November 3rd, 2008
NetSuite vs. SAP – really a question of back office economics
Show me the money
NetSuite is announcing later this week a program that offers some SAP R/3 users (or potential users) a chance to use NetSuite’s applications at a price point equal to 50% of the maintenance fees SAP would have charged them.
Moreover, NetSuite has already got a customer moving onto to its suite.
The real issue here is more than an aggressive sales promotion, though. NetSuite is making a lot of hay out of SAP’s forced upgrade of its customer base to a higher maintenance service level (and with it a potentially higher maintenance cost). In light of the current economy, SAP’s timing on this cost increase was unfortunate at best and a strategic blunder at worst. Raising customer costs in a down economy is a gutsy thing to do unless you are absolutely sure of your customers and their willingness/ability to pay more.
Another aspect of this announcement is found in a customer’s comment re: their move to NetSuite. The quote states: “We were spending 3% of our revenue on SAP. By switching to NetSuite, we reduced that cost to 0.1% of revenue”. If your firm is spending 3% of its hard earned revenue on an application software suite for its back office needs, I think you’re spending too much. In studies completed over the last decade or so by groups like Hackett, CIC and others, most large firms (the kind that use software like R/3) are often spending around 1.5% of revenues on their back office processing. That figure includes software and labor. Granted that’s an average but top quartile firms often report costs in the 1% level while best in class can be at the 0.4% level. If that customer was truly spending 3% of revenue, they probably had the wrong software or configured it poorly to drive up their costs so much. This customer probably needed to move off of R/3.
Should the average R/3 user cutover to NetSuite apps? I’m pretty doubtful this is a good idea. The best candidates for this campaign would be divisions, plants or other business units that don’t need all the functionality that their parent company is getting out of R/3.
Will additional campaigns to attract Infor, Oracle or other users?
This blog explores the intersection set between services and technology. If it impacts either space, it will be covered here. Brian Sommer is a former Accenture partner. He did an 18-year tour of duty there and ran three small practice units (Finance Center of Excellence, HR Center of Excellence and Software Intelligence). He’s sold service projects in almost every continent and remains just as current on both services and technology today as ever before. Brian is currently CEO of TechVentive, a strategy consultancy servicing technology providers, and a research analyst with Vital Analysis. See his full profile and disclosure of his industry affiliations.
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| 11/04/08
