All not sweet with NetSuite

NetSuite is probably the second best-known example of a vendor offering enterprise applications under a SaaS model, after Salesforce.com. The company was founded in the late 1990s as NetLedger, but later changed its name to NetSuite to avoid the financials-only connotation of its original name. Larry Ellison is a major shareholder.

Though the company has gotten a lot of media attention in its attempts to disrupt the business applications market, things may not be going as swimmingly as the firm's press releases indicate.

Jason C, notes on his blog, that NetSuite appears to be losing customers:

In scanning the company's S-1 filing with the SEC there is a note that the customer base was "over 5,400". That should have caught my eye. It didn't. But today, reading the earnings press release I saw the company added 432 customers during Q4, bringing the customer count to "over 5,600". Interesting. I would not have expected it to be 5,832 as there has to be some churn in this business. But what does it say when your rate of churn is about half of your customer add rate?

He further points out that a 2003 press release on NetSuite's website indicates their customer count at that time was 6,000.

So, either NetSuite was (ahem) exaggerating its customer count in 2003, or else it has fewer customers today than it did five years ago.

Jason points out that the apparent drop in customers is a confirmation of customer dissatisfaction, as indicated in two posts on Dennis Howlett's blog. Read the first post and the second one to get an idea of the problems being reported: salespeople over-promising, pricing surprises, and post-sales support problems.

My take
Most of the problems sound like a throw-back to the bad old days of ERP in the 1990s. Few of them appear to be unique to the SaaS model. If legitimately reported, they appear to be the result of an organization under a lot of pressure to make its revenue numbers.

On the other hand, small and mid-size businesses--where NetSuite is focuses--are not exactly the most sophisticated buyers of enterprise systems. I suspect there are many false expectations for how easy it will be to implement NetSuite, likely encouraged by a sales force eager to close deals.

NetSuite has responded to Howlett's commentary on the drop in customer counts by pointing out that its most recent press release is talking about "active customers" only. However, that explanation doesn't fly in my book. Whether active, or newly-sold-but-not-implemented, or inactive, the fact remains that NetSuite's reported customer count today is less than it trumpeted five years ago.

I have great long-term hopes in the on-demand model for enterprise applications. But it won't succeed if vendors oversell and under-deliver.

For raw unfiltered commentary, see this feedback on an old Business Week article that is still getting comments. Note: there's no way to verify that comments are actually being written by NetSuite customers. Still, it's a pretty sad commentary.

There's even a website, NetSuite Consumer Fraud, set up for gathering complaints for a class-action suit.

If you have first-hand experience with NetSuite, drop me an email, or post a comment below.

Update, Feb. 16. The first poster in the comments section points out that four comments on the Business Week article are from the same individual, using different names. Probably so. That's why I called the comments "raw, unfiltered commentary." Still, I don't know of another software vendor today, major or minor, where I've seen this much negative feedback displayed in such a public fashion. Click through on all the links above and be sure to read the many comments on those articles.

I say, where there's smoke, there's fire.

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