Revenue grew by 23 percent year over year to $61 million, while earnings per share on a non-GAAP basis were five cents. The results beat the consensus of analysts by a penny on earnings and $1.5 million on sales — just two of the eight records that NetSuite set in the quarter. Recurring revenue — a key metric that combines both subscriptions and ongoing support — was $51.3 million, also up 23 percent. Cash flow from operations was $9.4 million.

Looking ahead, NetSuite said it expected to earn four cents a share in the current quarter, a penny below the consensus, but that it expects to finish the year with earnings of 15 cents a share, which would be in the upper range of its prior guidance of 13 to 15 cents a share.

NetSuite, which last year did $193 million in sales, has already done $172 million for the first nine months of the year; it said it expects to finish the year with sales in the range of $235.2 million to $235.7 million, slightly ahead of its prior guidance, which topped out at $234 million. It also said it expects sales in the range of $290 million to $300 million.

I had a chance to talk with CEO Zach Nelson about the results and the state of NetSuite’s business. And as usual, he had a lot to say — especially about his biggest competitor, SAP. NetSuite started small, but as its software has grown more complex, its customers have gotten bigger and bigger, lured by the promise that they can not only run their expensive enterprise resource planning (ERP) software cheaper in the cloud than in their own data centers, but do it better.

AllThingsD: Zach, NetSuite is setting records on a lot of fronts this quarter. What’s driving the business? Is it companies swapping other stuff out for yours?

Nelson: In our case, because we do all the back-office stuff, someone is always swapping something out for NetSuite. And what’s changing is the profile of what they’re swapping out. In the old days, when we were getting started, it used to be QuickBooks. Today, it’s SAP and Great Plains and Infor, the very large, midmarket and enterprise ERP. We also set a record for average selling price, and that’s because we keep selling to larger and larger companies.

It’s funny you should mention SAP. I visited with its co-CEO Bill McDermott the other day, and he was talking about SAP’s new cloud-based offerings. What kind of a threat do you see there?

I think when SAP talks about the cloud, it’s enormously helpful to our business. We are the only pure-play cloud-based ERP solution out there. For SAP to be giving it credibility only helps us, because they having nothing to back their claims up other than desire. No traditional software company has successfully made the transition to the cloud, and there are a whole bunch of reasons for that. So it’s great that they’re talking about it. It’s just driving our business more. They have a low-end cloud product called Business ByDesign that doesn’t have much functionality. But we saw more competition from their traditional on-premise product than we did from that. So we’re getting sucked into these deals because SAP is telling the customer they should be looking for a cloud solution, and they really don’t have much to offer in that regard.

You’ve tended to stay away from business functions that aren’t transaction-driven. I’m thinking a little about something like Workday, which does a lot in the human resources area. Do you partner with other companies to shore you up in areas you don’t tend to specialize in?

We have a platform like Salesforce.com does with Force.com. We call it SuiteCloud. So as we go to a lot of these larger companies, it’s important that we augment in areas we haven’t built in, where we don’t have domain expertise. We work with Box.net, for example, on file storage and collaboration, and with SuccessFactors in the human capital management area.

Everyone’s worried about the world economy, especially Europe. Are you?

We aren’t that exposed to Europe. We do some business in the U.K. But Asia has been strong all year. And with regard to the world economy, its important to understand that moving to the cloud is a massive cost reduction for these companies.

You once told me an interesting metric about the costs of on-premise software. It was about how much companies spend to support and run their software.

Every SAP customer I’ve ever talked to tells me that they spend about 2 percent of their revenue getting it running and keeping it running, after you add up all the consultants and other things you need. That’s not just their problem, it’s the customer’s problem. If you’re competing with a company that’s running NetSuite and you’re running on-premise software, you’re at a competitive disadvantage. People are realizing that it’s not just saving them money but it’s also helping them do things better. Disruptive technology doesn’t just help enable you to do the things you’ve always done cheaper than before, but it helps you do them better; and it also helps you do new things that you couldn’t do before. Improving the cost model gets you that 2 percent back, but the real payoff comes from the productivity gains that come on top of that.

How else to explain the weird kerfuffle that exploded like a firecracker last night at Oracle’s OpenWorld conference in San Francisco? Benioff has delivered keynotes at OpenWorld before, in 2009 and 2010 and probably earlier than that, though I didn’t conduct an exhaustive search.

As we all know, Ellison ordered Benioff yanked from the OpenWorld speaker’s roster yesterday. Officially, his talk was moved from 10:30 am today to 8:30 am Thursday, the final day of the conference, when no one but the stragglers are likely to be in attendance.

“At 3:30 today [Tuesday] we were notified we were cancelled,” Benioff told me by email last night. “Then we were told we were moved to Thursday morning when there are no other presentations. We view this as a cancellation.”

His response was to schedule a speech at an alternative venue, the Ame restaurant inside San Francisco’s St. Regis hotel, for the same time slot. (See the press release here.)

So what’s the wrangle really about? On the surface, it’s a difference of vision, a geeky technical debate. What exactly is cloud computing? To Benioff, the cloud is something that can’t be delivered to the customer on a forklift because it’s a service delivered via the pipes of the Internet. Everything that makes it go lives in one or more remote data centers that the customer never touches and rarely, if ever, thinks about. Just like Salesforce.com, where the customer needs nothing more than a browser running on an Internet-connected computer or iPad or smartphone to get started. Or Amazon Web Services. Or Google Apps. Customers pay for what they use, have nothing to manage, install, maintain or upgrade, and stop using it when they no longer need it. Easy, economical, cheap and accessible to everyone.

To Ellison, the cloud can be a hybrid. Certain customers — like the many large companies that are Oracle’s stock in trade — fundamentally distrust the notion of handing their data off to a third party. They run software applications on hardware that’s installed on their own property, or in combination with hardware that Oracle runs for them. On this side of the debate you’ll find not only Oracle, but also other companies with established IT hardware businesses, IBM and Hewlett-Packard among them. Expensive and time-consuming it may be, but real companies doing real things traditionally own their own assets, the argument goes.

As Benioff tells it, this is the “false cloud.” He’s been using that phrase incessantly for some time, and he seems in recent weeks to have deliberately stoked the controversy. At a follow-up panel to his OpenWorld keynote in 2010, he was more direct. Hardware of the type that Oracle sells can be eliminated entirely in the age of the cloud. Fighting word for Oracle, especially when uttered in front of Oracle customers.

And Benioff isn’t the only one throwing punches. In 2009, Ellison described Salesforce as an “itty bitty application” that happens to run on Oracle databases.

But as is always the case with public grudges, it’s more complicated than it seems. There is a personal element to it all. Before starting Salesforce in 1999, Benioff was Oracle’s star employee. He spent 13 years at Oracle. At 23 he was named the company’s Rookie of the Year, and at 26 was the youngest person promoted into the VP ranks. He was in many ways Ellison’s star student. Charles Babcock, writing in Information Week, remembers an Oracle event where Ellison tapped Benioff to address a customer question, and he commanded the stage in a manner one could describe as Ellison-esque.

When Benioff left to start Salesforce, Ellison was an early investor and sat on the Salesforce board until a falling out — spurred largely by Ellison’s backing of Netsuite, another cloud outfit started by two other Oracle alums, Evan Goldberg and Zach Nelson, whose offerings overlap competitively with those of Salesforce.

Obviously Benioff learned well from the master. A classic tactic from the Ellison business playbook is to prod or cajole your quarry into a public PR fight. Look at all the times where Ellison has been brazenly outspoken: Defending, then hiring Mark Hurd after his sudden resignation from HP last year; publicly chasing Hurd’s replacement Léo Apotheker out of his office on his first official day on the job by attempting to serve him with a subpoena; squabbling with Autonomy CEO Mike Lynch.

So who won this round? The conventional wisdom has to give this one to Benioff. With the cancellation of his speaking gig, he’s attracted more attention than he would have otherwise saying whatever he wanted from Oracle’s stage, a fact about which Benioff crowed to the New York Times last night, calling it the “best possible outcome.” It does look like Benioff planned for this result.

However, this long-simmering feud, now that it has boiled over so publicly, is far from over.

The two most obvious examples are NetSuite, where Ellison was a founding investor, and Salesforce.com where CEO Marc Benioff is an Oracle alum — and where, come to think of it, Ellison was a founding investor, too. When you start considering the numerous Oracle alumni who have gone on to other things, Ellison’s reach becomes longer still.

The graphic below comes from the folks at Software Advice and aims to illustrate via these numerous connections the impact that Ellison and Oracle have had throughout the tech and software industry.

The top half represents independent companies where former Oracle execs either run the show or are in senior roles, while the bottom half shows companies that Oracle has acquired — and, let’s admit it, there have been a lot of them — where Oracle alumni in senior roles have found themselves re-integrated back into the mother ship.

While I can’t help but think the graphic is incomplete — it sure seems like there must be other companies that could be on it — it sure is interesting to look at.

For years, companies resisted the idea of putting their most precious corporate data online and relied instead on more traditional software to run their business from the likes of Oracle, SAP, Microsoft and others. NetSuite survived for years selling its cloud-based business software–a suite combining enterprise resource planning, financial management, e-commerce and other functions–to small companies.

The something good happened. The economy cratered in late 2008 and into 2009. That nudged companies eager to squeeze every bit of efficiency they could from every penny of their IT budgets to embrace the cloud. Having once turned up their noses at the idea moving critical business data onto the Internet, NetSuite was suddenly among software’s cool kids in school. Sales have surged from $152 million at the end of 2008 to $193 million last year, and are on track to do $230 million in 2011. And it has recently started landing large customers like the wireless chipmaker Qualcomm, the German industrial giant Siemens, and the super-fast growing deal site Groupon.

I recently caught up with Nelson to talk about where NetSuite is going next.

All Things D: So, Zach, let’s start at the top. Suppose you were explaining what NetSuite does to my 89-year-old grandmother. What would you say?

Zach Nelson: If your grandmother runs a business she’ll get it very quickly. The big idea behind NetSuite was to bring the power of large enterprise business systems to the masses. So there were sort of two ideas to do that. One was to build a software application designed to run a business. Most applications are designed to run departments. There’s accounting applications, sales force automation applications and so on. The idea was to build a single system that could run most of a business instead of on cobbled together systems that run different parts of it. The second big idea–which was in 1998 considered radical but which today is considered the future of software–was to deliver that application over the Internet. The strategy hasn’t changed in more than a decade; the only thing that’s changed is the maturity of the application. It’s a very complex application to build and so at first you can really only serve the needs of the world’s smallest companies, because you only have the functionality to address that level of complexity. Today we’re more about serving larger companies and over the last decade we’ve built out a very rich application. That’s really been the idea, the business has just grown and grown, and the business just came off its best quarter ever.

So here’s a fundamental question. Larry Ellison was one of your earliest investors. Doesn’t NetSuite represent a long-term threat to Oracle?

Where Oracle really plays–and SAP, too–is in the corporate system of the world’s largest companies, the Fortune 50 companies. Where we’re starting to have success in those companies is not in supplanting those large $100 million implementations, but in the subsidiaries around that. While in some cases SAP may think they may be running that subsidiary, it’s really not designed for something of that size. For example, we just did an announcement with Qualcomm, where we’re starting to roll out in their subsidiaries, and the first one we’re going run for them is Mexico. And you’re also starting to see it in larger organizations, particularly in the Asia-Pacific region, because in that region they’re growing so fast. They’re saying that it’s going to take 36 months to install SAP in a new Asian subsidiary and they can’t wait that long. We can do it in three months. So those are two forces that are driving traction for us.

Where are your headwinds?

That’s what’s really changed in the last few years. We spent a decade pushing this cloud rock up a hill, and now its really starting to roll downhill for us. You look at the growth rate for billings. The downturn in the economy helped NetSuite in the sense that in 2008 and 2009 IT budgets shrank, but because of the cost reduction that the cloud offers, more money went to the cloud in that time. Now that people are coming out of the downturn, they’re seeing the cloud is really faster and cheaper and better, and they want more of it. The downturn accelerated cloud adoption and the move away from traditional client-server applications.

Generally speaking, and I know it’s going to vary, what kinds of savings do you typically see when someone moves off a traditional application to NetSuite?

They’re really massive. And it’s not just in the cost of the license up front, which is typically a third of what you pay for a traditional implementation. The more important elements are the implementation cycle. Groupon is a new client we’ve announced. They’re in the process of deploying 26 international subsidiaries on NetSuite and they are going to do it in three months. That would take five or 10 years on any other platform. You can’t even calculate the savings from something like that. That’s one of the reasons I think that NetSuite is going to win. We’re bringing the power of large businesses to small businesses, but we’re also bringing the agility of small businesses to large businesses. I have never seen a customer who hasn’t saved a lot of money after moving to NetSuite.

You announced a push into services recently. Tell me a little about that.

We announced some new service partner relationships recently. The services industry is going to change radically when you look at how the economics of the cloud. We’re now seeing some large service providers embrace it. We just announced a relationship with RSM McGladrey, which is the fifth largest mid-market accounting firm, but it’s also one of the largest mid-market technology consulting firms. Their first cloud practice is on NetSuite. And the largest technology consulting firm, Accenture, announced they were putting NetSuite into their software-as-a-service business. So what you’re going to be seeing is some of the large service organizations re-tooling their business for the cloud realities.

One thing I’ve been covering recently has been the social enterprise. Where is NetSuite on that?

You look at NetSuite, where companies run their business on it, there is a lot of social activity that takes place on a NetSuite record. We just announced something called Suite Social where we’re effectively socializing all the activity in a NetSuite record, and push it to the appropriate users within the enterprise to track it. So we announced a partnership with Yammer, basically to combine our system of record with their system of engagement around corporate ERP data.

How would you think it compares to, say, Chatter from Salesforce.com or Jive or some of the other social enterprise applications out there?

We took a long hard look at this, and in a large business there are many businesss applications. And so we asked ourselves if one business application’s proprietary social media extension is going to be the corporate-wide tool for managing social media. That’s sort of the Chatter strategy, and we concluded that is not going to happen. We’re not going to pick the winner. It could be Jive, it could be Yammer. We decided not to build that social media tool, but to effectively socialize the data and the activity happening within the NetSuite ERP system and provide that data to whatever tool the company happens to be using. For us it was a better strategy. We can socialize our feed to Jive as well, or we could socialize it to Chatter if Salesforce would open up the API.

Excluding special items, NetSuite (N) said earnings for the quarter were one cent a share. Said NetSuite CEO Zach Nelson: “We are very pleased to report record revenue and record cash flow.”

Okay? Okay. Ben Leventhal, co-founder of the influential Eater blog, is headed to GE’s (GE) NBC Universal, where he’ll oversee “lifestyle content” for NBC’s growing local Web unit. More details here from Leventhal himself.

Eater is noteworthy because it’s a great read if you’re the kind of person who’s interested in an exit interview with former New York Times food critic Frank Bruni, conducted over a meal at Mario Batali’s Babbo. And also because it’s part of a larger network of blogs that Leventhal helped build up along with Lockhart Steele, one of the early architects of Nick Denton’s Gawker Media empire.

Steele says his sites, which encompass two other brands beyond Eater (real estate at Curbed, retail at Racked) and local sites in New York, Los Angeles and San Francisco, pull in a million uniques a month. Two years ago, he raised $1.5 million from a group of investors, including Denton, Spark Capital’s Mo Koyfman, real estate publisher Brad Inman and NetSuite (N) CEO Zach Nelson.

NBC, meanwhile, has been busily staffing up its network of local sites, which it overhauled earlier this year. The idea is to replace the lame extensions of its local stations’ lame newscasts with sites designed for people who actually use the Web–and to help the company break into the local Internet ad market that everyone wants a piece of but that no one has cracked yet.

Former Facebook exec Owen Van Natta will take the CEO job at a music discovery site called Playlist, a move that had been speculated last week, after he did not end up taking another position as head of MySpace Music.

Van Natta’s arrival at Playlist was not the only news for the Palo Alto, Calif.-based start-up–former AOL exec Bob Pittman’s Pilot Investment Group is also investing an undisclosed amount of money in Playlist. Pittman will also join its board.

Playlist has previously raised several million dollars, said sources, but the new funding is many times that, to total about $18 to $20 million.

The move to Playlist is an interesting one for Van Natta, who has looked at a number of jobs since leaving the high-profile social-networking site earlier this year.

He has talked to a wide range of companies, sources said, including Microsoft (MSFT) and a range of start-ups, as well as with MySpace, which is owned by News Corp. (NWS). (News Corp. also owns this site).

Those talks between Van Natta and MySpace to run its new music initiative did not pan out for a variety of reasons.

But he has long expressed a desire to become a CEO of a company, rather than just head to another executive job within a larger company, so the move to run a start-up is not a surprise.

In an interview this afternoon, Van Natta told me he got very intrigued by the possibilities at Project Playlist, which was the first iteration of the start-up and in which he is an investor, due to its viral growth.

And, indeed, Playlist has grown quickly to become one of the larger music communities on the Web, claiming that more than 38 million music fans monthly, sharing playlists via its Web site and also widely distributed embeddable widgets. The site has tens of millions of daily page views, according to surveys.

To get to those big-scale numbers, Playlist essentially has offered users a giant linking service for music, not unlike Google (GOOG) with all information, pointing users to promotional, free and sometimes illegal music and music video tracks all over the Web.

Those links to illegal music have resulted in a lawsuit aimed at Playlist from the music industry, sources said, a sadly typical experience of many online music services.

The usual tactic for the music giants: Sue first and shake down later.

Under Van Natta, I would guess, Playlist is likely to reach out to music companies and strike deals.

The company also needs to settle on its main business plan, which appears to me to have been less important than its explosive growth.

Playlist currently does have some small amount of advertising on the site, and seems to be making most of its scratch from sending leads to ringtone sellers.

Van Natta did not want to reveal specific strategies for Playlist going forward, only noting the opportunity is large.

“Discovery around music is exploding on the Internet,” said Van Natta. “And the company that does the best job of taking advantage of that is really going to be huge.”

That said, there have been a lot of music-aimed efforts like Playlist in the music space, with a lot of different business plans and varying degrees of success, ranging from the Apple (AAPL) behemoth iTunes site, which sells single songs, to the CBS (CBS) music service, Last.fm, which relies more on advertising revenues.

Other contenders in the space include the Rhapsody subscription service from RealNetworks (RNWK), music discovery service iLike and many others. MySpace has also waded deeply into the music space, and Facebook is also reportedly weighing its own service.

Van Natta was one of Facebook’s earliest and most prominent execs, serving in jobs like COO and also Chief Revenue Officer while there.

He came to Facebook in the fall of 2005, after a stint as VP of Worldwide Business and Corporate Development at Amazon, and was part of the founding team of A9, the Amazon search company.

“I am excited to be building a company again,” said Van Natta, who has taken many months off since he left Facebook in February.

BoomTown has been lagging in getting up this lovely video I did from a dinner party last Thursday, thrown for NetSuite’s tenth anniversary, which was held at one of billionaire Oracle founder Larry Ellison’s many houses–this one in the tony Pacific Heights section of San Francisco.

NetSuite (N) is one of the pioneers in the broadly termed software-as-a-service space, selling an “integrated web-based business software suite, including Accounting software/ERP software, CRM software, and Ecommerce software.” Essentially, that’s hosted software solutions for medium-sized businesses or divisions of larger companies.

Zzzzzzzzzz, right?

Actually, it is an important topic, as businesses actually do begin to embrace the idea of putting themselves increasingly in the so-called cloud, which is Silicon Valley’s trendiest term du jour.

It is a topic, in fact, that Microsoft is going to be blabbing about all week, starting today. The SaaS space, including its cloud computing efforts, will be Topic A at its Professional Developers Conference in Los Angeles.

In any case, after a lovely tour of Ellison’s house–Ellison co-founded the company with former Oracle (ORCL) exec Evan Goldberg and has been a major NetSuite investor–by NetSuite’s PR guru Brooke Hammerling, and some dinner chatter, I did an interesting video interview with NetSuite CEO Zach Nelson about the direction of the sector.

Here’s the video:

But–as many readers have requested–they will all be available in their entirety over the next weeks in this column.

Here’s Part 3 of 4 of an interview Walt Mossberg did with the Gates Foundation’s Melinda Gates.

(I will be posting one video part of the discussion with Melinda Gates every day this week through Thursday.)

As you will see, Melinda Gates is articulate in ways that are critical to the task that she and her husband–that would be Microsoft (MSFT) Founder Bill Gates–have put before themselves: Big league philanthropy with deeply effective results, specifically in health and learning.

In this video, Melinda Gates talks about the best ways to fix the broken parts of the public high school educational system in the U.S.

With all the Yahoo (YHOO) reorganization noise this past week–full of sound and fury, signifying nothing, if you want to go all literary!–BoomTown had little time to post our video on GigaOm‘s Om Malik’s Structure 08 conference on Wednesday.

Held at the spanking new Mission Bay Conference Center in San Francisco, it was high-wonk, packed with CTOs and those involved in building the guts of the Internet and its infrastructure, whose jobs are becoming more complicated than ever as Internet usage booms.

Malik thinks this unprecedented growth is putting a lot of stress on the system, akin to the physical wear-and-tear our nation’s roads and bridges are under.

As he wrote: “The platforms on which we have done business for over a decade are starting to provide diminishing returns; the smart money, meanwhile, is seeking new platform structures.”

Thus, lots of talk about how to manage the potential crisis, such as the move toward cloud computing, databases in the sky and other stuff that is way, way over BoomTown’s head.

Nonetheless, we press on, because it is our solemn duty to understand dark fiber someday soon.

Here’s the video, including interviews with Malik, WordPress’s Raanan Bar-Cohen and NetSuite CEO Zach Nelson: