Oracle’s purchase of NetSuite, arguably the very first cloud company, shows that Oracle executive chairman Larry Ellison is dead serious about being a major cloud player.
At $109 per share in cash, or approximately $9.3 billion, it’s a big stake. But, as Bloomberg stated, “Oracle is buying market share.” Specifically, Oracle is buying even more into software-as-a-service (SaaS).
NetSuite started in 1998 as NetLedger, a Web-hosted accounting SaaS company. Since then, it’s evolved into an Enterprise Resource Planning (ERP) powerhouse. It’s also a significant player in customer-relationship management (CRM), e-commerce, and professional services automation (PSA).
Oracle will not be integrating NetSuite’s services. According to Oracle CEO Mark Hurd, “Oracle and NetSuite cloud applications are complementary, and will coexist in the marketplace forever. We intend to invest heavily in both products — engineering and distribution.”
True, NetSuite revenue growth has been amazingly strong– 31% growth year over year in its last fiscal year. At the same time, NetSuite has never been profitable.
Oracle, of course, has been a money-making machine for years. Oracle isn’t just paying money to buy NetSuite, it will also be financially supporting NetSuite for years to come. In return, Oracle gains both cloud market share and growth.
After all, NetSuite ERP is “the world’s most-deployed” ERP solution. It has more than 30,000 corporate customers in more than 160 countries. It’s a perfect pairing with Oracle’s existing cloud services.
At the same time, the buyout gives Oracle access to NetSuite’s small and medium sized business (SMB) customers. Historically, Oracle has done better with Fortune 500 clients and not SMBs.
For NetSuite, gaining access to Oracle’s deep pockets and technology stack will enable the company to expand the availability of its cloud solutions in more industries. Eventually, this will lead to NetSuite, the Oracle division, making profits.
As Zach Nelson, NetSuite’s CEO said in a statement, “NetSuite will benefit from Oracle’s global scale and reach to accelerate the availability of our cloud solutions in more industries and more countries.”
Is Oracle making a wise bet? I think so.
Tomorrow belong to the cloud and Oracle, wisely, is going all in. I won’t be surprised if Oracle makes even bigger bets on the cloud within the next year.