TAKING A CLOSER LOOK AT BENEFITS REALIZED FROM THE NETSUITE CLOUD

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1 January 2016 TAKING A CLOSER LOOK AT BENEFITS REALIZED FROM THE NETSUITE CLOUD A C USTOMER P ERSPECTIVE In Benefits Actually Realized from the Cloud we discovered Software as a Service (SaaS) has indeed lived up to its promises. Although SaaS deployments of Enterprise Resource Planning (ERP) are still nascent, those that have ventured into the cloud find SaaS has delivered as expected, in some cases exceeding expectations. Cost savings, including total cost of ownership (TCO), startup costs and cost and effort of upgrades can be substantial. Even if the subscription cost equals the cost of software and maintenance over time, there are still savings to be had by eliminating the purchase and/or continued maintenance of hardware. And with subscription pricing and the elimination of hardware, investments can be funded out of operating expense, reducing the need for capital. Who is NetSuite? NetSuite is a leading provider of cloud- based business management software, delivered exclusively as software as a service (SaaS). Some quick facts about NetSuite: ü Founded in 1998 Here we take a closer look at how the customers of NetSuite, a leading SaaS solution provider, perceive the benefits delivered. To do that, we analyzed survey responses from NetSuite customers in our 2013 and 2015 Enterprise Solution Studies, and talked at length with a brand new NetSuite customer, Briggs Healthcare. ü Publicly traded on NYSE: N ü ~4,200 employees ü $556.3M revenue in FY14 ANTICIPATED AND REALIZED BENEFITS ü $192.8M revenue in Q3 FY15 For several years now Mint Jutras has been asking participants in our Enterprise Solution Studies to share perceptions and preferences for cloud computing, including software delivered as a service (SaaS). Spurred by the growing participation of companies actually running their businesses with SaaS solutions, in 2015 we added questions asked exclusively of those that fell into this category, including NetSuite customers. ü Used by 24,000+ organizations (includes subsidiaries and affiliates) in more than 100 countries Up until this year we asked all survey participants the same question: What do you find appealing about SaaS? We gave them a fairly lengthy list of potential benefits of SaaS and allowed them to select as many of them as they saw fit. This year we continued to ask that same question of those not running SaaS solutions, but changed it up a bit for those that actually do. For this segment, we asked instead, What benefits have you actually realized from SaaS? The appeal question is more about expectations, while the benefits realized question speaks specifically to what has been delivered. To better understand the NetSuite customer perspective we go back a couple of years and use the appeal question from 2013 as a base line for expectations and then look at how they answered the benefits question this year as more a proof of delivery.

2 Page 2 of 6 Data Source In this report, Mint Jutras references data collected from its 2013 and 2015 Enterprise Solution Studies, both of which investigated goals, challenges and status and also benchmarked performance of enterprise software implementations used to actually run a business. COSTS FIGURE HEAVILY IN THE BENEFITS EQUATION NetSuite customers are not unique in placing a lot of emphasis on costs (Figure 1). Back in 2013, in rating the appeal of SaaS, NetSuite customers placed equal value on lowering total cost of ownership (TCO) and treating those costs as operating expenses (OpEx). Figure 1: NetSuite Customers Find Cost Savings Appealing Responses were collected rom companies of all sizes, across a broad range of industries, including 26 customers of NetSuite in 2013 and 23 in Source: Mint Jutras 2013 and 2015 Enterprise Solution Studies NetSuite Customers Only Included As recently as two years ago, the NetSuite installed base of customers was dominated by small to medium size businesses (SMBs), many of which were in heavy growth- mode. Even if they were not strapped for cash, like many SMBs, they certainly preferred to use available capital (CapEx) for growing their workforce, adding equipment or expanding into new markets and territories. Yes they needed good supporting infrastructure and back office applications to manage that growth but that type of investment had an indirect impact on growth, at best. Over the past two years, not only have many of those SMBs grown significantly, but NetSuite has also come up market, appealing more and more to medium to large enterprises. That could be, at least in part because NetSuite seems to have delivered lower TCO than expected and also allowed these growing companies to invest capital directly in growth activities. This may have come as a pleasant surprise to NetSuite customers for the simple reason that NetSuite tends not to be the lowest priced alternative when you consider competitive SaaS solutions. But the costs paid to an ERP solution provider are very often a small fraction of the overall cost of ownership. The total cost escalates out of proportion when the value expected is not delivered as promised. This could also explain why fewer (only 30% of) NetSuite customers expected and realized lower startup costs. They were seeking, and found savings in the longer haul.

3 Page 3 of 6 Another pleasant surprise was in the savings achieved through the reduced cost and effort of upgrades. As with any multi- tenant SaaS solution, NetSuite does the heavy lifting during the upgrade process. At first glance the final cost element shown in Figure 1 is a bit puzzling, particularly in light of assuming NetSuite customers are most interested in lowering the total cost of ownership. Why do only 17% of NetSuite customers realize the benefit of eliminating hardware and its associated maintenance, particularly when two years ago 40% of them found that appealing about SaaS? Mint Jutras suspects the answer to that question lies in the wording of the options presented. In the appeal question the option is shown as No need to purchase hardware, or maintain. This implies cost avoidance. In the benefits realized question the option appeared as Elimination of hardware and associated cost of maintenance. This implies existing hardware could be removed. When NetSuite is sold to a small company, it is often the first solution of its kind, typically replacing QuickBooks or some other desktop solution. While the SMB avoids a hardware purchase, there are no existing servers or other equipment to remove. It is when NetSuite is sold to a larger enterprise that the potential for hardware cost savings becomes very real. In fact one such enterprise,, intends to recoup 100% of the total cost of its NetSuite implementation within three years through IT savings alone. There was no more fat to cut off the bone. There was only bone. At that point all you can do is replace systems. Information Technology, CASE IN POINT: BRIGGS HEALTHCARE For many years ran a JD Edwards ERP solution. The IT staff consisted of 22 employees supporting more than 100 different servers. Many of these servers were needed to also support an additional 28 bolt on applications, many of which ran on different operating systems, databases and other middleware. Four years ago they identified that they had to do something to address this complexity. Meanwhile, the healthcare industry was itself undergoing a transformation. A big part of Briggs business had been supplying printed forms and charts to doctors and other healthcare providers. As the healthcare industry moved to electronic documents, Briggs began a strategic journey to revamp its overall core business model but its aging infrastructure was struggling to keep up, often times holding up the ability to change. With the demand to change the business but also preserve bottom line profitability, according to Don Schmidt, Vice President of Information Technology, There was no more fat to cut off the bone. There was only bone. At that point all you can do is replace systems. So that is exactly what Briggs set out to do: Replace everything with a single solution, and in doing so also reduce the complexity of running the business.

4 Page 4 of 6 We d like to think we re a simple business, but we re just not. information technology, is scheduled to go live on NetSuite the beginning of January As of January 4, 2016, IT will no longer own the system. Business leaders will. information technology, But a four walls replacement infrastructure would require a large capital and time investment. Understanding the need to replace current systems Briggs CEO asked, Shouldn t we be looking at cloud solutions? And thus began a focused effort to explore applications and services in the cloud. Briggs was already accustomed to having hardware located elsewhere, hosted and managed off- site, but they wanted to take one step further into the cloud. For that they would need a SaaS solution. And if the chosen solution was to effectively replace an aging ERP, along with all the bolt- on applications, without a lot of customizations, it needed to be very configurable and both broad and deep. They quickly narrowed their options down and chose NetSuite. One goal down: They had chosen a single solution. But what about reducing the complexity of the business? We d like to think we re a simple business, but the reality is we are not, said Don Schmidt. So as part of the evaluation process, we also took this as an opportunity to reengineer and standardize our own processes where applicable. And as our business changes, we also need to be prepared to leverage opportunities. Our business is predominantly B2B now. We have a limited web presence, but our B2C business is growing significantly year over year. NetSuite s Suite Commerce will help us in this transition. In addition, marketing campaigns can be run natively in NetSuite, which will help us execute more programs. Part of this reengineering process was also to transition the ownership of system expertise away from IT to the functional departments. Any effective ERP solution is a living, breathing solution. As business needs change, so must the implementation. With outdated technology, this often meant changes to the underlying code and it always involved IT. The perception of the business leaders was that IT was slowing them down or getting in the way of progress. The solution: Give them a next generation solution and provide them the tools to be self- sufficient. We [IT] still manage and drive change control but we push the decision to change back to them. I am essentially working myself out of a job. But that s OK. IMPACT ON IT In fact has already significantly pared back its full time, internal IT staff from 22 to five or six, but this is not necessarily the norm within the NetSuite customer base. While 30% of the NetSuite customers participating in our survey in 2013 indicated they had limited IT resources (and no interest in building staff), clearly had the staff. Briggs is similar to the 26% of NetSuite customers in 2015 that had reduced or eliminated IT staff. But Briggs also shares some similarities with the larger percentage (36%) that had leveraged those IT resources for something more strategic than just keeping the lights on. Mr. Schmidt is clearly taking on a very strategic role in the Briggs Healthcare business.

5 Page 5 of 6 NetSuite has come to the table as an awesome partner. Sometimes I get the feeling that half of NetSuite is working for me. information technology, UNEXPECTED BENEFITS There is also another IT- related benefit that often goes unnoticed and the NetSuite community is no exception. Back in 2013, only 4% saw improved IT security as part of the appeal of SaaS. And in fact, 40% of those NetSuite customers expressed concern over security. Yet, two years later, 27% reported improved IT security as a benefit actually realized from the NetSuite cloud (Figure 2) and 22% also cited more viable business continuity (not included in the appeal question in 2013). Figure 2: Some Unexpected Gains Source: Mint Jutras 2013 and 2015 Enterprise Solution Studies NetSuite Customers Only Included This is particularly notable in light of all the recent extreme weather and natural and man- made disasters that dominate the news today. All but the largest enterprises simply can t afford the level of redundancy that a SaaS solution provider like NetSuite must build into its data centers. And note as well the value delivered through more innovation. This too was an often overlooked and undervalued benefit, with only 4% of the NetSuite community choosing this as part of the appeal of SaaS. In % of NetSuite respondents indicated this was a benefit actually realized. Like other providers of multi- tenant SaaS solutions, NetSuite benefits from maintaining a single line of code, shared by all customers. This is further strengthened by a software developer kit that allows customers to add their own new features and functions in such a way that these innovations are automatically carried forward with upgrades, which of course, are installed by NetSuite (not the customer s IT staff). CONCLUSION NetSuite customers are drawn to SaaS solutions for their ability to help lower total cost of ownership of the solution actually used to run the business. But once in the NetSuite cloud, they also find some otherwise hidden gems of the SaaS world. They not only lower startup costs, reduce the cost and effort of upgrades, they also enjoy a faster rate of innovation than the traditional on- premise world.

6 Page 6 of 6 NetSuite customers are able to avoid using capital to acquire hardware, also impacting longer- term costs through the elimination of the associated maintenance. Some actually eliminated hardware in place, also removing maintenance cost as well as the potential cost of obsolescence. The impact on IT staffs will vary throughout the NetSuite community. For those struggling to recruit and maintain talent, SaaS will provide a welcome relief from reliance on a scarce resource. Others will take the opportunity to leverage the IT skills they have in ways more strategic to the business. Those saddled with outdated skills just might use SaaS as an opportunity to clean house, so to speak. This should not be viewed as a threat to IT staffs, but as a gentle reminder that technology is changing very quickly and IT staffs must keep pace in order to stay relevant. If you are a current NetSuite customer, or are considering becoming one, you will see many benefits to SaaS. Don t be satisfied with just those that naturally rise to the surface benefits like lower costs and reduced effort to upgrade. Dig a little deeper to find all the potential benefits. You might just strike gold. About the author: Cindy Jutras is a widely recognized expert in analyzing the impact of enterprise applications on business performance. Utilizing over 40 years of corporate experience and specific expertise in manufacturing, supply chain, customer service and business performance management, Cindy has spent the past 10 years benchmarking the performance of software solutions in the context of the business benefits of technology. In 2011 Cindy founded Mint Jutras LLC ( specializing in analyzing and communicating the business value enterprise applications bring to the enterprise.