Salesforce-NetSuite Rivalry Is Personal

Salesforce.com and NetSuite are the unlikeliest of enemies.

Just a few years ago, the companies were at the advance guard of software-as-a-service, a burgeoning new industry that promised to eliminate the high licensing fees and onerous maintenance costs associated with buying on-premise software, offering in its place monthly subscriptions and regular upgrades. Both seemed to take an almost childish delight in tweaking traditional software vendors like Microsoft and SAP, and both have grown large enough to become public companies. The heads of both companies once worked for Larry Ellison at Oracle.

And that’s where the similarities end, and the root of the bad blood between them begins.

NetSuite this week introduced four integrated software vendors that will connect its financial management suite to applications sold by Salesforce.com to help salespeople manage their customers. This is the kind of announcement that Salesforce.com usually celebrates because it helps dispel the notion that cloud-based software cannot be customized or integrated with other applications as easily as software that is purchased and managed in-house. It certainly did so when it announced a partnership with NetSuite rival Workday.

But to illustrate how disfunctional their relationship has become, in the case of NetSuite, there was radio silence. I spoke to several executives at Salesforce today who said they would not comment. I called Gordon Evans, a Salesforce spokesman who is as forthcoming as media relations people ever get, and asked why the company won’t comment. “You won’t get a comment from Salesforce about this,” is all he would tell me.

So what’s the deal here? The companies don’t make competing products. If anyone should be resentful, it should be NetSuite: while both companies have been in business for about ten years (NetSuite was formed in 1998; Salesforce in 1999), Salesforce has become a $1 billion company, created a platform that over 400 other on-demand software vendors use to sell applications that complement Salesforce.com’s services, and generally basks in the glory of being the standard-bearer of the software-as-a-service industry. NetSuite, meanwhile, had just $152 million in 2008 revenues and had to postpone its planned 2006 IPO before finally going public in December 2007. And while a third of Salesforce.com’s deals are with large enterprises, NetSuite makes onesies and twosies from small and medium-sized businesses.

But it’s Saleforce that’s creating the bad blood. The reason, I suspect, has nothing to do with business; it’s personal. Salesforce.com CEO Marc Benioff and NetSuite CEO Zach Nelson both worked at Oracle under Larry Ellison. They were two of the earliest vendors selling software as a service, both trying to impress a demanding and overbearing father who, incidentally, served on their respective boards at one time or another.

Today, the younger brother is the more successful, but that doesn’t mean he’s forgotten the slights of his youth. Ever the faithful son, Benioff doesn’t miss a chance to speak of Ellison as his mentor. But Benioff has obviously never forgotten the dismissive comments about Salesforce made by Nelson in their early days, when NetSuite was the older and more successful brother. And Nelson probably didn’t help matters by joking that the SEC-mandated quiet period before the Salesforce.com IPO was “probably the toughest six to nine months of Marc’s life.” It’s a remark that probably hit home a lot harder than Nelson imagined.