NetSuite IPO adds to SaaS appeal

Another on-demand software firm will go public next week with NetSuite scheduled to float on Wednesday, 19 December. The equity available via the buoyant public markets should help ensure a healthy choice of vendors for buyers examining hosted programs in 2008.

NetSuite, a California-based business applications developer that enjoys the personal financial backing of Oracle chief executive Larry Ellison, will follow in the footsteps of Google by auctioning shares. The firm could be valued at close to $1bn on its debut.

NetSuite is the latest software-as a-service company to float. Salesforce.com’s 2004 IPO raised expectations in the sector as the firm has bloated to a valuation of over $6bn, and others have followed the floatation route, including customer relationship management firm RightNow Technologies, staff recruitment firm HireRight, and, most recently, employee performance management outfit SuccessFactors.

The company could appeal particularly to Salesforce customers as NetSuite pitches itself as a broader alternative to the sales force automation and CRM on-demand giant, and claims to have won over several Salesforce customers.

However, some watchers said the firms can peacefully coexist.

“Although NetSuite and Salesforce compete at the small and medium-sized business end of the market, they have very different value propositions,” said Rebecca Wettemann of analyst firm Nucleus Research. “There's room for both to grow as Salesforce expands its platform-as-a-service offering and AppExchange, and NetSuite provides end-to-end business management software on a global
basis. Realistically, NetSuite is likely to take more customers away from SAP in the long run.”

NetSuite declined to comment on its IPO, citing market regulations for companies about to make their stock market debuts. However, the firm did state in its announcement that it plans to spend some of the cash raised on building a second datacentre. That could help reassure customers and prospects of its ability to withstand service interruptions.

“With more and more business critical applications being delivered on demand, customers want to know about reliability, backup and security,” said Nucleus’s Wettemann. “Redundant datacentres is a clear and easy way to support that message.”

Denis Pombriant of Beagle Resarch said the move was “very smart and necessary”.

“We saw Salesforce do it and to a degree that company has set the standard in more than just on-demand or software as a service,” he added. “Ultimately, if not immediately, a datacentre in the EU must be on a company's growth roadmap.”

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