NetSuite CEO Zach Nelson predicts that 2010 will be the year solution providers shift their focus from on-premise software to cloud-computing applications. And NetSuite is gearing up to attract more of those channel partners.
"I think this is the year the channel will finally bite the bullet and begin to transition their business model from selling archaic, on-premise software to selling cloud-based suites," Nelson said during a conference call Thursday detailing the company's fourth-quarter and fiscal 2009 financial results.
"If traditional midmarket VARs don't change to meet the demand for cloud computing solutions, they will go out of business," he said.
For the fourth quarter ended Dec. 31 NetSuite reported sales of $43 million, up almost 4 percent from $41.4 million in the same period one year earlier. But the company's quarterly loss grew from $4.5 million one year ago to $6.5 million.
For all of 2009 sales increased more than 9 percent to $166.5 million from $152.5 million in 2008. But the loss for 2009, $23.3 million, was also greater than the $15.9 million loss recorded in 2008.
Today about 20 percent of NetSuite's sales are through channel partners, but Nelson indicated he expects that to grow this year. "I believe we have one of the best channel programs in the world and in 2010 it will get even better," he said.
NetSuite offers resellers 30 points of margin for first-year sales and for annual renewals, Nelson said. NetSuite is planning changes to its partner program, to be announced this quarter, but Nelson declined to provide details other than to say the company will "make the channel an offer it can't refuse."
Thursday NetSuite unveiled a partnership with accounting and consulting firm Hein & Associates LLP under which Hein will provide its customers with customized accounting and regulatory compliance solutions based on NetSuite's Software-as-a-Service ERP, financial and CRM applications.
Nelson held up the Hein deal as a model for the kind of channel partnerships NetSuite is seeking. "This partnership is a great example of how new approaches to delivering applications are emerging with new cloud-based applications like NetSuite," he said.
Nelson said he understood that a shift to selling SaaS applications is a big change for solution providers, just as it is for their customers. But he argued that it's a change they have to make.
"These guys have to extend their business model," he said. "I have often said that the third-party delivery model for NetSuite will ultimately be different from the third-party delivery model that developed around an application like Microsoft [Dynamics GP] that was extremely hard to customize and required vast amounts of on-premise support."
