Oracle’s $9.3B Claim to ‘First Cloud Company’ : Leading with NetSuite ERP SaaS

larrycloudOracle recently announced it is acquiring NetSuite and calls it the ‘very first cloud company’. This may come as a surprise to many who believe Salesforce was the first cloud company. Quick fact check – NetSuite was founded in 1998, just months before Salesforce and therefore Oracle’s claim seems true. However, the claim holds only for enterprise/commercial cloud service providers. If you consider the first generation of internet companies including e-mail providers such as Hotmail, Yahoo and others they could also qualify for the ‘first cloud provider’ title except their focus was not on enterprise.

NetSuite does provide Oracle a big boost in their cloud plans by augmenting Oracle’s products with a suite of cloud-based financials / Enterprise Resource Planning (ERP) and omnichannel commerce software that runs the business of more than 30,000 companies, organizations, and subsidiaries in more than 100 countries. Oracle which has been trying hard to carve a position in the cloud space will hugely benefit from the addition of NetSuite which will enable Oracle to expand its ability to support small and mid-size customers in addition to its current large enterprises installed base.GartnerCloud2015

According to Gartner, the worldwide public cloud services market is projected to grow 16.5 percent in 2016 to total $204 billion, up from $175 billion in 2015. The Software as a Service (SaaS) global market is expected to grow 20.3 percent in 2016 to reach $37.7 billion. Gartner has also projected 18.8 percent CAGR growth of SaaS from 2015-2020. In June 2016, Oracle announced its Q4 2016 plus Fiscal Year earnings and reported SaaS and Platform as a Service (PaaS) total revenues were $2.2 billion, up ~50% from previous year.

“We added more than 1,600 new SaaS customers and more than 2,000 new PaaS customers in Q4,” said Oracle CEO, Mark Hurd. “In Fusion ERP alone, we added more than 800 new cloud customers. Today, Oracle has nearly 2,600 Fusion ERP customers in the Oracle Public Cloud — that’s ten-times more cloud ERP customers than Workday.”

Chairman, Larry Ellison laid out his cloud ambition:

That gives us a fighting chance to be the first cloud company to reach $10 billion in SaaS and PaaS revenue.

netsuiteThe NetSuite acquisition could help Oracle add ~$1B in revenue over the next couple years. NetSuite’s most promising SaaS offering is its ERP suite suitable for mid-marketand helps businesses wth cloud based accounting and streamlined operations with the real-time visibility. The NetSuite OneWorld helps take this capability at a global scale and integrates sales and marketing operations, commerce operations (B2B or B2C) and services resource management across your entire global organization.

Gartner’s 2015 Magic Quadrant for single-instance ERP covers mid-market ERP providers but doesn’t really include SaaS ERP players. As software vendors shift their business models from on-Magic-quadrantmidmarketERPpremises licensed software to public cloud-based offerings and as customers increase their adoption of SaaS for ERP applications, this chart will change to reflect Oracle’s NetSuite,SAP’s Ariba, and other SaaS players  Oracle’s NetSuite move will help it position strongly as an ERP SaaS provider and transition from its own traditional portfolio of on-premise products.

Just like with other technology acquisitions, Oracle’s current customers are probably anxious on how Oracle’s strategy will evolve and whether the company would ‘End of Life (EOL)’ the products they are currently using. To reduce their fears:

“Oracle and NetSuite cloud applications are complementary, and will coexist in the marketplace forever,” said Mark Hurd, Chief Executive Officer, Oracle. “We intend to invest heavily in both products—engineering and distribution.”

 

“NetSuite has been working for 18 years to develop a single system for running a business in the cloud,” said Evan Goldberg, Founder, Chief Technology Officer and Chairman, NetSuite. Zach Nelson, Chief Executive Officer, NetSuite also said, “NetSuite will benefit from Oracle’s global scale and reach to accelerate the availability of our cloud solutions in more industries and more countries.

Larry Ellison already owned ~40% of Netsuite and financially, the deal makes a lot of sense to Netsuite which was making loss ($37.7 million in last quarter on a revenue of $230.8M). With $9.3B, Oracle has made a strong bet in NetSuite and if managed well, this acquisition can be very fruitful in Oracle’s journey in the SaaS market.

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