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April 21, 2016updated 21 Oct 2016 5:00pm

Netsuite CEO: There is nothing beyond the cloud – it is the final architecture

CEO Briefing: Zach Nelson would probably like a bonfire of the legacies, he says everyone, competitors and customers, is running to get their mission critical applications onto the cloud

By Sam

Netsuite first came to London in 2002 says Zach Nelson, CEO, to talk about internet applications, or applications on demand and how it was going to take over the world.

Everyone laughed, he says.

He wasn’t talking about the cloud by name, because the word cloud hadn’t been invented then.

"It is amazing to go from a time and generation of technology where many people said, ‘no-one will ever do this’ to a time where everyone is doing it."

Today says Mr Nelson, the Cloud is ubiquitous on the competitor front and on the customer front.

Everyone is running to get there.

If you ask about one catalyst for this he says ‘the more systems you have for running the business the worse you are at running the business.’

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In today’s business world the pace of change means channels become omnichannels and that means omni-business models across b2b, b2c and machine to machine. And all these new business models are happening on IP, on the cloud, and driven through cloud native applications.

"Old applications don’t even know the internet exists and they are designed to prevent access so they are the completely wrong architecture to do any of this stuff," says Mr Nelson.

Of course on the ERP and large business critical application front there is not yet a bonfire of the legacies, something Mr Nelson acknowledges.

"How quickly you move to the cloud depends on the nature of the application – and the state of the company and what the user can digest. If you have complex applications and architecture it means that you will naturally change more slowly. The cloud makes it easier to deploy things, but what is the application that is being updated? How big is it? How complicated? How many users does it have? What does it change?"

"Let’s face it, who wants to change their finance system…yet this cloud thing is forcing everyone to change."

What is changing is the desire to make data available.

"Having all your data, available anywhere for your business to consume can only be done from the cloud. The cloud is the last architecture . There is nothing after it," he says.

Critical Data
Netsuite is in the business of running businesses. Its Oneworld product suite – and businesses will always gravitate to suites over point solutions says Mr Nelson – provides ERP, tax, currency, order processing and other back office functions on which every business runs.

"We’ve always been dealing with the most mission critical data that companies have. Their order data, their customer data, their invoice data. So even before rules existed we knew we had to have an incredible security team, to protect the privacy of our customers data. Obviously we’ll comply with any standard that emerges. But even barring that we take a serious approach. Given the data that we manage we’ve always had to take it seriously and the cool thing is that standards are emerging. When we started there were no standards."

"Standards in the cloud are definitely required. And it is smaller players who have to deal with all this. Because we are now a large player we can deal with regulatory cost. Small players really struggle with regulatory costs. And also they will sign up to say they are doing these things when in fact they are not. We don’t take those sort of risks. Not that we wish for regulatory burden but at our scale it is actually a competitive advantage."

The Fortune Five Million
Mr Nelson says his market is the Fortune Five Million.

"While we’re serving larger enterprises, we’re flling that gap between Sage and Quickbooks at the entry level and the SAPs and the Oracles of this world. There are an enormous number of firms like this."

But Netsuite is also looking up.

While it is the mid and upper SME market that is its sweet spot it is also looking up into the true enterprise. The firm will launch a major new technology enhancement to its Oneworld business management platform at Netsuiteworld, its annual conference being held in San Jose, California next month, to really support the needs of large multi-nationals.

Nelson was in the UK following a Benelux roll out and tweaks to Oneworld for the local tax environment in Belgium and Holland.

In France it has an exclusive distribution relationship with Cap Gemini ‘which does 80% of implementations’ and while Germany is of interest Nelson says "by the end of the year we’ll look to Germany but they are really slow to pick up this cloud stuff they prefer all that SAP on premise stuff."

"The sales, service and marketing on the ground will enable us to serve a much greater part of the market. What we did was to follow on from November 2015 when we announced the data centres in Europe in Ireland and Amsterdam and beyond the technical resources we’re putting on the ground we’ve now announced new offices outside the UK in Benelux."

"Growing these businesses is about product but it is also about executing a strategy. EMEA was fastest growing region for us last year and scheduled to grow even more quickly this year," he says.

The UK, Brexit and change

The UK was Netsuite’s first foray outside the US.

Mr Nelson tells a story about how it entered the UK market.

"British Telecom fundedNetsuite to localise its product which was fantastic because the minute we finished they killed the division that funded us so our strategy paid off perfectly."

Netsuite thrives on change. He jokingly says that he’s all in favour of Brexit because of the upheaval it would cause for business.
He says "the tax engine we have in Netsuite, there is nothing like it on the planet. One system integrator I spoke with said just to roll out tax compliance in a country like Singapore takes nine months. In Netsuite, it is a toggle button. "
In terms of its target markets he breaks these into broad categories – the people who make things and sell things, the physical world of manufacturers and retailers. And people who sell time.

"And we have a really strong market in people who sell both things and time which is basically technology companies. And we’re seeing a lot of growth in the thing world. Products and manufacturing is going through big disruption, the whole manufacturing process has changed."

You see all these new devices and new products with embedded technology which means a new way of making things, new processes, and new business models which Netsuite can process."

It really has to do with web enabled business online revolution. This whole notion of mobile and web enabling your ERP business processes is another thing driving business.

"Omnichannel is a retail problem today and it is an ‘every company problem’ tomorrow because no-one actually wants to talk to a salesperson, they want to interact with the machine and have the machine recognise them. So it doesn’t matter if you’re ordering one widget or one thousand. People already do it so they’re used to the machine recognising them."

He cites an example of retailers who want to give the same experience instore, online and one the phone. They’re all using netsuite, he says.

"It is an accident of our business that we built a system that has no top barrier. Now the IT infrastructure talking to Netsuite can be a phone talking, it can be machine talking to Netsuite. Essentially what we did was build a headless, topless engine."
It is about its cloud architecture.

"While we didn’t predict all these advances we can accommodate them because all these new business models are being built on IT, on the cloud."

Netsuite’s Q4 2015 Financial Results
Total revenue for the fourth quarter of 2015 was $206.2 million, representing a 31% increase over the
prior year. Total revenue for the year was $741.1 million, a year-over-year increase of 33%.
Cash flow from operations was $100.4 million for the year, an increase of $25.5 million, or 34%, over the
prior year.
On a GAAP basis, net loss for the fourth quarter of 2015 was $32.4 million, or $(0.41) per share, as
compared to a net loss of $25.3 million, or $(0.33) per share, in the fourth quarter of 2014. GAAP net loss
for the year ended December 31, 2015 was $124.7 million, or $(1.59) per share, as compared to a GAAP
net loss of $100.0 million, or $(1.31) per share, in 2014.
Non-GAAP net income for the fourth quarter of 2015 was $4.3 million, or $0.05 per share, as compared to
non-GAAP net income of $7.5 million, or $0.10 per share, in the fourth quarter of 2014. Non-GAAP net
income for the year ended December 31, 2015 was $17.7 million, or $0.22 per share, as compared to nonGAAP
net income of $25.0 million, or $0.32 per share, in 2014.

Netsuite’s market cap is $6.4bn

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