NetSuite vs. SAP – really a question of back office economics

NetSuite vs. SAP – really a question of back office economics

Summary: Show me the moneyNetSuite 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.

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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?

Topics: Enterprise Software, Banking, SAP, Software

About

Brian is currently CEO of TechVentive, a strategy consultancy serving technology providers and other firms. He is also a research analyst with Vital Analysis.

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5 comments
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  • That's what Zach said

    Brian - the sweet spot is exactly where Zach said he is aiming the offering in yesterday's earnings call.
    dahowlett@...
    • Clarify

      I meant Zach talked about the situations you are suggesting - it's like the old Navision surround strategy only re-invented for saas.
      dahowlett@...
  • NetSuite vs. SAP for Division of Large Companies

    Divisions of large companies that run R/3 are often told to run R/3 and yes it is the wrong software.
    tfoydel
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