NetSuite Inhales OpenAir

NetSuite, the software-as-a-service (SaaS) CRM vendor that went public in December 2007, has spent some of its new capital on an acquisition. As announced today, NetSuite (NYSE: N) has entered into a definitive agreement to acquire OpenAir, a vendor of on-demand professional services software. The price tag is approximately $26 million in cash, according to NetSuite; further, NetSuite will assume approximately $5 million of restricted stock units when the deal closes. This stock will be held by the employees of OpenAir and will continue to vest through mid-2010.

The acquisition serves as a point of entry into certain verticals (government, construction, engineering) where NetSuite doesn’t currently have a strong presence, according to the company. It provides an East Coast presence for the San Mateo-based NetSuite (OpenAir is headquartered in Boston). It also unites two companies that are well regarded by the software development community: Both NetSuite and OpenAir are winners of CODiE Awards for 2008, Netsuite for "Best eCommerce Solution" and OpenAir for "Best business Software Solution."

OpenAir will be operated as a subsidiary, with CEO Morris Panner now reporting to NetSuite’s CEO Zach Nelson. NetSuite intends to hire all of OpenAir’s 56 employees and has stated it will continue to develop and support OpenAir software products for the next 10 years. Certain features of OpenAir will be cherry-picked for NetSuite OneWorld, but customers of OpenAir will not be required to migrate. A Web services integration of the two companies’ code bases is expected to be complete by 3Q08, and OpenAir has already changed its logo to reflect its status as a NetSuite company. "The services vertical is one we’ve been targeting for a long time, and it can be hard to develop the independent expertise to compete in a new space," says Mini Peiris, vice president of product management at NetSuite. "The acquisition aligns us better with the market, and gives us more depth in areas like product lifecycle management."

"Every day, I see customers coming on board in professional services, and many of them are already users of OpenAir solutions," adds Justin Foster, general manager for services companies. "They often are looking to replace QuickBooks, [Microsoft] Great Plains, or a Sage product, and almost all of them need ERP integration."

The OpenAir acquisition is another data point in the trend of vertical specialization for on-demand CRM providers, according to at least one analyst. "Prospective SaaS users are not only seeking more industry-specific SaaS solutions, they are also looking for more strategic sources for these SaaS solutions," writes Jeff Kaplan, managing director of ThinkStrategies, in a recent blog post. "Instead of contracting for a series of SaaS point products from a wide array of vendors, corporate decision-makers, both business and IT, are taking a closer look at the SaaS vendors’ overall portfolios, platforms, partner ecosystems and financial viability so they can establish broader, long-term relationships with a fewer number of SaaS suppliers."

OpenAir has a number of partners, including IBM, Salesforce.com, and SAP. While the acquisition could cause friction with them, Kaplan’s opinion is that nothing has to change. "NetSuite and OpenAir don’t intend to do anything to jeopardize those existing relationships," Kaplan adds in a follow-up interview. His talks with Nelson and Panner indicate they will "do all they can" to maintain the relationship with Salesforce.com via the AppExchange. "Eventually, though, it depends on how Salesforce.com and the customers view the situation."

NetSuite has explicitly described the acquisition as being based on Oracle’s model, whose CEO Larry Ellison is a major investor in NetSuite. Kaplan believes this could reignite talk of an eventual acquisition of NetSuite by Oracle. "For a company that would like to be appreciated on its own merits as a SaaS vendor, NetSuite isn’t shy about noting its affiliation with Oracle," Kaplan says. "It won’t happen anytime soon, but think an Oracle acquisition of NetSuite is inevitable."

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