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NetSuite Sees Return On Its Channel Investment

The on-demand application vendor reports 17-percent sales growth in its second quarter.

“Our beliefs that this would be the year of the channel have materialized,” CEO Zach Nelson said Thursday, pointing out the channel sales growth during an earnings call with financial analysts. “That’s on top of what was a pretty healthy channel program to begin with.”

For the second quarter ended June 30 NetSuite reported revenue of $47.1 million, up 17 percent from $40.3 million in the second quarter of 2009. The company’s net loss increased, however, to $7.2 million from $5.2 million last year.

Earlier this year NetSuite began an aggressive push to recruit resellers for its Software-as-a-Service ERP, CRM and e-commerce applications, including an offer to allow partners to keep 100 percent of first-year revenue.

In the company’s first-quarter earnings call in May Nelson said the company had recruited some 100 channel partners. Thursday Nelson did not offer specific numbers, but he said the company had recruited “great new partners across the spectrum” of mid-market VARs, systems integrators and OEMs, many of which are still ramping up their NetSuite business.

Nelson, in fact, said he had visited a training center Wednesday where 20 new partners were getting schooled in NetSuite’s technology.

Nelson said NetSuite plans to add more sales support resources to handle the increased volume of partner inquiries and to support new partners’ service capabilities, although he did not provide details. He said the company also plans to increase its direct sales force, which is generally focused on selling to large customers.

Nelson, however, didn’t directly answer analysts’ questions of what he thought NetSuite’s ultimate direct-indirect sales split would be. He said the channel “will play a more and more important role” in the company’s sales. But he also said that since NetSuite has expanded its channel programs, it’s up to solution providers to make the switch from legacy technologies to cloud computing.

Beyond the channel, Nelson said the company’s strategy of moving up-market to sell its software to larger companies and to “verticalize” its products for specific markets was a major factor in the second-quarter growth. In June, for example, the company debuted a suite of applications specifically for discrete manufacturers.

NetSuite added 280 new customers in the second quarter and average-selling prices increased 7 percent, Nelson said.

“Revenue growth has increased as the economy has continued to recover and customers move to NetSuite and the NetSuite cloud to improve productivity and reduce costs associated with legacy ERP, CRM and e-commerce solutions,” he said. “All in all it was a spectacular quarter.”

Nelson also used the analyst call as an opportunity to take a few digs at Microsoft and SAP -- seen as NetSuite’s biggest competitors. “Microsoft continues to firmly believe in traditional, pre-Internet-based, client-server systems. In ERP they continue to remain noticeably cloud-free,” he said.

And he poked fun of SAP’s “stealth launch” of its Business ByDesign on-demand applications for the mid-market. This week SAP debuted a new release of the product that’s the first to be generally available.

Because of its increased sales and bookings NetSuite is increasing its forecast for sales for all of 2010 from earlier estimates of between $181 million and $185 million to between $188 million and $190 million.

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