UPDATE 1-NetSuite targets Salesforce clients with discounts
(Adds analyst comment, shares, background, byline)
By Jim Finkle
BOSTON, Oct 22 (Reuters) - Business software maker NetSuite Inc (N.N) announced on Wednesday an aggressive plan to wrest customers from Salesforce.com Inc (CRM.N), offering 50 percent discounts to businesses that switch over from its rival.
For now, the discounts are only targeted at Salesforce.com, whose Web-based customer relationship management software is designed for sales staffs.
But NetSuite, which is majority-owned by Oracle Corp (ORCL.O) founder and billionaire Larry Ellison, also sells other types of software, including accounting programs, and said it may use the same strategy on other competitors.
"We are probably going to be launching similar salvos at some of our other competitors," said Chief Marketing Officer David Downing. "In a bad economy, pricing plays a bigger role in decision-making."
Shares of Salesforce fell over 9 percent and NetSuite fell over 8 percent amid a broad market downturn, with analysts expressing concern about the impact of lower prices on margins of both companies. The tech-laden Nasdaq .IXIC was down nearly 5 percent and the S&P Software Industry Index .GSPSOFW down 7 percent.
Worries about Salesforce's sales outlook were ignited last week, after the company's chief financial officer, Graham Smith, told investors that he expected "much more aggressive pricing" from rivals.
Since then, Salesforce shares have lost more than a quarter of their value, versus a 12 percent drop in the S&P software index.
Salesforce.com spokesman Bruce Francis declined comment.
Nucleus Research analyst Rebecca Wettemann said that the competitive threat from NetSuite is less serious than what bigger rivals Oracle Corp (ORCL.O) and Microsoft Corp (MSFT.O) might do as they look to use low pricing to take share away from Salesforce.
Microsoft, the world's biggest software maker, and Oracle, the world's No. 3 software maker, have recently upgraded their Web-based customer relationship management software programs.
Analysts say that the products present a viable alternative to ones from Salesforce, which had long been considered to have a superior product.
The threat of lower prices come at a time when businesses are increasingly cutting back technology budgets.
Wettemann said she was surprised that San Mateo, California-based NetSuite is focusing its marketing efforts on its customer relationship management software business.
NetSuite's strength lies in its enterprise resource planning software, or ERP programs, where it competes with SAP AG (SAPG.DE), Intuit Inc (INTU.O) and Microsoft in helping businesses manage tasks such as accounting, Wettemann said.
Salesforce, the world's biggest provider of on-demand software, does not sell ERP programs.
NetSuite would be better off targeting its sales promotions against rivals that do sell ERP software, Wettemann said.
San Francisco-based Salesforce and NetSuite are among the most prominent business software makers that deliver their products as services over the Web -- the same approach that Yahoo Inc (YHOO.O) and Google Inc (GOOG.O) use to deliver email, maps, calendars and other programs to consumers.
Software as a service is also known as "on-demand" software because users can access it when they need it over the Web without having to install programs on their computers.
NetSuite said it would offer customers who dump Salesforce up to 100 hours of professional services to help with tasks such as migrating to the new system and staff training.
AMR Research analyst Bruce Richardson said NetSuite's campaign is likely to generate some buzz, but he is not convinced it will lead to many customer wins.
"Even if you take advantage of the price, you still have to migrate all that data. There's still lots of challenges," Richardson said.
Salesforce shares fell $2.56 to $27.43 and NetSuite dropped 99 cents to $9.65 in late afternoon trade on the New York Stock Exchange. (Reporting by Jim Finkle; Editing by Gary Hill and Gerald E. McCormick)
