'NetSuite can overtake SAP in a decade': CEO

LONDON, UK: Business software maker NetSuite could overtake market leader SAP within a decade as cloud computing becomes popular with bigger and bigger companies, chief executive Zach Nelson told media.

NetSuite and other software-as-a-service companies allow businesses to save on their own hardware, space and electricity bills by having their software hosted in remote data centres -- the "cloud" -- and accessing it over the web.

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Software-as-a-service was initially embraced by small companies, who lacked the resources to manage their own IT and liked the fact they paid for it by monthly subscriptions instead of the traditional large, upfront licence fees.

Now, a combination of economic recession and the increasing complexity of computing has persuaded many larger companies to consider new ways of working. "I think in 10 years we'll be bigger than SAP," Nelson said in an interview in London.

NetSuite -- which is majority-owned by Oracle chief executive Larry Ellison -- made sales of $166 mn last year, a tiny sum compared with SAP's $4.3 bn. But NetSuite's sales grew nine percent while SAP's fell by the same percentage, and IT research firm Gartner expects the cloud-services market to grow 17 percent to $68.3 bn this year, rising to $149 bn by 2014.

"We are seeing an acceleration of adoption of cloud computing and cloud services among organisations and an explosion of supply-side activity," Gartner research vice president Ben Pring said last month.

"After many years of germination, most notably in the software-as-a-service arena, the core ideas at the heart of cloud computing ... appear to be resonating more strongly." The market was pioneered by Salesforce.com, which was founded in 1999 and made sales of $1.3 bn last year. Nelson said NetSuite's customers now included Siemens Professional Services, Software AG and Lloyd's Register -- the latter with 9,200 users relying solely on NetSuite software for time tracking and expense management.

NetSuite is making a big push to win business from companies that sell services such as consultancy or advertising, where it is essential to understand and manage the time spent on a job. Nelson also sees a significant gap in the market between small companies who use accounting software from the likes of Sage and large enterprises who use expensive software from SAP or Oracle.

SAP has spent years developing its own software-as-a-service offering, Business ByDesign, which it has begun to sell after repeated delays as SAP tried to find ways of making it sufficiently profitable.

SAP's operating margin is about 22 percent, while NetSuite's was about 3 percent last quarter. Nelson said he saw this as the key reason large software providers were reluctant to expand into software as a service for smaller companies -- while for NetSuite it was an opportunity to increase margins from a low base.

"That's why you don't see big companies moving into this space -- because they'd be cannibalising their own business."