What Oracle Gains From NetSuite Deal?

by Priyanka Pugaokar    Jul 29, 2016

Oracle Cloud In the highly contested Cloud business, all the major technology giants are building their cloud capabilities with strategic acquisitions and collaborations. Demonstrating a serious ramping up to win over competitors, Oracle has announced the acquisition of NetSuite for USD9.3 billion. Oracle, which is very bullish over its cloud business, aims to surge in the cloud race with NetSuite deal. Similarly, the collaboration with Oracle is expected to benefit NetSuite, to leverage the market opportunities with synergy generated by both cloud vendors.

Oracle has been demonstrating healthy growth in its cloud business over the recent months in comparison to competitors. NetSuite’s acquisition is a strategic move that aims to help Oracle compete against the likes of Salesforce.com Inc., Microsoft  and SAP SE.

“The two organizations will complement each other well. In addition, Oracle will be able to expand its customer base. The emerging markets have strong demand for ecommerce and CRM suites and this will make the market more competitive”, said DD Mishra, Research Director at Gartner. 

“A competitive market will create breeding grounds for innovation in this space. In addition, we will see Industry will continue to consolidate due to the impact of digital business and heterogeneous demands from customers fueled with crowded supplier market”, he added. 

Also Read: Oracle To Buy Cloud Provider NetSuite For USD 9.3 Bn

There is a growing shift towards the SaaS business model and this business is expected to grow fast. Gartner estimates almost 18.8 per cent CAGR growth of SaaS between 2015-2020. Many businesses will leverage this situation and strengthen SaaS portfolio. Oracle is also playing up its growth in cloud business, particularly PaaS and SaaS. Oracle recorded  40 percent growth in cloud business in Q3, 2016 where total revenues for the cloud business stand at USD735 million. 

The company also announced a slew of acquisitions to strengthen its cloud portfolio. In May, Oracle announced a deal to buy Opower Inc., a cloud-services company that assists utilities, for $532 million. It also acquired  Textura Corp. for approximately $663 million in April, which targets the construction industry. The NetSuite acquisition is Oracle’s second largest after its hostile $10.3 billion takeover of PeopleSoft Inc. in 2005.

For NetSuite, joining hands with Oracle means getting huge exposure in the cloud space. NetSuite is one of the first companies cloud companies having a market capitalization of USD7.37 billion before the deal was announced. NetSuite has more than 30,000 customers, the bulk of which are small and mid-size companies. The company’s sales growth has been consistently strong, expanding at a rate of more than 30 per cent for the past several quarters. Therefore, it is a win-win situation for the company to ride on Oracle’s cloud growth wave. 

“This combination is a winner for NetSuite’s customers, employees and partners. We are excited to join Oracle and accelerate our pace of innovation. NetSuite will benefit from Oracle’s global scale and reach to accelerate the availability of our cloud solutions in more industries and more countries,” said Zach Nelson, Chief Executive Officer, NetSuite.

Also Read: Oracle Reaps From Its Aggressive Cloud Push

The decade old relationship between Oracle and NetSuite gave much hype to the multibillion deal. Oracle co-founder Larry Ellison has been a NetSuite investor since he co-founded the company with Evan Goldberg in 1998. Ellison and his family own about 45.4 percent of NetSuite’s common stock, according to a recent company filing. Zach Nelson, NetSuite’s CEO, ran Oracle’s marketing operations in the 1990s. Oracle has said that both the brands will co-exist in the market and complement each other. 

“Oracle and NetSuite cloud applications are complementary, and will coexist in the marketplace forever. We intend to invest heavily in both products - engineering and distribution”, said Mark Hurd, Chief Executive Officer, Oracle. 

Though the deal brings a lot of competitive advantages for Oracle, its journey towards becoming the number one SaaS player is going to be tough as its counterparts are also headed on the same path of acquisitions and spontaneously building their cloud capabilities.  

The Oracle and NetSuite deal shows how software giants are ready to pay premium price to grab growing market prospects in the cloud space, especially in the enterprise segment. The Oracle and NetSuite deal is certainly a win-win equation for both the companies, where NetSuite will further continue its strong growth momentum, while Oracle will be able to further facilitate its transformation into a leading cloud player in the industry. Therefore, it would be interesting to see how both the vendors complement each other in the long run.