October 17, 2012
At the NetSuite SuiteWorld conference held earlier this year, CEO Zach Nelson announced that the company would begin to provide some billing and subscription functionality into their platform. Billing in the services based world is an immense nightmare, others have delved into intricate detail of the reasons why this is so but suffice it to say that the SEC requires companies to recognize their revenue in ways that do not always follow the clear logic or process of a subscription cycle – this introduces all sorts of complexities that often require copious manual intervention.
A thorny, complex and time consuming process which is tied to all parts of the financial workflow. So with an acceptance that billing and subscription is an important problem-space, the interesting thing in Nelson’s announcement was that NetSuite were actively signaling an intent to move away from their previous strategy which saw them partner with best of breed billing and subscription services like Zuora and Aria and go it alone with their own product. It was only a year or so ago that NetSuite was happy to leave complex billing calculations to third party solutions like those from Zuora, and integrate the result that fell out of that calculation back into the core NetSuite product.
So what’s changed? NetSuite is pushing a story of high complexity of requirements, alongside insufficiently deep integration from third party solutions as the rationale for this move. COO Jim McGeever lays it on the line when he says that:
You cannot manage the full range of required functionality and integrate it it fully into the workflow without using a platform approach. We think this is a significant differentiator where customers want to automate the process but still demand as much flexibility as possible
In a briefing with McGeever he was quick to tell me that NetSuite, as an organization that makes its revenue from complex recurring transactions, lives the pain of this world every day. The experience with their own business helped them to design the product they’re going to sell to customers – they have to work with usage-based components, automatic choices and upselling day to day. What got interesting was McGeever’s contention that billing is in the middle of a bunch of different complex processes – with CRM, leads, quotes, sales order and fulfillment all touching the billing process. Given this, Netsuite’s stance that only a core product will really meet the needs of the market resonates. But in doing so NetSuite has a difficult diplomatic act. They’ve chosen to remain loyal to Aria, talking about it being an appropriate product for basic billings services, but have decided to burn their bridges with Zuora, indeed their pitch deck is length and includes a long list of reasons why Zuora isn’t up to the job – lack of flexibility, customizations, interoperability and analytics among them.
The messaging goes that a standalone product only really handles pure new business and billing models and doesn’t work with more traditional models of billing – in their mind standalone products are not giving these hybrid customer accurate revenue recognition. According to McGeever:
With Aria the problems relate to the nature of the beast, it couldn’t handle complexity but for simple use cases the integration with NetSuite would work. With Zuora however the marketing is way ahead of the product – the company has been over promising and in going public with their billing product NetSuite wished to combat falsehoods from other vendors. Basically the current partner offerings have been having difficult meeting requirements for financial process automation. Customer outliers take 80% of the time and Netsuite implementations with third part billing and subscription vendors were failing
McGeever also suggested that with Zuora in particular, their choice of building on the force.com platform limits the degree of customization available in the product. that’s an assertion that Zuora (and salesforce for that matter) would vehemently refute. Proof of the pudding and all that.
In one final slap of the competition, McGeever criticizes the trend towards percentage based pricing plans saying that NetSuite’s pricing (still to be announced) will not include any percentage based charges.
As with all of these vendor announcements, the inter-vendor politics are half justified and half theatre, but beyond the rhetoric, we are looking at a core bifurcation between best of breed and suite vendors. The suites would say that only a core offering will work deeply with the breadth of functionality that customers require, the best of breed vendors suggest that a suite provider can’t possibly deliver a world class product because of their lack of focus. The reality for customers will vary, but one thing is for sure, this space just got a whole lot more entertaining.