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Tuesday, September 29, 2009

NetSuite a viable alternative for SAP customers?

NetSuite has been getting some attention recently in the press and among my blogger friends for its PR campaign to offer itself as an alternative to SAP. The opportunity? A good number of SAP customers--approximately 70%--are on older versions, such as R/3 4.6 and 4.7 that are nearing end-of-support. These customers must either upgrade to a more recent version, forgo maintenance and support, or migrate to some other system.

That's where NetSuite is offering itself with its Crossroads Initiative as an alternative to SAP.

The terms are attractive: Zach Nelson, NetSuite's CEO, has been touting the special promotional offer: basically, to provide a NetSuite license in year one for the price the customer is now paying in SAP maintenance fees, followed by a 50% discount on NetSuite's then-current list price in year two and beyond.

Functionality gaps
Sounds like a great deal. But is NetSuite really a viable alternative for most SAP customers? I think the answer is no, for at least two reasons:
  • My primary concern is the issue of functionality. In a recent evaluation for a distribution company, my consulting firm Strativa found significant issues with NetSuite functionality. These gaps did not involve esoteric requirements, but basic needs involving inventory allocation, available-to-promise, returned material, controls over changes to sales orders, and other issues. Furthermore, this client is not a large company, but rather has well less than $100 million in annual revenue. It is unlikely that any company large enough to be running SAP would find NetSuite to have functional parity.
  • Second, NetSuite is reported to be well behind the curve in terms of supporting requirements of multinational organizations, especially those with localization needs in international sites. Many SAP clients fit this description.
Some counter that NetSuite's sweet spot is really with services business, not product-based businesses. My response is, that may be so, but that caveat sure doesn't appear in any of NetSuite's marketing materials for its SAP Crossroads Initiative.

Where NetSuite fits
It would appear then that NetSuite would only be a viable alternative for organizations with very simple requirements, perhaps basic financials with some sales or CRM needs. Or, small services-based firms. Such companies really have no business being on SAP in the first place. NetSuite may be targeting SAP in its marketing efforts, but in reality it is most likely going to show success with small companies that are outgrowing Quickbooks, or existing customers of Sage, Best, Exact, and other Tier III system providers.

To be fair to NetSuite, I think they've done a great job in moving the ball forward for software-as-a-service in the enterprise systems space. NetSuite's multi-tenant architecture is a terrific platform for other developers, such as Rootstock, to build upon and extend NetSuite's core offering. If there is any hope for NetSuite to close the functionality gap with SAP, Oracle, and other mature providers, it is likely to come from such efforts in NetSuite's partner community to develop industry-specific functionality.

There's no shame in serving small businesses. That's the natural starting point. As Clayton Christensen describes, disruptive technologies (such as SaaS) always start with success in the low-end of the market, then move up-market as the technology matures.

And long-term, I agree with Nicholas Carr that SaaS solutions (or cloud-based systems, on-demand systems, utility-computing, or whatever you want to call them) are likely to replace on-premise systems for the majority of customers. The economics are simply too powerful.

But in the meantime, unless an SAP customer was too small to be on SAP in the first place, it's unlikely they will find NetSuite a viable alternative.

Update, Oct 1. To all NetSuite customers that have converted, or are in process of converting, from SAP: I would really like to hear from you, confidentially if needed. Email me at the address shown in the righthand column.

Update, Oct. 2. David Stover, CFO at AKSA commented on this post and responded to my invitation for further dialog. As it turns out, David's experience is a good example of where NetSuite does in fact provide an alternative to SAP. David's firm, a manufacturer of textile fibers, was previously a user of SAP, as dictated by the firm's corporate parent. When the firm was then spun off, David realized that SAP was simply too big and too costly, without the support of the previous corporate parent. In a quest to cut costs, David then embarked on a search for a simpler solution and wound up on NetSuite.

To illustrate the point, of AKSA's 200 employees, 100 of them previously were using SAP. Now, under NetSuite, only 20 employees need to use the system. The remainder, who are mostly production people, get their information from reports or Excel worksheets. In my words, David de-automated the operation, allowing it to run on a much simpler system.

In our discussion, however, David did confirm my basic point in this post regarding NetSuite functionality gaps, mentioning one perfect example. NetSuite doesn't do standard costing, something that is a requirement in many if not most manufacturing firms. It only does average costing. So David wrote some custom scripts in NetSuite to work around the problem, a solution that would probably not be acceptable for many manufacturing prospects.

So, in my opinion, David's experience can be summed up as follows:
  • There are companies out there running SAP that don't need to be
  • Such companies can and should look for simpler solutions, and NetSuite is one of them
  • NetSuite is not the functional equivalent of SAP, but to serve customers such as AKSA it doesn't need to be.
I'd still like to hear from other customers that have made the switch from SAP to NetSuite. If you have a story, contact me. My email is in the right-hand column.

Update, Oct 8. My fellow Enterprise Advocate, Dennis Howlett, has a lengthy post following up on my post here. Dennis goes into great detail regarding NetSuite's progress in addressing the localization issues, which I only mention generally above. Read Dennis's entire post, as he has done significant primary research on this matter and other matters involving NetSuite.

Related posts
Netsuite claims new deal flow more predictable
Workday: evidence of SaaS adoption by large firms
All not sweet with NetSuite
Computer Economics: The Business Case for Software as a Service
IT departments face extinction
The end of corporate computing

by Frank Scavo, 9/29/2009 05:04:00 PM | permalink | e-mail this!

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Tuesday, September 08, 2009

SaaS contingency plans need more than software escrow

Although I'm a supporter of the software-as-a-service (SaaS) model of application delivery, there's one area that still make me nervous: contingency planning. What happens if my SaaS provider goes out of business? Or, one day decides he doesn't want me as a customer? How do I ensure continuity of my system? How do I get my data?

Furthermore, it doesn't take a business failure of my SaaS provider for there to be issues about my getting full access to my data. What if I want to switch providers? I wrote a post on this last year, entitled: SaaS: plan to get out before you get in. It's now 10 months later and I still have the same concerns.

Last month, Ben Kepes suggested that software escrow is part of the answer. Traditionally, software escrow is a service whereby a trusted third-party has access to the vendor's source code and the customer's software license agreement allows the customer to gain legal access to said source code in the event of business failure by the vendor. Ben writes:
Others have noted escrow services as being valuable in the event that a vendor goes under, providing,as they do, certainty over data ownership. However there is a bigger issues with the ability of escrow services to cover the IP of a third party application and therefore give ongoing certainty around the functionality of a third party integration. As Escrow Associate points out;

Some agents make the process even simpler by ensuring the integrity and currency of the source code with software escrow verification services. In a SaaS environment, these testing services can also recreate the hosting environment and provide access for end user testing. These services protect both providers and subscribers, because they know that the escrow account contains useable code.
He also points to Escrow Associates as a provider of software escrow services is now starting to offer escrow services specifically for SaaS providers.

Now, I will admit, I do not know much about the services provided by Escrow Associates or any other escrow agent specifically targeting the needs of SaaS customers. But here are some concerns that I would have if I were doing contingency planning for a critical SaaS application:
  1. Does the escrow provider periodically test its ability to transfer both the software and all customer data to its backup hosting site? Access to the software is one thing: access to a completely operational system with my data is another thing.
  2. What levels of service can I expect from the escrow provider in terms of access to my recovered system: 24 hours, 48 hours, a week, a month?
  3. What actions do I need to take as a customer to ensure access to the escrowed version of the system. For example, do I need to make DNS changes?
  4. What level of performance can I expect from the escrow provider? Is the escrow provider prepared to offer the same service levels as the SaaS vendor was giving?
  5. Can I test my business continuity plan periodically with the escrow provider?
These are questions I came up with in just about five minutes. You can see the point. It's not just a matter of getting access to the escrowed software, or even to my data, but a matter of having continuity of access to a completely working system.

I'm waiting for the first example of a prominent or even not-so-prominent SaaS provider ceasing operations to see how this sort of thing gets handled in practice. It's probably already happened, but I'm not aware of it. A few cases, and I believe these business continuity needs will become more clear.

Read Ben's post and also be sure to read the many excellent comments, which also express similar concerns to those I mentioned above.

Update, Sep. 9: Be sure to read the comments on this post, which contain much additional discussion.

Update, Sep. 15: See additional discussion in the comments section on Vinnie's post, in response to this post, especially the comment from Laef Olson of RightNow Technologies, a SaaS provider, who points out the need for financial and operational transparency as a way of giving SaaS customers time to make a transition if required.

Update, Sep. 16. Jeff Gordon provides additional clarity to evaluating the continuity needs of various applications.

Related posts
Addressing business continuity issues with SaaS providers
SaaS: plan to get out before you get in
All not sweet with NetSuite

by Frank Scavo, 9/08/2009 04:13:00 PM | permalink | e-mail this!

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Independent analysis of issues and trends in enterprise applications software and the strengths, weaknesses, advantages, and disadvantages of the vendors that provide them.

About the Enterprise System Spectator.

Frank Scavo Send tips, rumors, gossip, and feedback to Frank Scavo, at .

I'm interested in hearing about best practices, lessons learned, horror stories, and case studies of success or failure.

Selecting a new enterprise system can be a difficult decision. My consulting firm, Strativa, offers assistance that is independent and unbiased. For information on how we can help your organization make and carry out these decisions, write to me.

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