Nelson plots course for SaaS success

Nelson plots course for SaaS success

Zach Nelson believes the emergence of a new generation of executives is helping his firm to drive the SaaS concept

Born and raised in Nebraska, Zach Nelson began his career in IT shortly after graduating from Stanford University. After a series of senior executive roles at leading IT vendors such as Oracle and Sun, he joined on-demand software specialist NetSuite as chief executive officer in 2002.

Under his tenure, the company has seen rapid expansion, with Nelson last year overseeing one of the biggest IPOs in recent years.

NetSuite is riding a growing wave of interest in utility computing, a concept that first caught Nelson’s imagination after he joined McAfee in 1996. One of his key tasks was to enable the delivery of the vendor’s security software over the internet. His relationship with on-demand software deepened during a brief stint at peer-to-peer network security services specialist

But it was not long before Nelson wanted a new role, one that would challenge him and the industry. “It was very clear to me that SaaS [software as a service] was the future,” he recalls. “It is easy to deliver, and easy to manage. It really was a no-brainer.”

However, there were other criteria to consider when it came to finding such a position. “NetLedger [as NetSuite was then called] was a suite of applications that could be delivered over the internet, but it also had good financial backing from Oracle chief Larry Ellison, who is the company’s majority shareholder. Importantly, it was also very close to my home ­ just three miles away. This is the job I was born to have,” says Nelson.

However, others were less sure. “I spoke to a lot of people before I took the job. Most of them said that businesses would not choose to buy their software over the internet. But I knew Larry, and I knew he was serious about it,” he explains.
“In those days there were a lot of SaaS startups, but their venture capitalist money dried up. It takes five years and approximately $50m to $60m to build a company, and we knew that Larry would fund us.”

This backing has been key to the company’s impressive growth. In 2001, the company recorded annual revenues of £1.5m, while last year revenues stood at £54m, a figure that Nelson described at the time as “pretty amazing”.

But this kind of growth was never taken for granted. Nelson recalls that there was a lot of scepticism about the on-demand model in the early days, with many customers finding it hard to come to terms with the idea of losing control of their systems.

“Customers in 2001 were concerned about the security of their data, they didn’t like the idea of having their applications hosted off site. But attitudes have evolved over time,” Nelson says. “Consumers do everything online, including managing their own security, and when they know that [through NetSuite] they get a FTSE 100-grade datacentre for just $99 a month, they see it as a big positive. You can open a browser window and run your business. A lot of companies want their data out there in the cloud.”

But customer concern about control was not the only hurdle NetSuite had to clear in the early days. “We were pushing two rocks up a hill. One that read SaaS, and one for integrated enterprise suites,” Nelson says, referring to doubts some firms had about NetSuite’s all-in-one enterprise apps system. “Because of their historical buying patterns, customers thought they needed different pieces, but it is just a question of education. They can run their businesses on a single application,” he says.

Nelson believes that too often IT managers can get bogged down in details and information that they do not need to worry about. “They know what software they are running and what version. They really don’t need to worry about that sort of stuff,” he says.

But as the SaaS market has matured, so firms’ various qualms about the model have faded. “The new business leaders have been brought up on computers and the internet. They are used to working in a browser, not in a Windows application,” Nelson argues. “You often see the son or the daughter of the outgoing boss coming in and making the changes.”

This growth in the ranks of senior executives who are comfortable with SaaS is obviously crucial to the long-term viability of NetSuite, which despite rising revenues has yet to turn a profit.

Nelson is unsurprisingly evangelical about the benefits on-demand systems can bring to firms, especially those with limited in-house IT resources. “Efficiency gains are hard to measure, but you don’t have the complex training issues that you used to have. SaaS takes a lot of the grunt work out of systems ­ we remove the cost of managing those applications. Because it is a single system, our users get a 360-degree view of the business, and a single view of their customers,” he says.

“Our focus is on helping companies run their businesses, and because of that we are working on creating versions of NetSuite for different types of companies. We take on all the arcane aspects of a business, and deliver a whole new set of processes,” Nelson explains.

NetSuite’s NS-BOS platform enables third parties to create these solutions and build the extensions that meet the specific needs of firms, adds Nelson.

“We would never have enough developers to do that ourselves, but by enabling third parties we have increased our developer pool,” he says. “Even small firms need solutions. We have one customer that provides floor cleaning services. They need a solution that tells them what type of floor they are dealing with and what its square footage is. When someone asks me for an example of other firms using our solution, I am not short of candidates.”

One of the most significant events in NetSuite’s history was its recent IPO, an exercise that raised huge sums for the firm. However, this was not the primary goal. “The IPO was something of a branding exercise for NetSuite. We want to be the SAP of the mid-market, but reaching all those firms is hard. It’s easy for the FTSE 100, there you just hire 100 sales people and send them out knocking on the relevant doors,” Nelson says.

The IPO certainly succeeded in raising the firm’s profile. “Our market capitalisation was the largest since Google’s for any venture-backed company, and we raised $161m selling just 10 per cent of the company,” he says.

Nelson says some of this money is being used to build new datacentres, adding that none has been earmarked for acquisitions. “Our core is the integrated application so it is hard to consider technology acquisitions ­ it is very hard to merge code,” he says.