Friday, February 15, 2008

Customers are running away from NetSuite

Nice quarter announced yesterday by NetSuite.  Fourth quarter revenues increased by 57%, with full year revenues up 62%. It all looked great until I read the customer number. Over the last 5 years this company has lost more customers than it has been able to add.

This is one of those things that just failed to register the first time I saw it. In scanning the company's S-1 filing with the SEC there is a note that the customer base was "over 5,400". That should have caught my eye. It didn't. But today, reading the earnings press release I saw the company added 432 customers during Q4, bringing the customer count to "over 5,600". Interesting. I would not have expected it to be 5,832 as there has to be some churn in this business. But what does it say when your rate of churn is about half of your customer add rate?

This serves to validate the discontentment that is captured in the comments following these two blog posts by Dennis Howlett.

NetSuite nightmares - Sept 27, 2007. Comments
NetSuite nightmares: part deux - Jan 10, 2008. Comments

In light of this dissatisfaction the customer add issues make sense. And by the way, it's much worse than this most recent quarter indicates. Take a look at this press release on the NetSuite website. That's a release from March of 2003 which boasts that the company had surpassed 6,000 customers. Do you mean to tell me that all of the customer adds you could muster over the last 4-3/4 years have not been enough to offset the churn in your existing customer base? That's incredible.

This of course has done nothing to stop NetSuite's CEO Zach Nelson from taking shots at a few competitors during yesterday's earnings call.

On SAP's new Business ByDesign product: "I still don’t think you can buy this product (BBD) - we haven’t seen it because you can’t buy it…I think they’re being a bit disingenuous about completeness.”

Great Plains will do anything to keep us out of a deal.”

“People are running away from Sage.”

Hey Zach, isn't it interesting how much your company resembles Sage on this issue these days?


  1. Official response from NetSuite to inaccurately cited customer data

    Jason, some points of clarification:

    1. On our call and in our filings we talk about active customers. Customers are not considered "active" until they go live with the product. Since customers choose their own implementation schedules, you won't see these new customers show up for a quarter or two in the active customer count number.

    2. It should also be noted our sales growth and retention are amongst the highest in the industry. Whereas all SaaS companies (especially those that sell to small companies) have some churn, your implication that ours is higher than standard is misleading. It would be very hard to grow revenue as quickly as we have if we didn't have very high customer satisfaction and retention rates.

  2. Very few people read this blog, including me. But as I jump out here for the first time in a few weeks I realize that having Mr Mathur's comment be the only one on this post could give a reader the impression that he has provided a satisfactory answer to the question I have raised. He as not.

    What I get out of his comment is that the 6,000 figure with the company boasted about five years ago in press releases and on the web may in fact be a bit of a fib.

    No matter. Let's throw that one out and just look at the past few quarters. NetSuite answer is not a satisfactory explantion for the discrepancy between its own SEC filings and its current claims. The best I've heard is that customers added are not immediately active and there may be a lag between when they are added and when they are counted among the "active" customer base. But this explanation just raises more questions. At the add rates the company is claiming it would have added between 1,200 and 1,500 customers over the last nine months. Yet the number of active customers increased only by 300. What does this say about NetSuite's claims of greater simplicity and rapid implementation timeframes. Are they really saying that at least 75% of customers do not go live within a year after signing the contract?

  3. After my salesman driving me up the wall to expedite my purchase I did
    do so.

    NetSuite, I would say about NetSuite that it's very advanced.

    After purchasing the product I had some issues, my salesman told me I
    will get advance website customization, and it was not activated on my

    To anybody inquiring NetSuite for a website, you will need the advance
    website customization, it is very expensive, therefore they will try
    selling the product without it, and then force you to buy the advance
    website customization which is over $5,000 a year, plus support.

    I was trying to call my call my salesman, and to my surprise I was

    I did call her sales manager, and to my surprise after a week it's
    still not resolved.

    Customer support tells me that I need to talk to sales, and the sales
    department is doing a great job ignoring us.

    Re: Customer support, my salesman convinced me to purchase it, if
    anybody knows how to use a word document I guarantee them that they
    will know how to resolve the problem better than the support team.

    I did do some research on the Internet, I would say if NetSuite will
    not improve the service, they will lose faster customers as they
    gained it.

    Anything you are trying to do is an add-on, because the basic product
    is designed not to work well with out the add-ons.

    To prove it see it yourself I am providing the monthly price list from
    NetSuite, those are a monthly prices, when you add those charges
    yearly its outrageous.

    You will see that every section has a add-on, and every individual add-
    on cost almost the same as the product itself, this is a crime,
    because the sales team is trained not to disclose this information, so
    after the purchase which you feel is affordable, you will get the
    surprising news, that if you want the product to work you got to
    purchased the add-ons.

    I hope you see that I'm not just this idiot which complains on
    everything, I will agree that this is a great product, but sell the
    product right, if you feel that the prices are not reasonable, make
    the price reasonable and do not fool your customers with surprises.

    Price Matrix Monthly
    NetSuite $499
    Per User $99
    NetSuite MC3 $1,999
    Per User Pricing $129
    NetSuite Global CRM $1,499
    Per User Pricing $129
    NetSuite CRM+ $129
    NetSuite CRM $79
    NetSuite Small Business $99
    Per User Pricing $49
    NetSuite Limited License $249
    Per User Pricing $49
    NetSuite Wholesale/Distribution Edition $999
    Per User Pricing $99
    NetSuite Services Company Edition $1,499
    Per User Pricing $99
    NetSuite Software Company Edition $2,999
    Per User Pricing $99
    NetSuite Software Company Edition Limited License $1,499
    Per User Pricing $99
    Offline Sales Client $25
    Advanced Partner Access $0
    1 - 99 Partners $49
    100+ Partners $29
    500+ Partners $19
    NSSB Self-Service Users $49
    CRM & CRM+ Self-Service Users $79
    NetSuite Self-Service Users $99
    Incentive Compensation $299
    Advanced Shipping $99
    Advanced Inventory $299
    Advanced Financials $299
    Advanced Billing $299
    Advanced Project Accounting $299
    Advanced Project Tracking $299
    Revenue Recognition $999
    Issue Management $299
    Site Builder $299
    Site Analytics $299
    Additional Web Site (must have Site Builder) $299
    Electronic File Download $299
    Advanced Analytics/ODBC $399
    Additional Billing Schedules (100,000/year) $499
    Online Bill Pay Additional 20 per month $13
    Additional Rev Rec Schedules (100,000/year) $999
    NetSuite Additional Data Storage (1 GB) $250
    NetSuite Additional Data Storage (10 GB) $1,250
    Dedicated Server Tier 1 $8,333
    Dedicated Server Tier 2 $6,250
    Dedicated Database Tier 3 $3,333
    ODBC $399
    Mail Merge /E-mail Communications $99
    Email Marketing Campaigns (+5K) $199
    Email Marketing Campaigns (+15K) $449
    Web Services Plus $799
    Unlimited Web Store Items $100
    Webstore 100 Item Pack $10

  4. To y123y123 or anyone else, I don't see NS Support pricing, any ideas, particularly Silver vs Gold?? i.e., 24%, 26%, etc?


  5. I am a developer who had the opportunity to integrate with NetSuite; their documentation is good enough to give anyone the impression that it will do what you need, but it's far from complete; to the extent that I had to write a complete set of webclasses just to get done what I needed, because the examples were incomplete, or didn't work, and there were no examples. After gettting in an email argument with the sales managers who told me that email with cc's to the customer should not be used as a medium for my disagreement with them, I finally did get to a competent sales engineer.

    I told the client, a large company in Canada, that I would give them back their money, and pay to move them to another product, so that I'd no longer have to deal with the guys at NetSuite, etc., and then finally told them that I would have to disengage from working with them, completely, to which they agreed to give up NetSuite.

    Netsuite is an aweful experience all around. Thanks for your blog.

  6. Netsuite was, probably still is, a good integrated product. I called two different resellers in Australia. Totally different pricing. Advertised at $99 per month, and I was ready to buy. It is not $99 for a one user license. Not available ...!!!
    Wasted my time and theirs.
    Given that they are SaaS, you would think that you could buy on-line, download a trial on-line but alas...

  7. I love what I am able to do with the product and much prefer it to Quickbooks which is where I came from, but the sales force is absolutely uncaring and has no sympathy for those who have bought more than they need. I'll be moving back to Quickbooks, simply because Quickbooks costs less than 10% of the price of Netsuite. Netsuite really should come out with a product designed to compete with Quickbooks without charging for all the bells and whistles which I don't have the time to learn and I don't have the need for.

  8. to y123y123
    Would you please tell me where you got the price matrix from in such detail? I am currently speaking to Netsuite and their pricing estimate doesn't even look like this breakdown that you have written out (actually there are recognizable items but the prices are hugely different). I just want to make sure that there is some comparability with what I am being given and that the "modules" I am getting include various components of each of the ones you have detailed.
    thanks very much

  9. NetSuite isn't trying to compete against Quickbooks. It’s a mid market package whereas QB is for a different type of business. I would guess that the clients are getting larger in nature as the company matures. Rather than having a bunch of small clients which end up costing a firm money as support costs are higher the reports would suggest that they are replacing that revenue with "better" revenue. I've been in ERP for 20+ years selling, implementing and supporting several different systems although never NetSuite and not in their market, mine is more of a niche. My clients are mid market and demand quality support and so they pay me a fair chunk of change to do so (in and around 10-20k year all in). It's typical of mid market companies and the pricing listed, if accurate, sort of plays to that same model. When I was younger I tried to fit my package into every square peg that called but you learn after a while to tell the square pegs that you are a round hole. People every company I’ve worked with has exactly the same issues listed in your posts. So yes the “salesman’s” or should a business owner realize that they need to fork over some dough to the tool they want. Don’t buy a van when you need a compact and vise versa. If you do buy the van make sure you get them to teach you how to drive it properly or you will be frustrated.

    From a Quickbooks forum
    I have not found an effective method of communicating with Intuit regarding technical issues. The "technical support" service is a joke, and as far as I can tell, its only function is to serve as some sort of tax relief for Intuit by allowing them to send some of their cash to a third-world country. I have tried the "official Quicken listservs" but it appears that the moderator(s) of those sites are only interested in user communication that concerns the moderator's issues. This forum is as close as I've come to a real QB User's information site.

    From a Great Plains forum
    “At this point I would encourage you (for more reasons than solving this
    issue) to consider putting Dynamics on another box. I know there is a large
    up−front cost associated with doing that but I believe in keeping LOB apps
    isolated to avoid exactly the problems you are having (shhhh... don't say
    this too loud on an SBS group ;−)).”

    Now I don't discount a client on size because some of my most advanced clients "get it" and they run incredibly tight ships on software that most of their peers would say "costs" too much. However they have a bigger vision and see the value of what they are getting and exploit it.

    So Jason I guess my question to your initial thought would be is NetSuite replacing smaller clients for bigger clients as they move up stream? This is how their revenue stream would grow. Larger installs typically stay around for an average of 15+ years whereas when I started my own firm I initially flipped around on Quicken, QB, Microsoft Money ect. I was a churn nightmare just like most small firms. Now I’m settled in for the long haul.

    And Spacebloomgirl... every high end software package I've worked with looks to negotiate a price so that they can fit into a clients budget as long as it’s reasonable. We (software people) can always shave some off but I've learnt (the hard way) not to sell at any cost then disappoint a client.

    Figure out how it’s going to make you money or save you money then apply the cost to it to see if the cost is in line with the upside.

    Salespeople = negotiation or the firm would sell it at Future Shop off the shelf.

  10. This might not be the right forum but I feel the urge to write a short review. I'm high ranking person at a company that has used Netstuite for 4 years (our company can't move away from it = straight-jacket-ware). Before you select this software for your company, review some of the following concepts:

    - It should say a lot that you have to go through their website to log into YOUR software.

    - Their interface is painfully difficult to deal with - just ask them to show you how to enter an special attention to the Attendees portion. Oh sure, you can drag and drop some stuff around (Portlets) on your Home page, but when you really want to start using it for reporting, etc., you will find it VERY difficult to get it to do what you want. Before you buy, ask them to replicate the format of your current financial reports.

    - The Microsoft Outlook integration tool is a small feature for some. In 5 years they are on Version 2 (Beta). I'm not really sure where to begin (no Boolean filters, no consideration of the Blackberry, implementation disaster) but if you want a quick summary of how bad the app is, take a look at what it does to the forms in Outlook...the only field it adds to forms such as Contact is company and it overlaps the field in the UI. Needless to say - it should say a lot that there is no Blackberry support (even the third party company that makes an app admits that its too difficult to make a successful app...but they're happy to show you the Salesforce app).

    - Try calling their support line before you buy - just ask them to help with something simple, like how to monitor an email blast. You will find that their support staff is very under-qualified to help with anything related to computers. Here's my favorite one - if you find a major bug that is killing your business, the support staff will, AT BEST, enter a bug report with no guarantee of a follow up...seriously, I have more than a dozen SIMPLE REQUESTS that have not been followed up on in 4 YEARS!!!

    - Email Campaign. Let's just say that when you call support for help with this and you ask for help with simple things like, where can I see the status of outbound email, you will eventually have someone tell you that this is not CRM software.

    - Project Management. Not sure where to start here...simple thing, show me where I can see a simple view of the profitability of a project. Oh, they'll show you something but it doesn't me.

    - Implementation support. This is probably the most important thing to consider - If you are 5 to 75 employees, be prepared to spend 30k to 50k per year in consulting fees to a reputable Netsuite consulting firm. Otherwise, you will kill yourself trying to make the software do what you expect it to do. If you are a bigger company, why are you going with netsuite?

    FWIW, I've been using it for 4 years and am a very competent computer user. I didn't just get frustrated's been frustrating since day one. Not at them, but at myself for believing that netsuite would live up to any obligation that a SAAS company should have in order to be progressive and put money, smarts and development behind their product. The comedy now is watching the fact that even though we give them $75k/year in licensing, we can't get a sales person to call us back FOR MONTHS AT A TIME!!!!!!!!

    I hope this helps someone.

  11. This is what I know....

    NetSuite has some good people, but the company has been around for a long time and so has their technology. They were the original SaaS company, but sadly they have become complex and difficult to deal with. The rise of must have been a punch in the gut for them as they could have easily filled the gap that salesforce found and has exploited to the full.

    What is needed at NetSuite is new blood at the top, simplification of their offering and pricing and a cultural renaissance. The fact is it probably won't happen. In their rear view mirror they don't see the signs of another salesforce type blow inevitable appearing. If they did then they would be visibly changing right now.

    Invaders like ( a simpler offering, simple pricing and the maximum commitment they require is 1 month. All this is offered at a third of the price of NetSuite. The customer service folk are knowledgeable, sympathetic and very personable. As for the company's ambitions "We just want to do a good job and have people remark about it, the rest will follow".

  12. If a flexible tool as NeSuite or SAP get so much bad press, I think it's because they depend on customers to tell them how they want the system to run.

    As a FD or MD, you have the choice between paying external auditors to map you internal processes and enhance those procedures BEFORE you go and put your job on the line by trusting what a 20 year old sales rep, who just cares about their commissions, tells you what a system can do.

    External auditors are expensive though and might not reflect the company's budget.

    If you do not take an implementation seriously, chances are, you will end up with a tool which either does not fit your needs or that you end up paying for functioanlity you do not use.

    Is NetSuite or SAP really that bad or do customers just need help in mapping their requirements? Only time will tell.

    Providing management tools and services

  13. I have been a consultant helping middle market companies select and implement ERP and CRM software for over 20 years. I have also developed significant eCommerce applications processing over $1 Billion annually. In my previous career, I was a CPA for a global professional services firm.

    NetSuite is a serious business application. Because it is fully integrated, you must exercise care during an implementation. If there are any doubts in what you are doing, it will likely come back to bite you. Unchecked assumptions can lead to dissatisfaction.

    In my assessment, any customer that attempts to "go it alone" is taking on considerable risk. I am bullish on the platform. I spend time in conversations with prospective clients about the need for configuration, testing and training to have a successful implementation. I look to see if they understand the commitment to be working with these types of tools. The platform is extensible; but it requires know-how.

    I find the same theme in the MS Dynamics line of applications. Getting a financial report out of NAV is not easy. Try to get reports out of MS CRM. With a good partner however, you will get to a good solution.

    I invite prospective NetSuite customers for a discussion. We think a tailored demonstration that fits the primary business transaction flow is important to see before making a purchase decision.

    Marty Zigman
    Prolecto Resources, Inc.