NetSuite reported its quarterly earnings this afternoon, and the results prove that the transition to the cloud is well underway in big business.The company, which provides cloud-based business management suite, showed 23% revenue growth from last year to $61 million, and billings were up 33%.
But the most interesting part: NetSuite is seeing much larger average sales prices.
That means it’s reaching bigger customers, after long being considered a product limited to small and mid-size businesses.
We caught up with CEO Zach Nelson after the earnings call this afternoon, and he offered some more detail on the increasing size of the typical NetSuite customer:
“Our average seling price has been growing ever since I started. In 2002, our ASP was $142 per year. That’s per company, not per user. This quarter it was in the mid $40,000s….That number grew 14% just quarter over quarter. It’s 53% higher than it was a year ago.”
Nelson explained that big software companies like SAP and Microsoft, which previously dominated the enterprise, are turning out to be a lot less powerful than he originally anticipated — mainly because their software is so bad. “As we’ve moved upmarket…we’ve discovered how horrible they are.”
Forced upgrades are a particular boon — as a company is forced to move to the latest version of their old enterprise software, they often look at the expense to upgrade to a new version that’s “just as bad,” and decide that their money could be better spent switching out completely to a cloud-based provider.
A lot of companies give NetSuite a try in a smaller subsidiary, maybe in Europe or Asia, then find out that it’s “much better than what we have in corporate,” so they do a whole sale switch a couple years later.
NetSuite has also benefited by expanding its offerings beyond ERP (enterprise resource planning, which includes things like inventory tracking and accounting) and into CRM (customer relationship management) and e-commerce. That means it can be used by more employees — not just the finance department.
The company’s sales and marketing costs are still much higher than a pure software company — over 50% of revenue — which means NetSuite operates at a slight loss. Nelson said that’s going to stay the case through 2012, as the company continues to invest to keep its momentum going. “When you start to see growth in one of these subscription businesses, you want to keep betting on growth….The good news is we’re making that bet while we have peak productivity in our sales force.”