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NetSuite takes on SAP, Business ByDesign with manufacturing software

NetSuite this week released a new on-demand ERP offering for manufacturers, pitting itself against Business ByDesign. But will it actually hurt SAP?

Schaeffer Manufacturing Company had by last October narrowed its search for ERP software to SAP's Business One and NetSuite Inc.

The 115-year-old lubricant manufacturer was open to buying either an on-site or on-demand ERP solution.

Located in the Mississippi flood plain, Schaeffer Manufacturing has to host back-up servers outside its St. Louis-based headquarters as part of a disaster recovery plan. So an on-demand or Software as a Service (SaaS) application became very attractive. Add in the lower upfront cost and the ease with which its end users could work from home, and Schaeffer Manufacturing was sold.

"Either one of these worked for us. Really, it was just that NetSuite was on-demand," Schaeffer CEO Will Gregerson said. "We thought that was a better solution for us."

In fact, SAP has an on-demand application, Business ByDesign, a fully on-demand ERP suite that was announced with great fanfare but has recently seen its release scaled back.

Hoping to capitalize on that delay and capture some of SAP's potential customer base, NetSuite this week released a product geared specifically for companies like Schaeffer Manufacturing, which has about 500 employees. NetSuite for Manufacturers pits NetSuite directly against SAP. It claims that the software giant's delay in rolling out Business ByDesign, its SaaS offering, is costing SAP small and medium-sized businesses (SMBs) like Schaeffer. SAP announced at the end of April that it was a scaling back its release of Business ByDesign to address concerns raised by customers.

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San Mateo, Calif.-based NetSuite boasts 5,600 customers, while SAP's on-demand offering has 150 customers. NetSuite for Manufacturers costs $99 per user per month. Business ByDesign costs $149 per user per month.

Business ByDesign was never presented as an option during Schaeffer Manufacturing's search, Gregerson said, adding that he didn't think SAP knew Schaeffer Manufacturing was even thinking about an on-demand solution.

"We're quite happy with [SAP] right now," said Mini Peris, vice president of marketing for NetSuite. "[SAP] is too much for a lot of the midsized companies that we target. There really is no Software as a Service offering for those companies."

NetSuite may be winning more SaaS customers, but that doesn't seem to bother SAP. Its focus is on attracting more customers to its small and medium-sized enterprise (SME) suite, which includes Business ByDesign and SAP's two on-premise offerings, Business One and Business All-in-One.

SAP is still selling Business ByDesign and servicing 150 happy customers. Forty-five of those (30%) are manufacturers, according to Jeff Stiles, senior vice president of SME solution marketing. And Business ByDesign can do everything NetSuite for Manufacturers can, he said, though he acknowledged that it was a competitor in the SaaS market.

Stiles said SAP will continue to be guided by the philosophy that not every SMB wants an on-demand solution. Focusing on Business ByDesign at the expense of its on-premise SMB offerings (Business One and Business All-in-One) wouldn't make sense, according to SAP's market research, which shows that 10% to 15% of SMBs are considering on-demand. The rest are not.

As proof, Stiles pointed to the SMB customers SAP has won in the past year. SAP added 1,587 net new SMB customers last quarter, for a total of more than 35,000. That's 75% of SAP's total ERP customer base of almost 47,000.

"There's a varied interest in how the solutions are deployed. Some people are very interested in on-demand. Others are adamant about on-premise," Stiles said. "So we just can't say we're going to only go after on-demand. If we took a Software as a Service-only approach, we'd be missing a whole lot of the addressable market."

Or maybe -- as Bruce Richardson, chief research officer with Boston-based AMR Research, puts it -- the truth is that SAP doesn't really need Business ByDesign at all.

"SAP doesn't really need an on-demand product," Richardson said. "They could do very well just focusing on promoting Business One and All-in-One."

But Stiles said SAP is committed to Business ByDesign. Since September, Business ByDesign has added more functionality, specifically in manufacturing and professional services. The product release was scaled back because it needed to be absolutely right, he said. And SAP is aggressively trying to get Business ByDesign out absolutely right, even though they're still selling it.

"What we learned was we really are better serving the customers by moderating that and taking a more traditional approach," Stiles said. "We [have] to get the products absolutely right. There's a high expectation for SAP. It's about getting it right for the customer."

SAP may be right. Schaeffer Manufacturing said it has had problems with data migration since going live with NetSuite on May 1. But Gregerson thinks that in moving from a homegrown, legacy system to an out-of-the-box one, the same problems might have happened with anything the company purchased.

As for NetSuite, Peris said the software provides new functionality in assembly management, work orders, bill of materials and demand-based inventory replenishment.

"It's a customer-driven release," Peris said. "They're asking us to tackle more of this area. We do find ourselves being called into a lot of different fields. Companies are looking for something now."

Richardson said that for end users, it looks incredibly easy to use. It's got financials, CRM and e-commerce covered, and it brings in extensive dashboard capabilities. The companies most likely to use this are service firms, he said, not hard-core manufacturers.

"The most impressive part is the analytics," Richardson said.

As for pitting itself against SAP in the SaaS world, he said, it's more a clever marketing ploy on the part of NetSuite's CEO, Zach Nelson, than anything else.

"I think it's kind of a smart move," Richardson said. "There's lots of Software as a Service vendors out there. NetSuite would like you to think there are only two."

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