite's status as a leading SaaS vendor and thus as a competitor to Salesforce.com.

So there's the evidence. I frankly have no idea either way, which is why I thought it might be interesting to ask the opinion of ZDNet's readers. What's your view? Cast your vote below (and post your reasons in Talkback):

[poll id=2]

Topic: Tech Industry

Phil Wainewright

About Phil Wainewright

Since 1998, Phil Wainewright has been a thought leader in cloud computing as a blogger, analyst and consultant.

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  • conflict of interest

    I'm hard pressed to think of a more blatant conflict of interest: these two companies are direct competitors, how can one person run one, and own so much equity in the other?

    Sooner or later one of these boards is going to call this. Surely the IPO is designed to set an objective valuation, allowing Oracle to make a bid that is uncontroversial to its non-Larry shareholders.
  • A few comments on NetSuite

    1) NetSuite has chosen CS First Boston as their investment banker. Since 2003, NetSuite has been saying, "We're doing an ipo w/i the next 12 months." Obviously, the company has not performed up to their expectations (most likely slower than expected revenue/top line growth) or they would have gone public a long time ago. Any NetSuite talk of an ipo has been nothing more than rhetoric. However, the selection of CS First Boston's Palo Alto based tech group appears to make the current ipo talk legitimate.
    2. In the book "Softwar," Ellison clearly stats that Oracle acquiring NetSuite without an established market price for NetSuite is a conflict of interest. He adds that entertaining offers by Intuit establishes a market price for NetSuite and thus eliminates the conflict. An ipo also eliminates the conflict of interest.

    My bet is that NetSuites moves forward and finally - despite past ipo claims - does their ipo in the summer of 2007.
  • my vote

    Larry won't be letting go, he will be realizing the return on a great investment, as he did with Salesforce.com...There is a governance board at Oracle that monitors what is OK for Larry to do....Oracle is not going to buy NetSuite as it might present a conflict, ala SOX, NetSuite is going to go IPO because they can and that has been the plan all along. It is a stand alone sustainable business model and the bankers will view it that way. Think of it as a SMB SAP.....