NetSuite edges closer to IPO

NetSuite released its second quarter financials in an amended S-1 registration statement this week, which also revealed that majority stockholder Larry Ellison is to relinquish his grip on the company to eliminate potential conflicts of interest while he remains CEO of software giant Oracle. Both moves help pave the way towards the company's much-awaited IPO — although sometimes it feels as though the IPO has been in the offing for so long, it ain't never gonna happen.

I speculated when NetSuite first released its S-1 at the beginning of July that it would publish some barnstorming second-quarter results as a prelude to making its offering, but that hasn't transpired. Growth since the previous quarter in fact slowed below the 10 percent mark, down to 9.8 percent in Q2 from 15.1 percent achieved in Q1, a marked difference. This is despite the company continuing to spend more than half its revenues on sales and marketing, and defers the breakeven horizon further into the future — unless NetSuite has turned things around in the third quarter. Let's assume the company will hold the IPO back until it can publish those financials — especially if they do show a resurgence in sales growth back towards the 15 percent quarter-on-quarter range. The one strong comment that can be made on the second-quarter results is that they tip the company past a $100 million-a-year run-rate, which in itself is quite an achievement.

The challenges of sustaining growth may perhaps explain why NetSuite was talking up its partner play last week with the launch of SuiteBundler, which CEO Zach Nelson is calling "one of the most important pieces of software written in the last decade." SuiteBundler automates the process of packaging up custom configurations, add-ins and plug-ins as a bundle that can then be deployed in successive different implementations. It means partners can create custom functionality or even complete vertical implementations and then market them as their own intellectual property. NetSuite bills the customer a monthly per-user subscription that's discounted 30 to 50 percent from list price, and partners bill a separate price they set themselves for their own custom solution.

What's distinctive here is the ability to create reconfigurable customizations that encapsulate a partner's technical or vertical expertise, and which run on a hosted application with all the benefits of the on-demand model. NetSuite's underlying software automatically upgrades with new releases as it does for any other customer, but in the current release of SuiteBundler there's no capability for partners to roll out upgrades of their own customizations. That will change middle of next year with the 2.0 release, which supports rolling out upgrades to existing customers of earlier versions, either automatically or as a manual process.

NetSuite has some enthusiastic partners already but of course the strategy depends for its success on there being enough of them out there to really take the company into the kind of verticals that are currently the province of vendors such as Sage, Microsoft and the JD Edwards division of Oracle. Solution providers in such fields tend to be a pretty conservative bunch and will want to see evidence that NetSuite's approach will work for them before committing themselves in big numbers.