Web 3.0: NetSuite's on-demand ecosystem

Successful vendors in the on-demand era will be the ones that build thriving partner ecosystems. How does NetSuite's NetFlex strategy, announced last week, stack up?

Successful vendors in the on-demand era will be the ones that build thriving partner ecosystems. NetSuite unveiled its ecosystem strategy last week, so this is a good moment to evaluate how it stacks up. In my next post, I'll assess the relative merits of Salesforce.com's rival ecosystem, the latest version of which is being unveiled today.

In previous posts,Synchronizing transactions is the challenge for ERP mashups I've used Web 3.0 as a convenient shorthand term for the coming generation of enterprise applications that take advantage of services architectures and on-demand delivery models. With last week's roll-out of its NetFlex platform and partner program, NetSuite has put a lot of the pieces in place to be a successful Web 3.0 player.  

An application platform is one of the most vital ingredients. When I started this series of postings about What to expect from Web 3.0, I described three layers, in which raw API services such as RSS and Google's APIs form the commodity base, aggregation services bundle them together, and finally composite applications deliver these services in an intuitive, self-evident format to users. NetFlex brings NetSuite's application platform into line with this model. This is illustrated well by its partnership with StrikeIron, an aggregator of raw web services that I've written about in the past, which can be embedded via NetFlex into NetSuite applications.

It's also possible to use StrikeIron's OnDemand for Excel add-in to integrate NetSuite data feeds into a spreadsheet application, demonstrating that the API works both ways. This means that a customer is not forced to use NetSuite as its dominant application platform. Instead, the NetSuite services can contribute their output as data feeds into other applications. This makes NetSuite a 'good citizen' of the Web 3.0 world, which is important for customer confidence, but it pushes NetSuite out of the more lucrative composite application layer, unless the customer can be persuaded to keep NetSuite on top. That's why the next ingredient is equally important.

The application must be core. Last month, I reported leading CIO JP Rangaswami's views on the future of enterprise applications and how they will coalesce around four new pillars of functionality. The challenge for vendors is becoming one of those four pillars, or else sinking into the commodity services infrastructure. To stay on top, your application needs to be one that will be on every desktop.

Zach Nelson, NetSuite's CEO, believes his company's suite provides much more core functionality than CRM-based rivals because it stores transactional data such as orders and stock levels. This makes it a natural choice, he says, for creating composite applications — or mashups, as the Web x.0 generation has it — with other services.

"Read-only mashups are pretty simple, but transactional mashups are the issue," he told me last week. "Synchronizing transactions is much more difficult than synchronizing a read — that's the challenge for ERP mashups. You need a pivot point. That's the strength of NetSuite in this [environment] — it's a system of record."

Let the ecosystem flourish. In the era of service-oriented architectures, any vendor would be foolish not to encourage and nurture a vibrant ecosystem because of the enormous innovation it can unleash. In addition to the basic SOAP web services interface, NetSuite has also created several tools that help partners create applications that use NetSuite's own user interface and hosting platform. Nelson believes ISVs are attracted to the application because it takes care of the core transactional functions, leaving partners free to concentrate on the specific business processes they specialize in. "They came after us once we announced NetFlex," he said (the web services interface was first announced in March last year). More than thirty were named in last week's announcement.

Welcome resellers. The final ingredient in NetSuite's strategy is to offer favorable terms to channel partners. As I mentioned earlier this month when writing about Jamcracker, on-demand vendors have not been good at this historically, but the time is now right to start courting the channel, as a recent report in CRN bears out.

NetSuite stands out by offering a minimum 30% margin for keeps, rather than just in the first year. "You have to give them the recurring revenue, otherwise there's no point in [them] doing it," said Nelson. One of the first to join the NetFlex ecosystem is ZeroedIn, a Microsoft partner that is building a retail solution based around Microsoft's Retail Management System. NetSuite replaces Navision in ZeroedIn's on-demand version. This is an early illustration of how on-demand vendors will be tapping into the vertical domain expertise of established solution providers to expand their market reach.

It's still early days, but NetSuite has made some good moves towards getting its partner ecosystem off the ground. Other vendors have taken other approaches, which I'll be covering in future postings. Who knows which will prevail? Only time will tell.