NetSuite CEO Zach Nelson has an audacious argument to explain why his cloud software company is one-seventh the size of Salesforce in market capitalization—$6.7 billion to $48 billion—despite the two companies having launched around the same time in the late 1990s. In a nutshell, Salesforce took the easier route to building a cloud software company.
Sales systems like those sold by Salesforce “are easy to build. Everybody does the same things: They enter a contact, they generate an opportunity, and they generate a forecast. That’s about it. So you can scale those systems much faster,” Mr. Nelson said. NetSuite’s software, by contrast, tracks financials, accounting, inventory and warehouse management—functions critical to running a business profitably. Compared with sales software, it’s harder to build and takes a lot longer to sell. “It’s a knee transplant versus a heart transplant,” Mr. Nelson said.
Indeed, NetSuite has tens of thousands of small customers running its financial software. It’s a category of software neither SAP nor Oracle have been able to master in the cloud, despite dominating non-cloud financial software. And the strategic value of that could become apparent soon. An expected wave of consolidation in subscription software, which could see Salesforce swallowed up by a giant like Microsoft, would also make NetSuite a prized catch. Likely buyers could include either Oracle or SAP.