Oracle has closed its $9.3 billion acquisition of cloud ERP vendor NetSuite, overcoming resistance from large NetSuite shareholders and gaining a prominent addition to its cloud product suite.
The deal, which had been expected for years by industry observers, was announced in July but stalled amid protests from NetSuite investor T. Rowe Price Associates, who suggested Oracle had a conflict of interest in the deal since its executive chairman Larry Ellison has long owned about 40 percent of NetSuite's stock.
But Oracle announced Nov. 5 that it had obtained a majority of NetSuite shares and that the deal would close Nov. 7. Now come the important questions for NetSuite and Oracle's prospects and customers.
Oracle is buying NetSuite not only to build up its cloud revenue stream, which still represents a small fraction of its overall revenue, but also to fill a gap in its ERP portfolio.
While its Fusion ERP offering is available as a cloud service, and many early customers have been midmarket companies, NetSuite's sweet spot is squarely in the SMB space. In addition, customers who choose NetSuite can get not only ERP, but CRM, some HR capabilities and commerce in a single suite, says Constellation Research founder R "Ray" Wang. "It gives Oracle a pretty good play."
NetSuite typically competes with Microsoft Dynamics, Infor and JD Edwards, the latter of which Oracle already owns. JD Edwards is the king of on-premises ERP within the SMB market, giving Oracle coverage across both deployment options.
It's not likely that Oracle will attempt to rationalize its ERP portfolio. "They haven't done that to date," Wang says. Where Oracle needs to be careful is in how it handles NetSuite's sales and partner channels. "If they try to merge them too fast, they'll confuse the customer base," Wang says.
No enterprise software vendor has ever offered companies of all sizes products through a single code base, and this will be no different with NetSuite, says Constellation Research VP and principal analyst Holger Mueller. Expect NetSuite to remain the cloud ERP option for SMBs, while Oracle targets upper midmarket and large enterprises with Fusion cloud ERP.
If there's any overlap between NetSuite and Oracle's products, it's with JD Edwards, but this is mostly complementary, Mueller adds.
While an outright code merger isn't likely, Oracle will likely look to integrate NetSuite more deeply with its other products and position the combination as a two-tier ERP option, with NetSuite used in subsidiaries or new divisions of large enterprises, Mueller says.
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