Channel Sales Contribute Significantly To NetSuite's 2010 Financial Gains

Channel sales for Software-as-a-Service application vendor NetSuite surged in 2010 with new business bookings through channel partners increasing 67 percent during the year.

NetSuite also added 25 solution providers to its channel partner ranks in the second half of the year, said CEO Zach Nelson, speaking on a conference call Thursday with financial analysts while discussing the company's fourth-quarter and fiscal 2010 financial results.

For the fourth quarter ended Dec. 31 NetSuite reported sales of $52.1 million, up 21 percent year-over-year from $43.0 million in Q4 2009. The company reported a net loss of $6.4 million for the quarter, a slight improvement from the $6.7 million loss the company reported one year ago.

For all of fiscal 2010 ended Dec. 31, NetSuite reported sales of $193.1 million, a 16 percent gain over fiscal 2009's sales of $166.5 million. But the company's net loss widened to $27.5 million in 2010 from $24.1 million in 2009.

NetSuite is forecasting sales in the current quarter to be between $52.5 million and $53.0 million, and between $225 million and $228 million for all of fiscal 2011.

"Sales through third-party channels accelerated in 2010," Nelson said, attributing part of the company's 2010 growth to NetSuite's aggressive efforts to recruit channel partners and increase channel sales. "On a worldwide basis our channel's growth continued to accelerate, ending 2010 up 67 percent in new business bookings."

Earlier this year NetSuite embarked on a major channel push, recruiting new partners, even offering partners the opportunity to keep 100 percent of first-year revenue for customer contracts.

Earlier this week NetSuite said that Baker Tilly, a Chicago-based accounting and advisory firm, had joined the NetSuite Solution Provider program as part of a new cloud computing consulting practice Baker Tilly is launching.

Next: Competing Against Microsoft Dynamics GP

Nelson said one trend he sees is that because Software-as-a-Service requires less in the way of implementation and technical services from solution providers, channel partners are embedding more of their business and vertical industry expertise directly within NetSuite's applications.

Nelson touted NetSuite's higher customer retention rates and increased recurring revenue in the fourth quarter and for all of 2010. He also said subscriptions to the company's OneWorld application suite from larger companies continued to grow.

Nelson said NetSuite will invest in both its channel organization and its direct sales force in 2011.

As he often does during financial conference calls, Nelson took the opportunity to take some digs at NetSuite's competitors, especially Microsoft's Dynamics GP (Great Plains) application set.

Nelson trumpeted a sales win over Microsoft in the case of ClearChoice, a Greenwood, Colo.-based dental practice management company, which recently adopted NetSuite OneWorld to replace 92 separate instances of Microsoft Dynamics GP.

Referring to the dozens of instances of what Nelson called the "fragmented hairball, pre-cloud" Dynamics GP implementations at ClearChoice, the CEO said: "Obviously this is not the way to build a business for the 21st Century."

"Its clear we're at the beginning of an ERP replacement cycle," Nelson said, adding, "2011 is the year that many more customers will eliminate the great pains of Microsoft Great Plains and move to cloud NetSuite."