Joel York / Chaotic Flow

Netsuite: SaaS Support Matures

<p>This is one stumble toward profitability for NetSuite, one giant leap backward for SaaS.</p>

<p><em>...... growing number of SaaS executives have been telling me that their support costs have been escalating...</em&g...

<p>Instead of asking WHY support costs are so high, they are simply passing
their problems along to their customers in the traditional enterprise software fashion
by turning product usability and deployment shortcomings into service revenue.</p>

<p>The real issue is that most SaaS vendors have not come to the realization
that they are Web-based businesses. Instead, they see themselves as an enterprise apps
delivered through a browser using a multi-tenant architecture at 1/10 the cost.
Unfortunately, multi-tenancy does nothing to reduce customer acquisition and support costs.
Sales and services labor costs should be eliminated through innovation in product design
and Web-based marketing and automation, e.g., usabililty, SEO, video, widgets, etc
Imagine if eBay or Yahoo stores had to help every customer in this way.</p>

<p>Netsuite financials show the real profitability issues</p>

<p>
<table>
<tr><td>&l... mo 6/08</td><td&... mo 6/07</td></tr...
<tr><td>Re...
<tr><td>Co... of Revenue</td><...
<tr><td>Gr... Profit</td><td>48,891</td><td>32,999</td></tr>
<tr></tr>
<tr><td>Pr... Development</td><td>8,534</td><td>15,030</td></tr>
<tr><td>Sa... and Marketing </td><td>3...
<tr><td>Ge... and Administrative</td&...
<tr><td>To... Operating Expenses</td><...
<tr><td>Op... Loss</td><td>(7,461)</td><td>(18,529)</td></tr>
</table>
</p>

<p>Sales and marketing expense is way too high
and product development has been cut to get closer to profitability
when it should be increased to innovate and eliminate labor.
And, services are now added to create new revenue streams.
May as well start selling enterprise software too.</p>

<p>You only have to compare this approach to Web-savvy vendors that have grown up
on the Web 2.0 side of the Internet like 37signals.com
or zendesk.com to see that
there is a better way to make and market SaaS coming just over the horizon.</p>

<p>by Joel York</p>
<p>at Chaotic Flow</p>