NetSuite CEO: Nadella Appointment Is Good News For Microsoft ERP Competitors

NetSuite Inc. President and CEO Zach Nelson couldn't be happier with Microsoft's selection of Satya Nadella as CEO given the impact it will likely have on Microsoft's Dynamics ERP business.

"I think it's great news because he is the guy that actually presided over the decline of the Dynamics ERP line," said Nelson. "He was the person that did not invest in that. He invested in Azure to go compete with Amazon. He invested in Office to protect that franchise. He invested in SQL Server. But ERP was the product line that was starved under his tutelage. I don't know if it is in the nail in the coffin of Dynamics GP and NAV, but I certainly don't think it is going to get a ton of attention from him. It didn't have attention when he actually ran it."

[Related: How Satya Nadella Worked His Way To The Top At Microsoft ]

"I don't think Microsoft can even spell ERP anymore," said Nelson, a cloud computing pioneer who has built a robust ERP cloud channel over the last 12 years as NetSuite CEO. "It is just not a strategic area for them. One billion dollars in revenue doesn't move the needle for them so they are going to invest elsewhere. They are going to invest in Office. They are going to invest in SharePoint. Clearly they have not invested in ERP, and their channel has figured this out. I think the Microsoft channel will continue to sell a variety of Microsoft products, but when it comes to ERP they need to move into cloud, and there really is only one option out there for complex midsized customers, and that is NetSuite. Microsoft's silence in the Dynamics ERP space speaks for itself in terms of what their strategy is and what their channel is facing."

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According to Microsoft, the company has seen "great traction and growth" in market for its Microsoft Dynamics business.

"The simple fact is that Microsoft Dynamics business is seeing great traction and growth in the market. We continue to invest in all our business solutions, are innovating at a rapid pace and are excited about what we plan to deliver to our customers in the upcoming months," wrote Jim Desler, director of Dynamics PR at Microsoft, in an email to CRN.

In September 2006, Nadella replaced Great Plains founder Doug Burgum as senior vice president of Microsoft Business Solutions, capping a nearly yearlong search for Burgum's replacement for the Dynamics ERP/CRM business. Only six months later, though, Nadella was tapped by then-Microsoft CEO Steve Ballmer to lead Microsoft's newly formed search and ad platform group, which led to Microsoft's introduction of the Bing search engine.

A top executive for a NetSuite and Microsoft ERP solution provider, who did not want to be identified, said he was surprised at how short Nadella's tenure was in the ERP business moving quickly to another post. "That kind of goes to the Microsoft Dynamics story as the stepchild of the Microsoft family and raises some issues about just how committed Microsoft is to the product family," said the executive.

NEXT: Embracing NetSuite

The solution provider executive said his company embraced NetSuite because Microsoft simply didn't have a clear vision on cloud computing/SaaS ERP solutions. "We couldn't get any clear answers," he said. The NetSuite business is fundamentally a stronger, faster growing and more stable business than the Microsoft ERP business, said the executive.

"Ultimately we have to make our clients happy with solutions that help them solve their business problems," he said. "NetSuite is doing more in that area now. With the SaaS NetSuite model, they come out with enhancements twice a year. These are material things. They are making real improvements that help streamline people's businesses. ... Microsoft is still [using] an old model where improvements come out every 18 months to two years. And a lot of times, it is just ways to tie in other Microsoft products like a SharePoint-integration play. That is not really enhancing the Dynamics ERP systems because you are dragging in other products."

Essentially, the solution provider executive said, there is a fundamental difference between how NetSuite views ERP versus Microsoft.

"When you get down to the economics, NetSuite has to deliver a great ERP/CRM system to be successful," he said. "Microsoft can make money pulling through Office and SQL server licenses with Dynamics. They like Dynamics because it pulls through the rest of the stack. It helps lock in the stack. I prefer to work with somebody really focused on the ERP/CRM product."

The solution provider executive said ultimately the NetSuite recurring revenue model is a much more stable business to be in than the Microsoft Dynamics ERP business. "NetSuite is an engine that just keeps going and going," he said. "It is a nice, steady flow of work and recurring revenue."

NetSuite's Nelson, for his part, said he has seen NetSuite competitors like Microsoft become weaker as NetSuite has grown its channel footprint. NetSuite's channel business in fact was up 70 percent in the most recent quarter and up more than 40 percent over the last year.

"Microsoft basically has missed every shift they promised on their cloud ERP products," said Nelson. "Meanwhile, NetSuite just keeps getting stronger and stronger. Part of this is cloud ERP apps are incredibly hard to build. It is pretty amazing that, while we accelerated our growth, we have seen the competition going away."