NetSuite – Smoke & Mirrors or Sustainability

In the February 2005 issue of Inc Magazine, Rob Turner gives a substantive overview of Larry Ellison’s (CEO of Oracle) investments in three companies: NetSuite, and Oracle’s own Oracle E-Business Suite Special Edition.
NetSuite has had meteoric rise of success, having reached No. 12 on the Inc 500, with a four year growth of 5,763%. It’s revenue in 2003 was $16.5 million and will be about $50 million in 2004 – absolutely amazing.
NetSuite (ASP / hosted application) competes head on with Intuit’s Quickbooks line of software (Quickbooks to Quickbooks Enterprise). The advantage of the ASP model is that NetSuite continues to improve and add new capabilities to its software. The ASP model does not have a yearly, “2005”, “2004” version of software like Quickbooks and other packaged software do.
Today NetSuite will announce a pair of new advanced Enterprise Resource Planning (ERP) modules which will include NetSuite Revenue Recognition Module and NetSuite Advanced Financials Module.
One problem about NetSuite, however, is the cost. Sure, it’s a “monthly” fee so cash flow ideally is helped. But one typical customer paid $1200 a year for NetSuite in 2003 ($99 per month) and in April 2004 had to write a check for $7,200 ($399 per month for one user and $99 for each additional user).
NetSuite is planning an IPO for 2005 or 2006, with this in mind is it any wonder that although NetSuite has a great product they are forced to keep up profits and sales, hence increasing prices, to be an attractive Wall Street darling?
Although NetSuite regularly touts that many customers are defecting from QuickBooks to NetSuite, how many customers are going back to Quickbooks? One customer is going back to Quickbooks to get better support (bundled into the price of Quickbooks) and pay less – a one time cost for the product as opposed to escalating monthly fees.
It is a PAIN to switch products and this is one reason why many customers stay with their current software vendor – be it a Mac, Quickbooks, NetSuite, Windows, or Linux issue.
In fact today NetSuite is announcing that mid-sized companies continue to migrate to NetSuite from the legacy back-office Microsoft Great Plains solution. Companies that recently switched from Great Plains to NetSuite span a spectrum of industries including manufacturing, wholesale/distribution, and eCommerce. Some of the reasons touted for switching to NetSuite were advanced functionality, ease of use and less cost.
Taking note of this problem NetSuite released NetSuite Small Business which costs $99 per month for the first user and $49 per month for each additional user. NetSuite customers used to the FULL NetSuite package might find that this “lite” version is less functional than what they are used to.
Quickbooks, by the way also has a “lite” version, Quickbooks Simple Start ($99), which I recently heard advertised on the radio, just for SMBs that do not need the full functionality of Quickbooks.
In the end:
1. The market is big enough for a handful of large players with hundreds of thousands to millions (all SMBs) of customers and smaller players with a few thousand loyal customers
2. Will NetSuite’s prices and lust for IPO $$$ cause it to be a flash in the pan that burns out or dampens? NetSuite has proven itself so far, but can its momentum be sustained?
3. Intuit clearly has sustainability and has nothing to lose – but everything to gain

2 thoughts on “NetSuite – Smoke & Mirrors or Sustainability

  1. hakan andersson

    I have been a user of Netsuite since Netledger first was introduced, but the high cost for a single user has forced me to convert to Quickbooks.Netsuites is using a black mailing technique to enforce their price increases and in my case they closed the account without forewarning because i questioned their price increase. So rather than answering my question they just shut down the account and denied me the access unless I paid for another quarter plus the new increase.I have a rather small company and could not afford the increase so my choice was to pick quickbooks.With the denial to access my records it has been a piece of work to recreate the company but Its done now.

  2. Nick Spooner

    Netsuite cost is a big issue for small businesses compacted by the fact that they have publicly announced ( they are ‘abandoning’ their small business focus. Don’t despair though, the good news there is an affordable Netsuite alternative ( ) . This system is significantly lower than the Netsuite cost of ownership and implementation. The folks at are very helpful and offer their support free. Average cost per user is up to $36 (£22) per month.

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