What are you in the UK to announce?
We’re beginning to expand NetSuite’s footprint from an office standpoint. Our offices in Europe are primarily in the UK, but we’ve announced the opening of a physical presence in Benelux with an office in Amsterdam. This follows last year’s announcement of our new data centres in Europe, one of which was in Amsterdam. But now we’re expanding our service and support capability on the Continent with employees and resources.
We’ve also announced a new product relating to support companies headquartered in that region. We have around 350 Benelux companies using NetSuite today in some capacity. They might be a subsidiary of a large multinational or actually headquartered there if they’re an early adopter. We’re focusing on the tax compliance and payments issues in those particular regions, which will enable us to better support companies headquartered there.
Was the opening of data centres in Europe influenced by the EU’s new data regulations?
It happened to coincide with the EU data regulations. We announced our intent to open the data centres in October of last year, and that was the day when the Safe Harbour ruling was invalidated. So it was actually just coincidental – we were bringing our data centres to Europe and that just happened.
It was really about providing a richer service to our expanding customer base in Europe, but it had a fringe benefit of also addressing that concern on the exact same day that it was raised. Now we have European customers live in those data centres, so they’re fully operational at this point, and that’s a good thing.
Last year you had a big move from AWS to Azure. Was that mainly an economic decision or part of a wider strategy?
We actually manage our core data centres ourselves with a variety of providers, not necessarily Azure – in Europe, we’re using Equinox. The Azure relationship was really part of a broader partnership with Microsoft.
Where we leverage Azure is really by having partners build solutions on top of the NetSuite core, and Azure gives them a very efficient architecture to build those add-on applications that work in conjunction with NetSuite.
Also, some of our retail products run in the Azure and AWS clouds, so that’s the second piece, but largely the NetSuite data centres are in self-managed environments today.
Cloud’s role in the enterprise
NetSuite was born on the web as a SaaS company, which has been hugely advantageous over the traditional software players. But what are the biggest challenges you’ve faced as cloud’s role in the enterprise has evolved?
We were not just born in the cloud – I would argue that we were the first cloud business applications company ever founded. So it’s been fun to see the transition that has happened since 1998, when people said no one would ever run mission-critical applications on the cloud, to today, when they can’t get there fast enough. It’s been rewarding, both philosophically and financially, for us.
Our biggest challenge at the moment is how do we take advantage of the opportunity we see in the pain customers feel in running a modern business? So it’s really investing in products localised for every jurisdiction around the world. But enabling customers to take advantage of that is really more of a challenge that involves extra feet on the ground in those countries. So the challenge I’ve been focusing most heavily on is how we expand NetSuite by taking advantage of the opportunities around the world to enable customers to build modern businesses.
Some of it is just plain hard work and getting local employees who know the customs, the language and the culture of those countries, so that’s really what we’re tackling now.
Being a native cloud company has had clear advantages over the legacy software firms, but they’re catching up now and throwing a lot of resources into their cloud businesses. How do you see the market now compared to when people were still unsure about cloud?
I wouldn’t given them credit for having caught up yet, particularly if you look at SAP. The way they’ve caught up is to acquire companies – they haven’t really built any cloud-native applications. Particularly in the ERP space, which is where we play, I really don’t believe they have any offering that’s cloud native. It’s still the old stuff.
So you’re hearing a lot of commentary from the traditional legacy vendors, but it’s a lot harder to build these applications than it is to talk about them. I remember talking to Larry Ellison early on – he was a founder of NetSuite – and he said one of the great accelerators of Oracle’s growth when they were the leader in relational database technology was when IBM announced they also had a relational database, which of course they didn’t, and that drove ever more business to Oracle.
So we welcome everybody talking about how important the cloud is – and how important business suites are – because as far as we’re concerned, there is still only one and it’s called NetSuite.
For these large legacy vendors it’s not just about the challenge of building the technology on the cloud – their core business model is not structured to be a cloud company. Our business model is built on our customers’ success over long periods of time – those companies’ business model was built on shipping them a disk and daring them to install it. Those are very hard historical and cultural models to get away from, so they’ve got many challenges to become a cloud company like NetSuite.
Everybody seems to have a slightly different vision of what cloud software is and where it’s going – what’s yours?
Our vision of the cloud and what we’ve designed NetSuite to do is really to help our customers modernise their business – that’s what we try to enable with our software. So what I think is most exciting about what’s going on in the world is that every company is becoming a cloud company.
You look at all these discussions about omni-channel retail – well, that’s basically turning retailers into cloud companies that recognise their customers whether they’re on their mobile device, in the store or online. That’s the transformation that’s going on. Media companies are certainly cloud companies – they were the first businesses that were disrupted.
So what’s really going on is every company is becoming a cloud company, and as a piece of that they have to retool their internal systems to enable new business models. Secondly, they have to figure out what those new business models are. They have to go from operating how a company did 20 years ago to operating how a company like Uber does today. That’s really what we’re trying to do – providing every company with a platform on which they can transform their business.
In which enterprise application do you see the biggest growth opportunity in cloud software?
That’s how most applications are built – systems designed to run departments within a business. Our strategy as a company is a bit different. We designed a system to run a business – from the moment you encounter a customer’s lead, with sales force automation, to the moment they become a customer, and so forth. So we’re not a departmental system – we’re a business system.
Of course, almost everyone who implements our system runs the ERP system – that’s the core of the application – but if you look at what we envisioned 20 years ago, we felt that e-commerce was as important a piece of our strategy as ERP was, and if you’ve followed us for the past three or four years then you’ve heard us talk a lot about omni-challenge commerce. That’s always been a part of our product.
So what is really causing our business to grow is not any particular ERP functionality or e-commerce functionality, although those are certainly useful. It’s really how our customers’ businesses are changing and how they want to interact with their customers over the web and phone.
They’re looking for systems that enable them to do that very easily. This business system architecture that we took and that our product has really enables those kinds of capabilities. So it’s a fairly unique approach to running a business in terms of what we’ve designed.
NetSuite has been going for 18 years now and has had some great success, but has yet to turn a profit. Why is that?
There are always many ways to look at the financials, particularly of cloud companies. In the generally accepted accounting principles approach that we use, our financials include a lot of non-cash charges – and, in particular, stock option expense. So they show on the financials, but it’s not a cash burn. So the way we look at the business is, if you remove that, what does the profitability of the business look like?
And it’s certainly been growing over the past year. We generated, I think, north of £100 million of cash last year on something like £750 million of revenue, so that’s 12% or 13% cash profitability margin. We have a couple of hundred million dollars in the bank. So I think people are very comfortable with our financial stability and listings on the New York Stock Exchange.