NetSuite's CEO cashes in on cloud mania

An exclusive interview with Zach Nelson, CEO of NetSuite, reveals the challenges and rewards of being the leading ERP-as-a-service provider

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Now, of course, as the screen size changes you want to change your application to make it more functional, but I think it makes it easier to build mobile applications. I'm not dinging SAP, but they said they bought Sybase for their mobile technology, and all this mobile stuff is free, effectively, if you build your application properly.

Gallant: Zach, talk about your key objectives for 2011 and beyond. How do you see the product set expanding? What are you focusing on?

Nelson: We have three key focuses for this year -- which have been our focuses for the last couple of years. One is to move our product upmarket to meet the needs of larger companies; that's driven a lot by the OneWorld product.

The second initiative we have is the verticalization of the NetSuite product itself, because it turns out our ERP sales become very specific to the company you're selling it to very quickly. If I go and talk to you guys, you say show me how a publisher is using NetSuite, don't show me a John Deere dealership is using NetSuite. So the business process of the company is very important. We have been verticalizing NetSuite for about five key verticals for the last five years, so we are well down that road, but we can always get better at it.

Wholesale distributions are a big vertical. Manufacturing is a big vertical. Services companies' time-based business processes; publishing will actually do very well. The Onion uses us. Gawker uses us -- so a whole bunch of publishing.

Then e-commerce we treat as a sort of vertical. We have probably 1,000 e-tailers using NetSuite. It's sort of an accident of our architecture. Instead of looking at the business through a Web browser and a dashboard, why not expose that same data to a customer through a website? So you basically get e-commerce for free in the way we've architected NetSuite. Instead of a dashboard for an inventory warehouse guy, you show a website that the customer can buy stuff on. We have a great footprint in e-commerce, and that market is wide open for a leadership platform.

The other thing that's becoming obviously important in the cloud are platforms as a service.

Gallant: Talk about that as it relates to NetSuite.

Nelson: The SuiteCloud is our platform. It's architecturally very similar to what Salesforce does with, but what we're focusing on are developers that, say, build vertical versions of NetSuite, build extensions to NetSuite that enable a company to run more efficiently.

Knorr: Can you give us some sense of how successful you've been in the platform area? The number of apps, partners ...

Nelson: We have about 4,000 developers today, and we have a little over 200 applications running on it. They run within our customers' instance of NetSuite. It's not running on a separate server. It's literally running in our product. We have a bunch of companies that are building financial planning extensions to NetSuite like budgeting and forecasting, what-if budgets and that kind of stuff. But the centerpiece is a verticalization or the extensions of NetSuite in new industries -- and so we now have a product in manufacturing.

We didn't have an MRP product before. It was actually a third party that built the MRP system on top of our platform. This is the future of application development. That was a complicated product: 3,000 custom tables, 200 custom apps all part of this one app and now the manufacturing market is open for us. So we're beginning to get that verticalization through third parties now on the platform. It's very cool.

Knorr: On the one hand you've been doing this for 10 years and SaaS has matured -- and you're getting greater levels of acceptance -- but it still has a way to go, doesn't it? You've been addressing the customization side very well, but integration remains a problem, not only inside the enterprise, but also among different clouds. SaaS runs the risk of putting you more in a siloed architecture than you were before, because the level of integration is very often not robust.

Nelson: I agree with you 100 percent. There are a lot of myths about cloud computing, most of which have been knocked out. The myth about them not being as customized: Well, they're far more customized than old apps ever were. They're 1,000 times more customized. The other important thing is that the customization migrates when you upgrade the software, so you can change your business processes on the fly and not worry about it.

But I think your integration point is a good one. The issue with integration of real business apps is synchronizing data. In people's excitement about the cloud and mashups, they thought: I can have an order made in one cloud, an invoicing system in another cloud, a shipping system in another cloud, and it will all magically work together. No, it won't, because those are tightly coupled transactions. The Web is good for loosely coupled, and the minute you start synchronizing data, it's tightly coupled.

Ultimately that's why the suite wins. The suite enables tightly coupled processes. I think the battle of best-of-breed versus suite is going to be fought again in the cloud -- and the suite's going to win. And it's because the problem with data integration is not solved by the cloud. It makes it easier to connect applications. We connect them with Web services and normal, almost human language, but connecting them isn't the issue. Synchronizing the data is the issue, and when you run a business you want tightly synchronized data, especially across ERP kinds of processes. I think that's the next battle. I think the suite is still going to win.

Knorr: You can't expect everyone to just rip and replace everything they've got and move to NetSuite.

Nelson: They never do. Some people are still running SAP as their CRM system, but what ends up happening -- even with client-server -- is that the ERP system assumes more and more of the functionality. So guess what: It turns out all the important data about your business is in the ERP system. They call the systems "CRM systems," but there is a problem with them -- there is no customer data info.

All the customer data is in the ERP system, so that's the ultimate issue. People want to get that customer data -- what customers bought; how it was shipped to them; did they pay; did they return it -- it's all in the ERP system and that's why SAP won and Siebel didn't. At the end of the day, you need the customer data to be the real customer data.

Small companies will have to replace everything because the hairball is just too expensive for them to manage. It's hard to integrate QuickBooks and Act as it is SAP and Siebel. They'll never solve that problem. Midsized companies, you see them doing it with a quite a bit more frequency. If you look at some of these companies -- Medidata is a great example. A public clinical solutions SaaS company, they replaced soft tracks, Great Plains, Salesforce, and whatever they used for the professional services automation solution with NetSuite because they wanted tightly integrated processes from lead to service.

I wouldn't say it's as hard to integrate cloud applications as it was to integrate old clients with applications. I think it's important for people to understand that. This is what happened in the client-server world: They say, oh, can I integrate Siebel with SAP. Oh yeah, we have an API, it's no problem and then $10 million and five years later it still didn't work. This integration problem -- no one can solve it. The only way you solve it is by having a tightly coupled application to begin with.

Gallant: Speaking of concerns for customers -- particularly for larger customers -- what are you doing to improve security and data protection for customers as well as reliability?

Nelson: It's always been a big issue. The good news for us is we've had to address that concern for a long time. We've always provided a guaranteed level of service to our customers, even in the old days, so we say "availability of 99.5 percent or your money back" for every customer.

We have disaster recovery, so data is replicated and backed up and we make commitments on return to operation and data loss. Many customers don't even have that capability, so it's a big benefit of ours. For people who are super security focused, we have the classic ACTPS login and name and password. We even have two-factor authentication if you want to build in tokens and all those kind of things.

Gallant: What happens if there's a loss and that loss costs the company?

Nelson: We have indemnification clauses and all those things in our contracts that address loss of data and damages related to that loss of data.

Knorr: Another aspect of security is the identity side. There may be many people in a company who have accounts with SaaS providers. They leave the company. They're not deprovisioned. They still have access -- that sort of thing still happens. What can you do to affect that and how do you see that evolving?

Nelson: We have multiple layers of options for customers. We have an option for customers where you can basically say: My employees can only log in from these IP ranges. So we may only let them log in from the office, not from home -- that's just a standard feature. At the end of the day, it's like managing any other system, in the sense that once that employee leaves somebody is going to have to deprovision that name and that password.

The good thing about NetSuite is, because it is a suite, it's a role-based architecture, so you have really granular control of what each individual can access inside that application.

Gallant: Zach, let me throw you a little bit of a wild card. What do you think about the concept of private cloud? Marc Benioff thinks it's crap.

Nelson: I haven't heard Marc say that. I wouldn't say it's crap, but I'm confused by the term. I guess I'm considered part of the public cloud, but when I look at my application, when my customer comes to use NetSuite, it's a private cloud for them. It's their application. It's their data. So I'm very confused by the term, because I think of sort of says, "This is open to everybody and somebody's going to get your data," and it's certainly not that.

The second thing I get concerned about with private cloud -- and this is probably a complete misinterpretation -- but I think in some ways it's a way for IT folks within an enterprise to delay the move to the cloud. They can say, "Oh, we've got the cloud," but it's just Office in this room over here completely non-cloud enabled.

Gallant: There's another aspect of this and that's availability. Do you think there should be a standard among software-as-a-service companies for what they should disclose about their outages, about their availability?

Nelson: I think they should definitely tell their customers what's going on, that's part of the relationship with the customer, and different applications should have different standards. Our e-commerce customers' stores are on 24 hours a day. They want our stuff to be on 24 hours a day, so 99.92 over 12 months might upset some of them.

I think it is very important to publish to customers. We do it. Personally, I think again these applications are far more available than the old-world apps ever were. I've never run an IT shop, but the horror stories these guys tell about what it takes to keep applications running ... it's just amazing to me that this is how people live for so long. They tell this horror story about every Friday night at 6 o'clock they'd have to turn it off for a half hour and then turn it back on for -- this is craziness for their core systems. They say with NetSuite we never even think about it. I think availability is important. I think a properly engineered cloud application is going to be far more available than everybody running their own stuff. But it's certainly important to tell you're customers what's going on.

Gallant: What's the thing you want IT to know most about NetSuite?

Nelson: To me, this is the future. NetSuite is the future of cloud ERP. There really is only one safe choice in cloud ERP -- and it's called NetSuite. We're 20 times the size of our largest competitor, so as you begin to look at transitioning your mission-critical systems to the cloud, you have to put NetSuite into the mix.

I would say generally to IT: The cloud, or the Internet if you prefer, is central to every business. It doesn't matter if you're a software company or if you're making widgets. It's all about how you leverage the Internet to be more efficient. So given how companies are retooling all of their products and how they interact with customers around this cloud, how can you possibly think you're going to be successful if the core business applications that you're running were designed before the Web existed? It's just not possible.

I think we're at the front end of an ERP replacement cycle, and people are looking around, saying the Internet is central to our business -- yet the core way we run our business is pre-Internet. If they wait for five years and their competitors don't, they're going to be massively behind and be spending a fortune, far more money. They aren't going to be able to invest as much. This is going to happen very quickly and you don't want to be a late adopter on this curve.

This article, "NetSuite's CEO cashes in on cloud mania," was originally published at Follow the latest developments in business technology news and get a digest of the key stories each day in the InfoWorld Daily newsletter. For the latest business technology news, follow on Twitter.

Copyright © 2011 IDG Communications, Inc.

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