Oracle's NetSuite Buy Brings It Instant Cloud Credibility
"Oracle and NetSuite cloud applications are complementary, and will coexist in the marketplace forever," Oracle's Hurd said in a statement. "We intend to invest heavily in both products—engineering and distribution." NetSuite was founded as NetLedger in 1998 when company founder Evan Goldberg received $125 million in initial financial backing from Ellison through Ellison's venture capital firm Tako Ventures. As of the end of 2014, Ellison and family members own about 47.4 percent of NetSuite's common stock. "NetSuite has been working for 18 years to develop a single system for running a business in the cloud," said Goldberg, who holds the titles of chairman and CTO of NetSuite, in a statement. "This combination is a winner for NetSuite's customers, employees and partners." Oracle's acquisition of NetSuite was always expected, Chowdhry said. "It should have been done in 2010- 2011; Oracle shareholders would have paid half the price for it ... but that also means Oracle's CEO would have made less money on his own investment in NetSuite."Overall, there are four primary reasons the NetSuite deal makes sense for Oracle: market share, coverage in markets and vertical industries, cross-sell opportunities and expertise, said Michael Fauscette, chief research officer at G2 Crowd. "While Oracle has been in the transition to cloud for several years and has certainly brought in cloud experienced sales and sales executives, there is still a good opportunity to leverage the deep expertise of the NetSuite team in cloud, SaaS and subscription solution selling," he said. Moreover, Fauscette said NetSuite brings Oracle strength in the midmarket and in departments of enterprise companies, whereas Oracle is enterprise-focused and mostly sells in the midmarket through its channel partners. NetSuite also has a solid presence in several verticals, including manufacturing, professional services, wholesale distribution and commerce, he said. "NetSuite is clearly a midmarket play, so Oracle will have to be able to mesh their focus with its primary focus on larger enterprises," Judith Hurwitz, president and CEO of the Hurwitz Group, told eWEEK. Hurwitz also noted that it makes sense for Oracle to focus more attention on solutions-based cloud services rather than more commodity offerings such as infrastructure as a service, as SaaS applications are profitable ways to build revenue. Lou Guercia, president of Magnitude Software, an enterprise information management software provider, said that while Oracle has made some progress on the cloud-based ERP front over the past five years, this move is the first that will make a real difference in terms of its share of the marketplace. "NetSuite is the only SaaS provider in the space with a truly integrated front-office-to-back-office solution for the midmarket all the way up through the enterprise," he said. "In terms of the overall market, this probably hurts Salesforce the most. They've been a leader in the cloud space for some time, and this acquisition helps Oracle make up a lot of the ground they've lost there." However, not everyone views this deal as favorable. Jeremy Roche, president and CEO at FinancialForce, a cloud ERP services provider, decries the advent of what he calls the FrankenCloud. "One of the biggest issues plaguing organizations is the FrankenCloud, and today we've learned that Oracle's will grow into an even bigger monster as it gains more bolt-on appendages including another cloud technology stack and another set of ERP and CRM apps," Roche said. He predicts that this move will create disarray for customers, prospects and employees at both Oracle and NetSuite. It also raises a number of questions, such as whether salespeople will compete with each other across product lines, among others. "NetSuite customers are at risk of being drawn even more deeply into the nightmare of the FrankenCloud," Roche said. "Oracle's ERP and CRM acquisition track record and string of casualties including of PeopleSoft, JD Edwards and Siebel applications will only add to customer uncertainty."
However, since Ellison owns more than 40 percent of the company, "a good price on NetSuite would also help Ellison make more money," Chowdhry said.