Software major Oracle on Thursday (28th July) announced it was acquiring enterprise cloud services company NetSuite for nearly $9.3 billion in an all-cash deal – a move with which Oracle intends to cement its position in the growing cloud crm market and also reduce the lag by its late entry. The transaction is expected to complete by later this year.
It is the second largest acquisition for Oracle. It had acquired Peoplesoft in 2004 for 10.4bn USD. With Netsuite’s acquisition, Oracle intends to pitch harder against its friend/foe Salesforce. NetSuite has more than 5,000 employees and specializes in accounting and other back-office e-commerce software, particularly for smaller businesses. It has also created online software for manufacturing that is similar to some of Oracle’s software applications. NetSuite was one of the first companies to provide SaaS. It had a market capitalization of $7.37 billion before the deal was announced. In May, NetSuite unveiled software that unifies various accounting functions — for example, billing, revenue recognition, orders and subscriptions — into one system. NetSuite has more than 30,000 customers, the bulk of which are small and mid-size companies.
What could be the next step?
As per Mark Hurd CEO Oracle, the Oracle and Netsuite cloud offerings are complementary and can co-exist in the market for long time. Netsuite on the other hand can leverage Oracles global presence to increase its market breadth. Oracles dominance in database was nowhere influencing the cloud race.In a scenario where it was a late entrant and with a portfolio which was quite lagging behind AWS and Dynamics, it was continuously loosing out in the highly competitive arena of cloud crm. Acquisition of netsuite is a perfect marriage of opportunities. Amidst plethora of crm softwares which have cropped up in the near past, it can be comfortably said that salesforce is the real winner in this round, however with ever changing dynamics of business expectation from CRM, it is not what is now which will be important but what companies will offer is important. The CRM market is more or less matured enough. Today companies do not wish to have crm, manufacturing, accounting etc in silo but want to automate the entire lifecyle of business automated and talking to each other in sync. Most of the new age companies are build around automation. On cloud crm softwares like Uber, OLA, Airbnb etc use the platform to run the business and not sell the platform itself.
Going forward, we will have two type of cloud buyers, one which is the cash cow industry and other which is growth engine to the IT industry. The cash cows are typically on legacy systems with huge DC/DR and multiple applications running in islands. They need to automate themselves to compete with the latest and nimble new comers in the market and hence the pressure on IT vendors to provide automating and seamless integration. Typically these cash cow industries have multiple vendors between the user and manufacturers with each focusing on specific roles. What is lacking here is seamless integration of value chain from one end to end. Vendors like Oracle &SAP which have traditionally been provider of heavy duty erp and database solutions to automate the back-end processes, now need to proved 360 degree view of end users as well and further integrate it seamlessly to the heavy duty engine running behind. Hence the drive to acquire 360 degree crm providers like netsuite, salesforce etc. What lies ahead is not what netsuite brings on the table upfront but how Oracle leverages its technology to provide more value to its clients who are a cash cow. Here Oracle would try to ensure that these industry giants also evaluates its crm offering as seriously as Salesforce.
The growth engine industry primarily constitutes of those aggregators who depend on the heavy duty manufacturers to provide the anvil on which they grow. For example ola, uber, airbnb etc.. these players do have platform at their core and service as offering. IT vendor see immense opportunity in these players as they ensure that the final need of end users are met in a more user friendly manner. Hence the demand for players like salesforce, netsuite etc. With acquisition of Netsuite, Oracle intends not only to acquire its existing clients but also an opportunity it position its existing offerings and become an end to end vendor. For leading crm providers like salesforce, dynamics etc, to make it to the biggest league it has to foray into the attractive cash cow industry not just with crm offering but penetrate into the erp and database segment which is the biggest pie. For which it has to either have a foolproof strategic relationship with vendors like SAP and Oracle or acquire/invent something revolutionary.
The most probable outcome in the next few year could be acquisition of salesforce as well and then allowing the rest to die a natural death/exist in a niche OR salesforce/some other crm company acquires either Oracle, IBM or SAP and flips the world upsidedown..who knows??
Sources: Oracle website, bloomberg, crowd2,wsj