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Oracle this week agreed to buy cloud applications pioneer NetSuite for about $9.3 billion in a move to gain a greater piece of the cloud. If the deal goes through as described, present Oracle users may find easier access to less expensive ERP capabilities.
But IT analysts say Oracle is still digesting earlier acquisitions, and the NetSuite purchase won't necessarily be different.
For its part, Oracle pledged to maintain the product lines of NetSuite, which counts Oracle founder Larry Ellison as one of its main investors.
The move comes on the heels of a general effort on Oracle's part to switch users' ERP systems from on-premises installations to cloud-first subscriptions for its Fusion Applications services.
Oracle CEO Mark Hurd described NetSuite's cloud-based financials and ERP software as complementary to Oracle's own cloud-based ERP services. In a statement, he vowed that the NetSuite and Oracle cloud ERP offerings would continue to coexist "forever."
A less confident view is held by Joshua Greenbaum, principal at Enterprise Applications Consulting.
"There is already too much that does not play well together in the Oracle suites," he said. "Can NetSuite leverage Oracle's somewhat mediocre cloud position? The answer is 'no.'"
ERP takes to the cloud
Cloud ERP has gained traction of late, as noted in a recent Forrester Research software adoption survey that found actual and planned ERP cloud replacement activity grew from 24% in 2013 to 43% in 2015.
"Oracle has decided to get in on the move from on-premises ERP to SaaS [software as a service] ERP while the greater uptake is still ahead," said analyst Paul Hamerman of Forrester.
Judith Hurwitzpresident and CEO of Hurwitz and Associates
Oracle cloud ERP has been a work in progress, but its offerings target the higher end of the market, Hamerman said. NetSuite, which helped forge some of the earliest examples of cloud software delivery, offers less expensive services often aimed at small and midsize companies, according to Hamerman.
"Adding NetSuite helps Oracle go 'down market,'" Hamerman said. He added that NetSuite has been successfully closing deals with bigger companies in recent years.
"This is good for Oracle in terms of growing subscription revenue and gaining share in the fast-growing SaaS ERP market, but the company still has to resolve a number of product overlap issues with Oracle ERP cloud," according to Hamerman.
You heard it here first
NetSuite has very good momentum in the ERP midmarket today, thanks to its maturity and strong feature set, according to Gene Hammons, who is director of Vaco's software selection and implementation practice. Vaco SSI has both NetSuite and Oracle ERP customers among its clients.
NetSuite has been aggressive in its pricing, in his estimation; it is on the other end of the spectrum to Oracle costs. Implementations of NetSuite are coming in within the $100,000 to $200,000 range, while some Oracle systems are in the million dollar range, Hammons said.
These days, Oracle and NetSuite may be coming into competition with each other more often as enterprises look to cut costs, he suggested.
"Oracle is expensive. There are customers that are looking to come off of Oracle. They would like similar functionality for less money."
Hammons wrote about the possibility of a merger ahead of time in a July 16 post on Quora.com. But, he admits rumors of a deal have often circulated -- it seemed natural, given Oracle founder Ellison's sizable stake in NetSuite and the powerful pull toward cloud services.
"Cloud is the way it is going," Hammons said. "Five years ago, you could not sell cloud. But, now, people don't want their own on-premises servers."
Oracle cloud ERP plays catch-up
"The NetSuite purchase is a smart move in terms of Oracle getting more real estate that is cloud-based," said Judith Hurwitz, president and CEO of Hurwitz and Associates, a research and consulting firm. Oracle was a bit late to the cloud game and has been playing catch-up, she said.
The NetSuite deal indicates Oracle "has discovered that simply offering [infrastructure as a service] may not really be the way to go," she said.
"What has occurred to them is that, to be successful in the cloud, they are going to have to look more at application services," she said.
Hurwitz, like others, pointed to a natural affinity point between Oracle and NetSuite. That is because NetSuite's software runs on Oracle's database. The database kinship is just one of several NetSuite-Oracle connections. In some other ways, NetSuite can be seen as part of the Oracle orbit.
Key NetSuite founders served earlier at Oracle. Moreover, through a venture capital firm, Oracle's Ellison provided $125 million in funding for NetSuite, which was formed in 1998. Ellison's stake in NetSuite has been estimated at 40%, which made an Oracle-NetSuite pairing a popular subject of conjecture.
Acquisitions have long been a staple in Oracle's ERP strategy. Its original ERP software stable was greatly expanded in 2005 and 2006 by purchases of pioneering HR and CRM software leaders PeopleSoft and Siebel Systems, respectively.
Companies Oracle has acquired just this year include utility industry cloud software provider Opower, for $532 million, and construction management cloud services provider Textura for $663 million. At $9.3 billion, the NetSuite purchase is Oracle's largest cloud acquisition to date.
Associate site editor Jessica Sirkin contributed to this report.
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