NetSuite CEO says Q2 feels better, June will tell
* June will be "telltale month" for Q2
* Company aims to be profitable for full year 2009
* Growth strategy is organic, not through acquisitions
LONDON, June 10 (Reuters) - Business software maker Netsuite (N.N) senses a greater willingness to buy among its customers this quarter but is still waiting to see that translated into action during the key month of June, its chief executive said.
NetSuite charges subscription fees for its Web-delivered software rather than upfront licence fees as most software makers do, making its revenues more predictable, but most new business is still done in the last month of the quarter.
"This is sort of the telltale month for Q2," Zach Nelson told Reuters in an interview on Wednesday, when asked how confident he felt about the current quarter.
"The pipeline's grown and there seems to be a better feeling among the prospect base in terms of their willingness to purchase, but we still have to see it convert this month into actual customers."
NetSuite is the world's second-largest listed provider of hosted software as a service, or SaaS, a fast-growing area of so-called cloud computing, which in total is expected to grow 22 percent to $8 billion this year, according to Gartner.
SaaS subscription services, pioneered by Salesforce.com (CRM.N), have gained popularity over the past few years as they save companies upfront costs of buying software and computers to run it, along with the need to hire staff to maintain it.
California-based NetSuite -- whose products help companies manage areas including accounting, marketing, inventory and Web commerce -- made its first profits in the fourth quarter of 2008, and aims to be profitable for the full year 2009.
"That continues to be our intention," Nelson said.
TINY PROFITS
Profits made by SaaS companies in general are tiny compared with those made by traditional software companies such as Microsoft (MSFT.O), SAP (SAPG.DE) or Oracle (ORCL.O).
But Nelson said investors were willing to give them time, and said big software companies developing SaaS products would find it hard to match those of companies such as NetSuite that were built on the SaaS model.
"Quite frankly, the world doesn't expect us to be enormously profitable yet -- we're in growth mode. We can show profits but we don't have the axe over our head the way SAP has," he said, adding: "I'd love to have their problems, don't get me wrong."
Nelson said he estimated it would take any new entrant into the market, especially a company built on a different business model, a decade to build a product to compete with NetSuite's.
Nelson declined to comment on whether NetSuite had had any recent takeover approaches, but said founder and Oracle CEO Larry Ellison's majority stake was an potential obstacle.
"The Ellison stake adds a degree of complexity to any potential acquisition," he said. "I think people take that into consideration when they look at NetSuite."
Asked whether NetSuite itself would be a consolidator of the market, Nelson replied: "Our intention is not to grow through acquisition, as a strategy. When we do acquisitions it's really to extend our core business strategy."
He cited last year's $26 million acquisition of OpenAir, which specialises in Internet-based software for consulting and professional services companies, as the type of buy NetSuite was seeking to build its expertise in particular industries.
Nelson said he had yet to see results from a campaign recently launched to win customers from British accountancy software company Sage (SGE.L) by offering them NetSuite software for half the price they were paying their current provider.
"It was driven off a similar offer we did with SAP," he said. "It's generated significant pipeline but I'd have to really double check and see what's converted. I'm going to meet some of the potential prospects this week."
(Editing by Jon Loades-Carter)
((georgina.prodhan@thomsonreuters.com; +4420 7542 7954; Reuters Messaging georgina.prodhan.reuters.com@reuters.net)) Keywords: NETSUITE/
(C) Reuters 2009. All rights reserved. Republication or redistribution ofReuters content, including by caching, framing or similar means, is expresslyprohibited without the prior written consent of Reuters. Reuters and the Reuterssphere logo are registered trademarks and trademarks of the Reuters group ofcompanies around the world.nL91020777
