Betting on Small Business: Oracle and NetLedger

Enter NetLedger, a small 100-person company financially backed by Oracle chief Larry Ellison. NetLedger was co-founded in 1998 by former Oracle executive Evan Goldberg, now CEO of NetLedger. The 10-person firm started out developing accounting software integrated with the Oracle 8i e-business suite and hosted through Oracle Business OnLine. After years of struggling as an unknown start-up, NetLedger gained some muscle by partnering with its chief investor and relaunching its hosted solution as the Oracle Small Business Suite (SBS) about a year ago. And with the new partnership, Oracle found a way to reach the SMB market with NetLedger.

"Our company has a real expertise with small businesses, which Oracle typically dropped on the floor," Goldberg says. "I believe that Larry's vision of every company having the option to come to Oracle is well within reach."

Oracle and NetLedger are out to dominate the SMB market with a powerful hosted solution. While the competition is potent, the timing is perfect for Oracle SBS. The ASP model seems to have revived in the SMB market (see "Hosting Hopes," page 28). Plus, NetLedger has enhanced its technology and rolled out a more mature partner program. The 5-year-old company is beginning to emerge from the shadows and put heat on established SMB powers like Microsoft Great Plains and Intuit. Here's how NetLedger evolved and what it has planned for Oracle SBS.

Hot Hosting

Oracle and NetLedger have a complex relationship that defies typical classifications. Since redubbing its solution with the Oracle name, NetLedger has become more than a partner,but not quite a subsidiary,to the software giant. The catch, however, is simple: While the two companies have an extensive marketing, support and revenue-sharing agreement, NetLedger

doesn't use any Oracle software in Oracle SBS. So, why isn't the solution called "NetLedger Small Business Suite"?

For several reasons. First, NetLedger built its hosted SMB solution, formerly called NetLedger 1 System, from the ground up rather than using Oracle software and stripping out the higher-end functions for enterprise clients. Eventually, Oracle decided NetLedger's solution was a perfect match for

smaller customers that Oracle itself could not reach with its high-power e-business software.

"Larry and I made a decision early on: If we wanted to target smaller companies, then we had to build a solution that was smaller and easy to use," Goldberg says. "It became clear to Oracle the NetLedger solution was very complementary to its e-business suite."

Second, NetLedger isn't exactly a brand name. Goldberg says relaunching the solution with the Oracle name has better promoted and marketed the NetLedger technology. Another reason involves customer trust. Businesses were sometimes fearful of turning over valuable data and crucial systems to be managed by an outsider. However, customers feel more secure with an established company such as Oracle supporting the solution.

"With Oracle behind NetLedger, I feel like my business is safe and that [Oracle SBS isn't going anywhere," says Kurt Pfluger, CEO of Big Wave Technologies.

While the Oracle name gets NetLedger in the door, the solution itself stands out as well. Goldberg says the objective of Oracle SBS is to provide an integrated package of services that ties together front-office and back-office applications. The newest version, Oracle SBS version 7.6, features a wide spectrum of hosting services, including financial management, employee management, CRM and sales-force automation for approximately $100 a month per user. The solution also allows customers to quickly build Web sites and e-commerce operations, and features XML-based interfaces that integrate Oracle SBS with other applications.

"There are lots of point products for SMBs out there that can handle a few different business processes," says Jim LaBelle, vice president of marketing at NetLedger, "but when you look at the breadth of Oracle SBS, I think this is the first time ever that VARs can access a solution that can automate an entire business.

Neoteris, a 2-year-old network-security firm, uses Oracle SBS primarily to communicate and collaborate with its channel partners. With the service, Neoteris personnel can share pricing and product information with VARs. The company formerly used Intuit's QuickBooks but chose Oracle SBS because it offered a more comprehensive set of services. "The hosting model worked well for us because we don't have the expertise or the technology in-house," says Larry Link, vice president of sales at Neoteris. "It's extremely cost-effective, and paying a monthly subscription fee is a benefit, too."

Big Wave's Pfluger was looking for an SMB solution last year when he was forming the eight-person IT consultancy. After dabbling with other technologies, Pfluger settled on Oracle SBS because of the integrated offering of CRM, Web-portal and order-processing capabilities. "We had a customized solution before using [Oracle SBS but there were redundant order entries and reports; with Oracle SBS, everything is integrated and connected," Pfluger says. "Nothing is going to give you everything you want, but it's darn close."

Another key for Big Wave was the fast deployment of Oracle SBS, which took less than a month to implement last summer, Pfluger says. In addition, Oracle SBS's hosting model allows NetLedger to quickly and easily tweak the solution without lengthy integration hassles. Pfluger says NetLedger has already upgraded the solution and made requested changes.

Valuable VARs

NetLedger started out with a focus on 50- to 100-person companies. Now, it's targeting companies as large as 250 employees but sees potential to bring in customers twice that size with as much as $100 million in revenue. Goldberg hopes to hone in on businesses that are traditionally served by resellers. To do so, NetLedger is expanding its channel effort with its new VAR program.

"We have a direct-sales force that's been growing our business very nicely and we'll probably do $10 million this year," Goldberg says. "But we feel to really scale the business and reach a wider range of customers, we're seeing much more of a need for resellers and developers,especially those that are focused on business processes and applications."

NetLedger's VAR program is aimed at solution providers focused on consulting and business-process implementation. It's an expansion of the NetLedger Certified Consultants program, which was a basic referral program. "It didn't make for a very involved relationship with partners," NetLedger's Labelle says. "With the VAR program, we're envisioning a very involved partner that buys the suite from us at a discount and then provisions the suite to its customers."

Currently, NetLedger has only a few dozen certified consultants but hopes to add at least 100 solution providers to the VAR program. To build a more involved relationship with partners, NetLedger added sales support and resources, monthly online product training and reseller product discounts. NetLedger is emphasizing SMB expertise, too, requiring that within a month of signing on as a partner, a VAR must pass the certification exam for Oracle SBS.+

Digital Quotient, a start-up specializing in SMB consulting, started working with NetLedger last year as a certified consultant and now is a member of the new VAR program. Chad Keiser, CEO of Digital Quotient, says he's seen a noticeable improvement in NetLedger's channel effort and expects the company to be successful with its new VAR program. "NetLedger really nailed it with offerings like pricing discounts and better education and product support," Keiser says. "The Oracle SBS is a very easy solution to work with, and NetLedger seems committed to building its channel business."

Keiser also says SMB customers have become increas-

ingly attracted to hosted e-business solutions like Oracle SBS and the quick ROI they provide. With little integration involved, VARs can deploy the solution quickly and establish a steady revenue stream from the subscription fees, he says.

Goldberg believes that as NetLedger continues to grow through the channel, the company will be able to target larger customers with the evolving Oracle SBS. NetLedger has added more advanced functions to the solution this year for version 7.6, including Executive Dashboard, a graphical Web page that offers real-time information and updates on all critical business information such as sales, leads and inventory levels.

In addition, Goldberg wants Oracle SBS to be able to scale as a small customer becomes a midsize customer over time. Once a NetLedger customer outgrows Oracle SBS, it can easily switch over to Oracle E-Business Suite. Goldberg says there's still a gap between Oracle SBS and the E-Business Suite,customers that have between 250 employees and 1,000 employees fall through the cracks. But Oracle and NetLedger believe that in time they can fill that void.

"Ultimately, in Larry's vision, there will be an entire electronic economy between small and large businesses where Oracle SBS and E-Business Suite converge," Goldberg says. "It won't happen overnight, but it will happen".