Oracle Set To Lean Heavily On NetSuite's Channel, But Questions Remain

Oracle and NetSuite executives said channel partners from both vendors will see expanded opportunities in the market following their merger.

However, in a presentation streamed live on Thursday for an audience of customers, channel partners, press and analysts, neither company would be specific about channel programs, especially the historically rich margins that NetSuite solution providers have enjoyed.

The conference was held in the wake of Oracle's $9.3-billion acquisition of cloud application developer NetSuite. The deal closed on November 7.

[Related: Oracle To Complete Its $9.3B NetSuite Acquisition Monday After Majority Of Unaffiliated Shares Are Tendered]

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There is very little overlap in the two companies' product sets, with 95 of the products serving customers with different attributes, said Oracle CEO Mark Hurd.

"These are products that are materially, and I'll asterisk 'materially,' more complementary than competitive," Hurd said.

NetSuite's past success stemmed from a strong channel presence, and will continue to be important now that the company is a part of Oracle, said Evan Goldberg, founder and chief technology officer of NetSuite.

While NetSuite offers point-and-click tools that help customers expand the suite on their own, the company also has about 260 certified partner applications that help partners bring the company's technology to customers, Goldberg said.

He also said many of NetSuite's channel partners play a key role in developing applications for specific customers that NetSuite was unable to reach because it lacked the specific skills. He cited the example of an unnamed channel partner who helped an unnamed brewery build a platform that looked exactly like it was done by NetSuite. "[Partners] are an incredibly important part of our future," he said.

During the question and answer period, Hurd responded to a question from a solution provider who asked about whether partners can expect confusion as Oracle and NetSuite attempt to sell into the same accounts by saying that the two companies' solutions have different targets.

NetSuite solutions work well for startups and smaller companies, while Oracle solutions are great for large enterprises, Hurd said. However, he said, there will be NetSuite customers who really need Oracle solutions, and vice versa. "We will have guidelines and attributes to determine the best products," he said.

Hurd also said he expects systems integrators will see few changes going forward, other than Oracle in some cases taking the best attributes of both companies to customers and partners. For instance, he cited renewals, an area where Oracle has been investing heavily but one where NetSuite has in some places the more mature capabilities.

Oracle will also pay more attention to partner training going forward, especially in areas such as support. This could include expanding the NetSuite certification program, Hurd said. "You can have assurance in the people implementing the product," he said.

No mention was made during the conference about NetSuite's rich partner margins, and neither Oracle nor NetSuite responded to a question about those margins submitted by CRN during the conference.

Craig West, NetSuite's vice president of channel sales, early this year told CRN as part of his 2016 Channel Chiefs profile that NetSuite offers "a best-of-breed revenue model for our partners: boxed-product type margins of 30%-50% combined with the true recurring revenue (at 30%) that only a subscription-based application can deliver."

Brinda Brinkley, CEO of Epiphany, a Houston-based developer of software for the Oracle and NetSuite platforms and until early this year a large NetSuite channel partner, told CRN that she would expect Oracle to continue to offer strong margins to partners, but not to all of them.

"I believe the margins won't change dramatically," Brinkley said. "That would shake up the partner community too much. But I believe Oracle will introduce stricter requirements about who is eligible for those higher margins, so fewer partners will get them. They will be the highest-level partners."

Hurd, in response to another channel partner's question about pricing of the NetSuite solutions, said no changes are expected because of the acquisition. However, he did joke that partners can expect more people from the combined company to be talking about prices."I always tell people, you'll have more Oracle sales people coming to see you," he said.

Hurd said that Oracle would invest heavily in the development of future NetSuite products, and promised that NetSuite customers would have access to the full Oracle suite of solutions and vice versa."All of this together will make the business stronger. … Overall, this is going to give you the best experience across all our product lines," he said.

NetSuite will become a global business unit of Oracle run by Jim McGeever, who until the acquisition closed served as president and chief operating officer of NetSuite. McGeever will report directly to Hurd. Goldberg will remain with Oracle where he will focus on accelerated product development, Hurd said.

Also remaining with Oracle is Zach Nelson, NetSuite CEO. Hurd said Nelson will be heavily focused on evangelizing the NetSuite message and educating customers about the technology. "Zach's going to be important in that," he said.

Looking forward, Evans said NetSuite customers and partners can expect several positive developments to stem from the company's acquisition by Oracle.

NetSuite already offered four-nines, or 99.99 percent, availability, but with Oracle's help that number can rise, Evans said.

McGeever said NetSuite customers can expect more international support thanks to Oracle. NetSuite had five data centers in two regions of the world, but as part of Oracle will have access to 19 data center facilities worldwide, most of which are new, he said. "We're going to be able to leverage these to expand our market," he said.

Oracle also brings to NetSuite a much larger sales and service organization worldwide, which will be key to bring NetSuite to global customers, he said.

While NetSuite has business in a number of key verticals, the number of verticals it participates in will grow significantly, McGeever said.

The NetSuite platform, which currently only works with NetSuite customers, will see a significant boost in market terms as it moves to the Oracle Cloud, McGeever said. "Our customers want to go to the cloud," he said. "Oracle will enable them to move out of their data centers."

Steve Miranda, executive vice president of applications development at Oracle, said the Oracle Cloud offers a huge opportunity for both Oracle and NetSuite.

Oracle is currently a major provider of platform-as-a-service with its Oracle Cloud, Miranda said. NetSuite, meanwhile, has a rich, robust platform on which its solutions can be extended in some cases. Now customers who want to add Oracle applications like Java or Oracle Database will be able to do so with the Oracle Cloud, he said.

Oracle also provides infrastructure-as-a-service which will allow third-party applications to work well with NetSuite in the cloud, Miranda said. Oracle also has 12,500 customers working with the company's software-as-a-service platform which will now also be open to NetSuite customers, he said.

Brinkley said that Oracle has done a good job of tidying up all the ends related to Oracle's acquisition of NetSuite. "NetSuite will be able to do more globalization, use Oracle to get new customers, use Oracle to get new products, and use Oracle to get more data centers," she said. "I have it in my head that this is a very powerful merger. When you look at Oracle and NetSuite, the combination is much crisper and much cleaner."

Matt Kenney, principal and national NetSuite leader at RSM, a Chicago-based solution provider and major NetSuite channel partner, told CRN he sees no cause for alarm as NetSuite becomes a part of Oracle.

"We already knew that [Oracle Chairman] Larry Ellison controlled a large portion of NetSuite stock, and lots of former Oracle people work at NetSuite," Kenney said.

Kenney said he is excited to see the degree to which NetSuite will remain intact under Oracle instead of being absorbed into the larger organization, and that McGeever and Evan will continue with major roles in the organization.

He also likes how Oracle will play a big role in the globalization of NetSuite. "Most of our customers are in the U.S., but have global offices," he said. "They need solutions that work in international offices. So I like seeing Oracle throwing developers, and especially domain experience, at NetSuite's globalization."

Kenney said he will be watching how NetSuite's channel might be impacted by the increase in the potential number of sales reps and partners selling NetSuite under Oracle. "From a partner perspective, I'm not so excited about having more salespeople and offices from Oracle," he said. "That means more sellers. But they will likely be more focused on sales outside the U.S."

The generous NetSuite margins will probably not change in the near term, Kenney said. "NetSuite will continue as a separate business unit within Oracle," he said. "Maybe things will change in a couple years. Look at where cloud organizations make money. NetSuite at some point will turn to more of a Salesforce model."

Kenney said he saw nothing from the Oracle-NetSuite web conference that really scared him. "Every time there's change, there's risk," he said. "But after the conference, things look more like I hoped than what I feared."