Today, NetSuite announced NetFlex, which includes features for customizing and building applications that follows the Salesforce.com model of creating an applications platform, rather than a static set of mildly customizable, branded business applications. The NetFlex components will roll out over the next year, started with the CRM application. However, the two companies are at different stages in their respective evolutions and taking different approaches to the market.
NetSuite has built a suite of hosted business applications--including CRM, ERP and e-commerce modules--that are sold on a subscription basis individually or in combination. Like Salesforce.com, NetSuite is built on an Oracle database and Java technology, and provides a single system of record. Both gain significant flexibility and reduce the complexity of configuring and customizing applications with a unified data model and interfaces and security facilities that work across all applications created with their platforms.
In addition, the two companies got started about the same time, in 1998. Both were funded initially by Oracle founder and CEO Larry Ellison, who currently owns about 4 million shares of the publicly traded Salesforce.com and is the majority shareholder in the privately held NetSuite. Benioff, Nelson, NetSuite founder and CTO Evan Goldberg, among others involved with the companies, all spent formative years working at Oracle with Ellison. The story of "Larry's boys" is chronicled in a recent Inc. magazine article.
Both companies started with the idea of selling software subscriptions, creating the infrastructure and software to deliver enterprise-class software via a Web browser. From its inception, Salesforce.com focused on CRM as its base application and went after large customer installations. Marquee customers today include AMD, Cisco, Avis, Staples, ADP, Corporate Express and Sungard. The company has nearly 227,000 subscribers across nearly 14,000 companies of all sizes. The platform is available in 11 languages. For the quarter ending January 31, 2005, Salesforce.com had $54.6 million in revenue.
NetSuite, on the other hand, started its life as NetLedger, aiming at companies that were outgrowing Intuit's popular QuickBooks. Later on, the company added CRM and e-commerce applications. The company had revenues of $43 million in 2004, and claims more than 7,000 customers and 70,000 subscribers. About 90 percent of the 7,000 are using NetSuite, and the remainder NetCRM without turning on NetERP, according to company spokesperson Mei Li. Currently, the company only has an English version of the product, but Chinese, Japanese, German, French and Spanish versions expected before the end of the year.
Unlike Salesforce.com, NetSuite is focused only on the SMB market. "The mid-market is the last great unconsolidated market in world," Nelson told me. "No company has more than 10 percent share. Ultimately, it will behave like other markets with big leaders, and the only company that can compete with us is Microsoft. So far, Microsoft hasn't done much to consolidate its code base, let alone the market. We will be the SAP of the mid-market in terms of being the dominant supplier of business applications--the system of record five years from now will be NetSuite."
That's an ambitious statement. So far, NetSuite's success has come from small companies. NetSuite deployments average 10 subscribers per customer, and the company has few mid-size deployments (companies with a few hundred to a few thousand employees) to date. A complete business applications suite aimed at SMBs is a tough sell, requiring the replacement of both front-end and back-end systems. "Salesforce.com was smart--they chose simpler applications," Nelson said. "There are 10 times more sales people than accountants."
Benioff doesn't want to be the SAP of the SMB business applications market. He is focused on "destroying and obliterating SAP's CRM business piece by piece." He continued his bravado, "SAP should be relegated to a small closet running general ledger. It's so complex, it brings down productivity. The way to go is put Salesforce.com on top of SAP, and just use the data from that system. People need less and less software, not more. That's how we look at QuickBooks, Great Plain (Microsoft), Oracle and J.D. Edwards (now owned by Oracle). There is a big global market, and we want to have a place in all those markets." Benioff has expressed similar sentiments about Siebel.
Lately, NetSuite has been trying to grab Salesforce.com business with its 50-percent off offer and an improved product and specialized Services version, but the effort hasn't slowed Salesforce.com's momentum.
As you might expect, NetSuite believes that Salesforce.com's emphasis on CRM is flawed. "Salesforce.com's vision seems to be that all the functionality they don't have, which includes critical applications for accounting, order management, inventory, e-commerce, and professional services automation, is the responsibility of each customer to build or buy and integrate," said NetSuite founder and CTO Evan Goldberg. Nelson said that with the forthcoming release, NetSuite's CRM application has equivalent functionality to Salesforce.com's CRM.
Goldberg has a point. If Salesforce.com, and its competitors, can deliver a canonical CRM application as a service, with no-code customization and integration APIs, then why not other key business applications, especially for the lower end of the SMB market. After thousands of years of development, the business schemas for financials, payroll, purchasing, inventory, and customer portals are well documented and have substantial consistency across industries. A single data model and interfaces that abstract the business logic from the underlying database and hardware is critical to lowering the cost and complexity of business applications.
Benioff responded by saying that most of his customers already have incumbent ERP systems and technology, and that customization--not Salesforce.com branded applications for ERP--is needed where customers don't have good solutions today. He cited human resource and project management, bug tracking, and sales forecasting as examples, where a set of business processes haven't been valuable enough in software terms to generate formal applications. "NetSuite wants to be all things to all people, which relegates them to small business," Benioff said. Salesforce.com wants to be everything to medium- and large-size business, the core applications platform and customer portal, just as Windows, Solaris or Linux is an essential operating system layer.
He also noted that general ledgers for small companies and big, global enterprises are different, but a few years ago people said the same thing about CRM software. Nelson also contends that Salesforce.com's software architecture is built primarily to support CRM and form-based applications, and doesn't manage the concept of transactions well.
"We don't have transactions in our Web services APIs today. We understand that would be useful for some people, but to be honest, transaction semantics such as roll back and commit are less important--it's a small percentage of business activity," Adam Gross, director of product marketing at Salesforce.com told me. "Transaction services would help us solve higher-end problems, but the standards are still in flux. We are starting with CRM, SFA, support and then moving our concentric circle to reach all development people. We are growing from the front office to back office, but moving in steps."
I guess that's a way of saying that Salesforce.com's platform could evolve over the years to have more native back-office applications, and will forego transaction-based service delivery for now.
David Brooks, director of CRM at Magma Design Automation, has 500 seats of Salesforce.com and SAP for ERP. "When we looked at the partition between Salesforce and SAP, we realized that in some ways it was good that the accounting system of record is not in Salesforce. If, however, Salesforce had a full-blown ERP system up and running, and if the price were as good as CRM, we would probably take advantage of it, but that's a ton of engineering time to get something world class. Salesforce is good at picking around edges of ERP that are customer and field facing."
Fundamentally, NetSuite has added customization and integration features to its platform, which indicates that the company has come around to Salesforce.com's notion of creating a more extensible platform--primarily for smaller business so far--that allows customers to build applications on top of their platform.
Benioff's company is enamored of the economics of large accounts, which can scale from dozens to thousands of seats and extend beyond the boundaries of CRM via the development environment and service-oriented architecture of the platform. Benioff states his goals as follows: "Customization, integration, global, best-of-breed CRM and a strong sharing model--which is really our secret sauce--are key for us. We want to figure out what data every user should get at any time, based on their role in company."
Salesforce.com has been keeping up its rapid development cycle with new capabilities due in the forthcoming Summer '05 (June 8) release of its platform. This latest future feature, Multiforce, allows customers to concurrently run applications created on the Salesforce.com platform. NetSuite has a similar capability. Users can run standard and custom Salesforce.com applications, created with the Customforce development tools, switching easily between tasks with unique tabs, such as project management and sales forecasting. However, the critical "force" is that the multiple applications share the same data model, user interface and security infrastructure.
Implicit in the Multiforce pre-announcement is the company's desire to accelerate development of custom applications on its platform. The company's press material claims that Multiforce "will change the economics of customization and allow companies to create applications in as little as a few minutes, and without any code." Customization features include creating custom tabs, fields, forms and objects, such as a specific marketing campaign or account. In addition, relationships between custom objects can be defined without coding. The Summer '05 edition will add embedded Excel-like capabilities with an extensive formula library and conditional logic.
For more programmatic customization, Web services APIs allow Salesforce.com to integrate with external systems via sforce. The API activity accounts for about 20 percent of activity in the Salesforce.com environment, according to Gross. Magma Design Automation extensively customized its Salesforce.com implementation using Customforce and sforce to manage customer service and support and change request management. Brooks' only complaint was the lack of a serious workflow engine, the equivalent of database triggers in Oracle. His company had to write 10,000 lines of Python code to support workflow requirements.
Salesforce.com is also allowing third-parties to create new classes of applications that run on its platform. Thomson Financial, for example, announced that it will offer an OEM version of Salesforce.com CRM as part of a wealth management application.
NetSuite's NetFlex brings many of the capabilities found in the Salesforce.com platform. It includes Web services for integrating with external systems and customization capabilities, such as enabling unique configuration and personalization for the suite of applications. For example, users can easily create role-based dashboards, tabs and unique interface branding.
Despite all the claims and counterclaims, the two companies are both paving the way for software-as-a-service. At this point, Salesforce.com is leading on many fronts, but it is early in the game. The good news is that both are highly motivated to keep improving their products, and they will need to in order to stay ahead of all the others who join the game.