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NetSuite Leaving More Service Opportunities For Partners

Company reports 19 percent sales growth in third quarter to $49.7 million

NetSuite is increasingly focusing its direct sales force on recurring revenue, including subscriptions to its Software-as-a-Service applications, and turning more professional service opportunities over to solution providers.

CEO Zach Nelson, speaking on the company's third-quarter earnings call Thursday, said NetSuite's high-visibility effort earlier this year to recruit channel partners has paid off.

For the third quarter ended Sept. 30, NetSuite reported sales of $49.7 million, up 19 percent from $41.7 million in last year's third quarter. But the company reported a net loss of $7 million for the quarter, down from a loss of $8.3 million one year earlier.

On the earnings call Nelson and CFO Ron Gill said NetSuite has adjusted compensation for the company's sales representatives this year to put more emphasis on recurring revenue, which brings in higher profit margins for the company, and shifted a higher proportion of professional services to partners.

"We've built up a broader channel partner community so that these channel partners can take on these service opportunities and I think we're seeing great success there," Nelson said.

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.

Nelson said that has brought in "some really qualified partners," including traditional VARs and, more recently, larger systems integrators and accounting consultants who work with midsize businesses. He did not provide specific numbers, however.

"Our channel [program] continues to grow and we have added great new partners across the spectrum of midmarket solution providers, systems integrators and OEMs that are just now beginning to ramp up and it looks like our channel partners are keyed up for a great Q4," he said.

Nelson, as he often does, used the conference call as an opportunity to take a shot at the competition, particularly Microsoft's Dynamics GP application suite. He said Microsoft is trying to compete with NetSuite's SaaS applications by offering hosted versions of Dynamics GP, what Nelson called "fake cloud" software.

"Any Microsoft partner that thinks there's a future in hosting client-server applications is only fooling themselves," Nelson said. "Such an approach offers customers none of the cost reductions or productivity gains of cloud-native applications like NetSuite."

NetSuite expects revenue to reach $51 million in the current quarter, up 19 percent from $43 million in last year's fourth quarter. The company expects growth for all of 2010 in the range of 15 percent.

Nelson said the company's customer retention rate in the third quarter was the highest ever in the company's history and average selling prices were up 9 percent year-over-year. Nelson said those were largely a result of increased sales of NetSuite's OneWorld application suite for larger companies with multiple divisions and mid-size companies with multinational operations.

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