NetSuite And Microsoft Ink Partnership--The Positioning Is More Important Than The Substance

At NetSuite's recent global user conference, SuiteWorld, the cloud ERP vendor and its one-time adversary Microsoft announced a partnership that looks to signal a serious rapprochement between the two. (Disclosure - NetSuite covered my travel and expenses to attend the event). It's important to look at this deal through a number of lenses: from the historical perspective, for the perspective of what it means for customers and with a view to what this signifies about NetSuite's future strategy.

First to the actual announcements, the gist of which were that the two companies are working on:

• An immediate integration between NetSuite and Azure Active Directory that enables single sign-on (SSO) for customers using NetSuite together with Azure Active Directory, eliminating the need for users to manage and use multiple passwords.
• In the coming months NetSuite and Microsoft will start cloud-to-cloud integration between NetSuite and Office 365, providing “seamless access” to both technologies from within a single interface and improving productivity and collaboration across a variety of roles, from financials to shipping, marketing, e-commerce, business analytics, retail store associates and more.
• Integration with Microsoft Excel so that customers can connect NetSuite data to Excel and Power BI for Office 365 to visualize information and discover new insights into their business.
• NetSuite will migrate its entire employee base to Office 365.
• By the end of 2015, NetSuite will migrate from AWS and on-premise deployments to leverage Azure as its preferred cloud infrastructure platform and will use Azure for testing and development.

It is important for people to look at this announcement in the context of a rocky history between the two companies. Indeed, NetSuite's CEO Zach Nelson has seen Microsoft as one of his top targets for criticism. Nelson's keynote barbs are the stuff of legend. While Nelson has kept his strongest criticisms for German ERP behemoth SAP, second tier vendors Microsoft and Sage have come in for their share of abuse. According to the Nelson of a few years ago, Microsoft was a laggard vendor offering a "fake cloud" in an effort to continue sucking revenue out of unsuspecting customers. Not exactly a leader in the move to the cloud!

So what has changed? Well, several things have. Microsoft has a new CEO, Satya Nadella. Nadella is widely regarded as a cloud visionary, a big distinction from previous CEO Steve Ballmer, who many consider put Microsoft's entry into the cloud back many years. Indeed, in response to a question in a press and analyst session, Nelson was quick to say that under Ballmer's tenure, a partnership of this sort between the two companies would have been impossible. Nadella has brokered these wide relationships with cloud vendors for the betterment of all. NetSuite is simply the latest beneficiary of this more open and outwards-looking style.

The second big change is within NetSuite itself. Fred Studer was recently hired as NetSuite's CMO. Studer is a Microsoft alumnus having run both the Office division and the Dynamics unit. Indeed, it was Studer who launched Office 365, Microsoft's cloud version of the office productivity suite, into the US market. Not only is Studer a masterful marketeer, he certainly knows his cloud business too. In a press session, Nelson told of a white-boarding session between himself and Studer soon after Studer was hired. In the session, Nelson and Studer plotted out potential partnerships and integrations. While that sounds more like an apocryphal tale than a history of what actually happened, the fact is that Studer understands that sometimes partnering with a competitor is the right thing to do.

Of course, it is important to look at this partnership and determine how much of it is a positioning statement and how much of it is related to actual hard technology. Some parts will no doubt deliver results - the NetSuite and Azure Active Directory integration is, to be honest, something that has been needed for awhile. This, along with the integration of Office 365 into the NetSuite product feels far more substantive than a similar announcement with Google regarding its Google Docs product a few years ago.

Other announcements are more for show, however. The fact that NetSuite is going to migrate its employee base to Office 365 is of little consequence. More interesting is the announcement of the migration to Azure. Many attendees were under the impression that this meant that NetSuite would replace Oracle , the database that runs its entire transactional system, with an Azure offering. I questioned Nelson about this directly, and he was adamant saying emphatically that:

Anyone building a transactional system will build it on Oracle. If you're not using Oracle you're at a technical disadvantage.

He went on to throw some barbs in Workday's direction claiming that the company was working at a massive disadvantage by not leveraging the Oracle database for its own offerings. Nelson suggested that Workday's embracing of non-relational database technologies had hamstrung the company and that they'd had to implement a regular relational database just to run business analytics on the platform.

I asked Nelson to comment about commercial relationships between Oracle and NetSuite regarding the Oracle database. Readers will remember that Salesforce, who also built their solution on top of Oracle's database, signed a decade-long deal with Oracle to keep using the technology - something of a reversal from Salesforce's statement about seeking alternative technologies. While Nelson didn't go into commercial details, he was emphatic in saying that NetSuite, as primarily a transactional vendor, sees Oracle as its choice of platform for the foreseeable future. Of course running an Oracle database, and hosting on Azure aren't mutually exclusive. But a scenario whereby NetSuite moved out of its own data centers and onto Azure is, if not pure fiction, a difficult thing to imagine.

So if NetSuite itself isn't moving to Azure, what is? Nelson indicated that the company would look to move its development and test platforms onto Azure. There was no hard and fast dates about this, and I suspect it may not happen anytime soon. For a company like NetSuite that needs to keep rapidly innovating, the slow down caused by a platform rip and replacement would be too much of a distraction.

Apparently NetSuite customers and third parties wanting to build applications as part of the NetSuite ecosystem will be directed towards Azure. This is seemingly at the expense of Amazon Web Services (AWS). Nelson had some veiled criticism for AWS saying that they are simply a vendor of iron while Microsoft inherently understands developments. To enterprise commentators without much awareness of what AWS does, this might sound fair, but it's not really an accurate assessment of the marketplace.

All in all this is a good partnership between two complementary organizations. The substantive parts will offer real value to customers while the lighter, more puffy announcements will do something to create a vision of unity. And for those who are bemoaning the fact that this new found romance might mark an end to Nelson's Microsoft barbs, it seems that between Workday, AWS, and ERP-competitor FinancialForce, there will be plenty of entertainment in the future.