Zach Nelson, CEO Netsuite Inc

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ZACH NELSON, CEO NETSUITE INC, TALKS ABOUT NETSUITE AT BLOOMBERG TV

MAY 9, 2011

SPEAKERS: CORY JOHNSON, BLOOMBERG NEWS ANCHOR

ZACH NELSON, CEO NETSUITE INC

18:30

CORY JOHNSON, BLOOMBERG NEWS ANCHOR: Zach Nelson took over as CEO in 2002, the company did an IPO in 07' and actually just announced some really impressive numbers last quarter. Zach, thanks for joining us. Good to see you.

ZACH NELSON, CEO NETSUITE INC.: Thanks for having me.

JOHNSON: We talked a little bit in the tease about Larry Ellison's role at the company. I think it is a confusing and Interesting thing. Here you have the king of enterprise software on a real sort of old school, buy the software, you own it, you pay the service model. You guys come in with Larry Ellison, his idea, his backing, and have a very different approach.

NELSON: Our approach really was to bring the power of large enterprise systems like SAP, down to small and midsize businesses. So it's really a marketplace that Oracle doesn't play too heavily in. And the cloud was a key element to making the product-

(CROSSTALK)

NELSON: The challenge is not selling to The fortune 500, but selling to The fortune 5 million. How do you reach them? And you needed something like the internet for them to easily be able to open a browser and come to you. And that is really the problem we solved for the small and mid-size organizations. ]]

JOHNSON: Some people look at the company and say, this should be Oracle company This should be something Oracle is doing, and that you guys are in competition. You see it differently.

NELSON: Yes, we're not--if Oracle-an Oracle sales person and one of my salespeople are in the same customer site, somebody is at the wrong customer site usually. They are very different solutions. We're beginning to move up market into larger and larger companies. But it tends to be around the edges in subsidiaries. We are not going to run the $10 billion corporation's main corporate system. We might run one of the subsidiaries' operating companies, or the Asia-pacific division of one of those companies, but our system is designed really for smaller organizations.

JOHNSON: Now talk about social. Social media is of course changing the way people consume a lot of things. You guys are about to announce a new product. Feel free to announce it right now.

NELSON: Yes well interesting , one of the things we have our user conference here in San Francisco, about 2,000 people coming, and one of the things we're going to show them is some new interesting technology that brings social media into the enterprise. And so it's called SuiteSocial, and what it enables us to basically, there is lots of activity that happens in a NetSuite customer record. People generate invoices. They quote orders. They use the software. And it would be nice if you were interested in that, to be able to follow that record as you follow a human in Twitter, follow that record and have the record tell you when something happens about that customer. And that is what SuiteSocial effectively enables, is for the ERP data, the ERP activity happening in a NetSuite record to become social and to communicate to you.

JOHNSON: It sounds like it is complicated stuff.

NELSON: What is happening in the record is complicated, but what this does is really make it simple for you to consume information that's happening inside NetSuite. So NetSuite's generating a steam of that data, and we are partnering with Yammer, who is the leader in enterprise social media, to be able to receive that data, and distribute that data through your enterprise.

JOHNSON: I was looking at your company's financials, and I am interested in the turn on you have had with profitability. Your operating profit margins were going down, down, down, seem to have really turned a corner a year ago and are crawling back up again. What is the big change there?

NELSON: Well, a couple big drivers. One was the economy, obviously. 2008, 2009-bad economy. And actually our profitability expanded in that period because we stopped hiring salespeople, so that is a big driver of the equation.

But what is happening now is the economy is turning around. Companies are investing more, in systems like NetSuite. They are really moving their operations from stone age applications.

JOHNSON: That should not fundamentally affect operating profit, right? It should be flat you're just selling more. Or are they economies of scale?

NELSON: They are huge economies of scale. Once you have invested tens of millions of dollars in the data center, now you start to amortize that cost over more and more companies, it becomes cheaper and cheaper to deliver the service number one. Number two, as we begin to move to larger companies. We have a product called OneWorld that serves any of the multinational companies. Those folks pay more for the software so it becomes more profitable more quickly as well.

JOHNSON: It seems like you are in a place where you can do a lot of innovation and need to do a lot of innovation to keep this product hot for these business. ]]

NELSON: Well the great news is Larry had this idea a decade ago and people thought was crazy that people would consume complex ERP software, back office software this way. Now, it's seen as the future, and we've got a 10 year head start on everyone. So, while we still have work to do, everyone else, SAP, others have 10 years of work to do. It's going to be very hard to catch us.

JOHNSON: Well software is the worst thing for TV ever because it is hard to explain. But when you try to describe what you guys do, what problem do you solve?

NELSON: We enable companies to run their business, to go from the point in which somebody comes in the door as a lead to when you build them. And so we have automated that entire process in software. The way it is done, historically is you have to track the lead in one system, generate the invoice in another system, ship the inventory out of a third system. We have eliminated all of those systems by building a single system designed to run a business. And now, we run the software for you. You don't have to manage it, it's all in the cloud. You just open the browser and come to us.

NELSON: Well the numbers are looking better and better. Congratulations on your success, Zach Nelson of NetSuite.

18:34

***END OF TRANSCRIPT***

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