Partners Hope Netsuite IPO Leads To More Channel Resources

San Mateo, Calif.-based NetSuite's Dutch auction IPO late Wednesday priced at $26 per share, easily surpassing the vendor's most recent estimate of $19 to $22 per share, and blowing away its earlier estimate of $13 to $16 per share. The IPO gives NetSuite a valuation of more than $1.5 billion.

In its July IPO filing, NetSuite outlined plans to spend between $10 million and $15 million of the proceeds on capital expenditures such as property, plant and equipment; a second data center facility; and to expand its business internationally. But in the minds of some NetSuite partners, one question that remained unanswered in the filing was how much of the proceeds will be directed toward the vendor's channel infrastructure.

"We're all taking a wait and see attitude to see how the cash injection will be allocated. That will determine how serious they are about the channel program," said one partner, who requested anonymity.

Partners said they're aware of NetSuite's plan to add at least one more data center, but they've also heard rumblings that NetSuite plans to open telemarketing offices in Denver and Atlanta. "If they're going to do that, it's likely that we're not going to see a whole bunch of impetus on NetSuite's part to expand the partner program," said one solution provider.

NetSuite representatives couldn't be reached for comment.

In January, several NetSuite channel partners accused the vendor of pulling back on its pledge to offer them 30 percent margins in perpetuity, and had begun requiring partners to hit at least $100,000 in net new sales annually in order to qualify.

But some NetSuite partners don't believe the vendor will change its current channel course now that the IPO is completed. "I think this and other software-as-a-service vendor IPOs show that investors believe in the model and that SaaS is becoming more accepted in the community," said Ray Tetlow, CEO of Skyytek.com, a Miami-based solution provider.

Other than this year's VMware debut, NetSuite's path to IPO has been one of the most closely watched software since Salesforce.com's 2004 debut, which raised $110 million and gave the company a valuation of more than $1 billion.

However, the fact that both NetSuite and Salesforce use the SaaS model doesn't mean there is any additional correlation between the two, according to Tetlow.

"Everyone likes to compare Salesforce to NetSuite, but they're really two different business models. SaaS is the only thing they have in common. We've rarely come across Salesforce as a competitor," Tetlow said.

NetSuite has operated at a loss since it was founded in 1998. The vendor, which has about 5,400 customers, reported revenue of $67.2 million for 2006, an 85 percent increase on the $36.4 million it took in a year earlier. Its net loss in 2006 was $23.4 million.

NetSuite in October revealed that Oracle CEO Larry Ellison, who owns 74 percent of NetSuite, was putting 60 percent of the company's shares into a "lockbox" company in order to counterbalance his influence on company decisions.

NetSuite shares will begin trading Thursday under the ticker symbol 'N.'