Arik Hesseldahl

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As NetSuite Beats Expectations on Earnings, Fireworks Erupt With SAP

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Shutterstock / Botond Horvath

Capping what has been a busy week for cloud software supplier NetSuite, the company reported earnings that beat the expectations of analysts, and then engaged in a little jousting with rival SAP.

NetSuite shares rose after hours by more than one percent on news that the company reported a non-GAAP profit of nine cents a share, beating the expectation of analysts by one cent. Revenue was $107 million, beating the consensus view of $105.7 million.

But the big news was the shots fired by NetSuite CEO Zach Nelson at SAP, the German business software giant and its chief rival. I missed the conference call, but Nelson’s short statement in the press release sets the tone pretty well. He has clearly been studying up on the playbook of Larry Ellison, the Oracle CEO who happens to be Nelson’s former boss and a significant, if indirect, NetSuite shareholder, and who routinely disses the competition during earnings calls:

“This week has been a tale of two companies as NetSuite’s Q3 revenue set a new record, while SAP effectively exited the business of providing software for mid-sized companies as they scale back their Business ByDesign product, which they once hyped as a NetSuite killer. … These two divergent results show that as mission-critical software moves to the Cloud, it is far safer for customers to turn to committed leaders like NetSuite rather than bet on the PowerPoint presentations of last-generation providers like SAP, Microsoft and Sage.”

Nelson was, of course, referring to reports, initially from a German magazine and later echoed elsewhere, suggesting that SAP was effectively ending development on its Business ByDesign cloud software service for small businesses.

SAP pushed back against that characterization, saying that it is instead moving that service to its HANA line of cloud-based products, and it reiterated that sentiment today.

“This is a sad attempt by NetSuite to capitalize on some inaccuracies in the media earlier this week,” SAP spokesman Jim Dever told me by phone today. “We definitely will continue Business ByDesign. We are refactoring it on HANA and will continue to support its customers.”

NetSuite was quick to pounce on the report about Business ByDesign — right, wrong or in between — and said it will offer a migration program to those it said had been “left high and dry” by the SAP change, whatever it may be. NetSuite, you’ll recall, specializes in Enterprise Resource Management software — essentially software used to run all the key operational aspects of a business — but does it in the cloud and aims specifically at small and medium-sized customers and divisions of larger ones.

Business ByDesign had been created specifically to take on NetSuite and launched in 2010. On Saturday the German magazine WirtschaftsWoche (which translates to Business Week) called it the “biggest flop” in SAP’s history, saying that after three billion euros and seven years, it had attracted only 785 customers and about $31 million in revenue.

Dever pointed out that Business ByDesign isn’t SAP’s only product aimed at smaller businesses. Another, called SAP Business One, dates back to 2002 and has about 40,000 customers. Initially sold on-premise, it has started to move to cloud installations too, he said.

(Image courtesy of Shutterstock / Botond Horvath)


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