If the success of NetSuite's IPO this week was any indication, the market for on-demand ERP software is red-hot. Startup NetBooks hopes to capitalize on that.

NetBooks recently began offering hosted ERP software. But the company, based in Rohnert Park, California, has set its sights on a particular class of customer: The millions of small, owner-managed U.S. businesses with between two and 50 employees. "It's the backbone of the economy," said NetBooks' founder, Ridgely Evers.

Evers has long played in this space. While at Intuit, he led the creation of QuickBooks, the popular accounting software.

NetBooks' core suite covers marketing, sales, inventory, and finance, but doesn't include functions like e-mail or calendaring. "We're not a Microsoft Office replacement," Evers stressed.

The product is engineered for ease of use, he said: "For our target market, IT is the word 'it.'"

NetBooks has added other capabilities through partnerships, including PayCycle for payroll and UPS Online Shipping. The firm will make major new partner announcements in early 2008 and release new software features throughout the year, according to Evers.

Evers declined to discuss how many customers the firm has landed so far, saying only, "we're very early in our growth."

NetBooks costs $200 per month, or $1 per hour, for five users, along with free access for a customer's bookkeeper, accountant, and "marketing coach." Unlimited support -- accessed by clicking a button within the NetBooks software -- and free upgrades are included in the price. The company also says that if a customer signs up for the service at a given price, they will never pay more for it.

One analyst said NetBooks shows promise but faces many challenges.

"If they do in fact do all the things they claim to do, this is great," said Marc Songini of Nucleus Research in Wellesley, Massachusetts.

"They're doing a smart thing by offering these [third-party] integrations so customers don't have to do it," he added.

Still, he said, "They're very small and don't have a lot of recognition. It's going to be tough for them to get up and running and get critical mass."

For one thing, NetSuite does sell its service to small businesses, Songini said. Also, if a giant like Google began offering a similar suite of hosted applications, startups like NetBooks would be hard-pressed to succeed, he said.

The other challenge centers on marketing. Larger ERP and CRM vendors have clear sales targets: C-level executives. The small business market may be immense, but it is also broad.

"Obviously, that bottom segment of the market is wide-open, but the problem has been, how do you sell to it," Songini said.

Songini said one possibility would be for NetBooks to strike reseller deals with computer manufacturers and retailers like Dell or Radio Shack.