Q & A: NetSuite's CEO Discusses IPO Plans, Larry Ellison, iPhone Apps, And SaaS

From Silicon Valley to Wall Street, there's considerable interest in NetSuite's initial public offering of stock, scheduled for next month. Are NetSuite's plans a sign that tech IPOs are headed for a comeback? And how will NetSuite -- which offers its business apps via the trendy software-as-a-service model but hasn't yet turned a profit -- fare in an IPO?

InformationWeek editor-at-large Mary Hayes Weier caught up with NetSuite CEO Zach Nelson to hear about the challenges of running an SaaS company, what majority shareholder Larry Ellison's role is at the company, and how the iPhone is bringing NetSuite and Apple closer together.

InformationWeek: Oracle CEO Larry Ellison is the majority shareholder of NetSuite. Does he exercise much control of the company?

Nelson: Not really. We talked in the early days [Nelson joined NetSuite five years ago], but not so much anymore.

InformationWeek: There are tons of software startups trying to come to market with an SaaS model. What challenges do they face?

Nelson: It takes more to get an SaaS company built, because you're not only building the software, you have to build the infrastructure to deliver it. [With traditional software licenses] you could write software, burn it on a disk, and sell it for $1 million. But with the SaaS model, instead of a million up front, you get $100,000 over two years. It's a different delivery model and financial model to get into this space. Very few startups have made it through.

[Meanwhile, companies like Microsoft and SAP] are used to all that money up front. No traditional vendor has ever made this transition. SAP is saying A1S (its upcoming SaaS suite for midsize companies) will be less customizable than SAP's traditional software. That strategy amazes me. Midsize businesses need customization, just as every other company needs customization. Vendors like SAP will say SaaS is less customizable, but that's just not true from a technology standpoint.

InformationWeek: Oracle has been more vocal lately about its willingness to give customers software in a SaaS model, even while Ellison is the majority shareholder of NetSuite. Are you going to compete with Oracle?

Nelson: We see Oracle occasionally. I don't see them making a ton of noise about SaaS in the mid-market. I think they have a ton of commitments to hammering SAP in the enterprise market.

InformationWeek: The stock market has been shaky lately with all the bad news about subprime mortgages and the credit crunch. Is this still a good time for an IPO?

Nelson: You can never time markets. You can only control your business and let the market be what the market is. But I can't talk about the IPO; we're in a quiet period.

InformationWeek: Soon after the iPhone came out, you announced SuitePhone, software that would let iPhone users more easily interface with NetSuite. Will the iPhone be big in the business world?

Nelson: We had done all this work [in recent months] to support the Safari browser, because there was no SAP-like suite for the Apple. We had to tweak some Ajax pieces to run on Safari, to create a rich user experience and drop down menus. The latest version of our software, NetSuite 2007, released in June, supports Safari. As we released it, we thought it would run on the iPhone, based on what we were hearing about the product.

[The iPhone went on sale Friday, June 29, at 6 p.m. The next morning Nelson said he logged into NetSuite's user group site, and learned that new iPhone owners were already using them to access NetSuite.] I looked at our user group and said, I can't believe it works perfectly. We hadn't told them about [NetSuite's plans for the iPhone], and we thought, all of that Safari work is going to pay off. It had been hard to get [iPhone] test products from Apple, but we assumed we had a future with it.

Apple's big challenge in penetrating the business market is there was no app-running business on Apple. With a Web-based app like NetSuite, suddenly they have an app that can run an entire business on either the Mac or the iPhone. Personally, I think the combo of NetSuite and Mac is the way for Apple to gain resurgence in the business market. Now you have the most advanced app in business running not only on Firefox, but natively on Safari. You'll see some interesting things from us and Apple around that in near future.