NetSuite launches price war against Salesforce.com

Hosted business applications provider NetSuite Inc. has launched an aggressive pricing discount aimed at stealing market share from its top rival: For the next two months, NetSuite is offering to beat Salesforce.com Inc.'s CRM (customer relationship management) subscription prices by 50 percent.

With a customer base of around 7,000 companies using its CRM, accounting and e-commerce software, San Mateo, California, NetSuite trails hosted CRM market leader Salesforce.com in both customers and market presence. Salesforce.com has 13,300 companies and 214,000 end users subscribed to its service.

"They're trying to get invited to the table," Yankee Group Inc. analyst Sheryl Kingstone said of NetSuite's discount offer. "Salesforce.com has a lot of brand awareness, and NetSuite does not."

NetSuite's offer is available to customers who sign a contract with NetSuite by March 31. Those considering Salesforce.com's professional (list price US$65 per user, per month) or enterprise (list price $125 per user, per month) editions can bring their Salesforce.com estimate to NetSuite and receive NetSuite's NetCRM at 50 percent of Salesforce.com's quoted price. For current Salesforce.com customers, NetSuite is offering 50 percent off Salesforce.com's renewal price and free data migration services.

Salesforce.com Chief Executive Officer Marc Benioff blasted the offer as "another act of desperation," and touted his company's significantly larger user base.

Kingstone said she'll be watching with interest to see how the discount offer affects the two vendors' businesses over the next several months. NetSuite, in particular, targets small companies, which are acutely price sensitive. However, Kingstone said companies would be foolish to choose software primarily on price, rather than by what best fits their business needs. She's also concerned about how aggressive pricing will affect the still fledgling ASP (application service provider) market.

"The last thing I want to do is see price wars to the point where some vendors lose viability," Kingstone said.

NetSuite's offer comes at the beginning of a year it hopes will propel it to the forefront of the ASP market, where it will jockey for position not only with Salesforce.com, but also with Siebel Systems Inc., which is heavily marketing its CRM OnDemand subscription service. Siebel has not yet disclosed the user base for its year-old service, but a spokeswoman said it will begin breaking out that number when it reports its first-quarter earnings.

NetSuite Chief Executive Officer Zach Nelson said his company plans to double its staff of 300 this year, and to aim for an initial public offering (IPO) in late 2005 or early 2006. Salesforce.com had one of last year's most successful IPOs, raising $110 million and leaving the company with a valuation well over $1 billion. CRM and customer service ASP RightNow Technologies Inc. also went public last year.

NetSuite's primary difference from others in the ASP market is its broader suite of applications. While vendors like Salesforce.com focus on sales management tools, NetSuite also offers accounting, e-commerce, inventory, supplier and shipping management functionality.

One customer, My Flat in London LLC President Todd Haedrich, said he picked NetSuite because his Frenchtown, New Jersey, designer handbag company needed the broad ERP (enterprise resource planning) tools NetSuite offered. Haedrich's two-year-old company is now doing more than $3 million annually in sales, and when the business outgrew QuickBooks, Haedrich said he first considered traditional ERP packages aimed at small businesses. But Microsoft Corp.'s CRM and Great Plains software would have needed expensive custom configuration, and sales representatives from SAP AG and Best Software Inc. were slow to return calls and provide product information, Haedrich said. He's been using NetSuite for eight months, and says he's pleased with the software -- and happy he went with a hosted provider, allowing him to access his company information on the Web from remote locations.

"The Web access has been invaluable," Haedrich said. "I don't know how we'd run the company without it."

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