by John M. Covaleski

San Mateo, Calif. - Two years after surviving a market crash that killed many of its dot-com contemporaries, application service provider NetLedger is showing signs of thriving.

Based here, the vendor of Oracle Small Business Suite, an integrated set of accounting and related business software applications, is also beginning to look more like the vendors of packaged accounting software. It is in the process of building a reseller channel and, in April, it held its first channel members conference - two mainstays for established packaged application vendors like Microsoft/Great Plains and Best Software.

Another sign of growth: Net-Ledger recently expanded its work force and its regional sales operations at a time when many other software vendors are contracting. That expansion coincides with adding 60 resellers to a channel comprised solely of consultants, who refer clients to NetLedger, but do not sell the solution themselves.

Moreover, NetLedger claims that small businesses are accepting a marketing overhaul that it undertook last year when it re-branded its original offering, known as Netledger 1, and re-positioned it as a product whose users could ultimately migrate to high-end enterprise solutions from database giant Oracle Corp. The move also reinforced Net-Ledger’s tie to Oracle chief executive Larry Ellison, whose financial backing launched NetLedger in 1999.

"Small and mid-sized businesses everywhere are finding out that they can run their businesses more effectively with the Oracle Small Business Suite. We are growing our team to meet the increasing demand," Net-Ledger chief executive Evan Goldberg said in announcing the company’s 15 percent staffing increase and the opening of regional sales offices in Seattle, Phoenix and Portland, Ore., in mid-May.

NetLedger 1 consisted of just an accounting application, job tracking and online payroll. Oracle Small Business Suite includes those, as well as customer relationship management, employee management software, online payroll, Web site creation and management tools and the ability to transact business over the Internet. The suite sells for $99 per month for two full-time users, up to 10 partial users and free access by the customer’s accountants. Netledger 1 debuted at $4.95 per month per user.

NetLedger said that its installed base has tripled over the past year to approximately 5,000 paying small business customers. It reportedly has 13,000 end users.

Separately, marketing vice president Jim LaBelle said that NetLedger is on target to add 100 resellers by year’s end. Several of the 60 resellers signed up are accounting firms or technology service companies that are affiliated with accounting firms. Accounting firms and their affiliates make up a big chunk of Net-Ledger’s established channel of 500-plus certified consultants.

Twenty-five of the new resellers came from Ingram Micro, the national chain of resellers and consultants.

Building a reseller channel could spur growth because resellers typically have greater technological skills than consultants and have greater incentive to increase product sales. For example, NetLedger consultants now receive roughly a 10 percent commission on sales their referrals generate, while new resellers said that they could qualify for margins of up to 50 percent based on volume.

Goldberg said that the move to resellers and their greater technology service skills is a byproduct of recent and planned enhancements to Net-Ledger’s technology capabilities: "A number of things have changed in how we deliver the product and what’s required to install it, so the role of the channel is changing."

Goldberg is a former Oracle executive who launched Net-

Ledger about a year after Oracle pioneered the ASP concept with an online service targeted at companies of under $500 million in annual revenue, which is far smaller than that company’s typical high-end users of enterprise applications. After unimpressive results in trying to reach out to smaller businesses on its own, Oracle entered into the re-branding strategy and marketing alignment with Net-Ledger last year.

The re-branding occurred at the tail end of the massive dot-com shakeout, which featured the failure of dozens of Internet-based businesses that, like Net-Ledger, were created in the late 1990s. Failures in early 2001 included two dot-coms that were aggressively recruiting CPAs as resellers - E-Ledger, a Toledo, Ohio-based accounting software ASP, and Finetrics, an outlet for SAP.com, a small business ASP run by Oracle’s enterprise market rival SAP.

Electronic commerce industry observers cite NetLedger’s link with Oracle, particularly the support of multi-billionaire Ellison, as a key factor in its success. "They are in better shape because of the Oracle connection," said Amy Levy, a consultant with Summit Strategies of Boston. "I call them Ôthe little company that could’ because they keep going."

Ellison’s fellow investors in NetLedger include investment company PaineWebber, venture capitalists StarVest Partners, and ADP, the payroll processing company that is working with NetLedger to link its services with Oracle Small Business Suite.

However, Internet business analysts and field consultants say that they do not see strong acceptance of ASP solutions by the small and midsized business market that NetLedger targets. "It [widespread market acceptance] is still going to take some time," Levy said.

"Demand for hosted applications is still premature, but there are many indications that the market will get better," said Mike Galloway, managing director of one of NetLedger’s new resellers - Apptech, the technology consulting arm of Mathews Reich Perna & Rottermond, a Bingham Farm, Mich.-based CPA firm. Apptech is a former reseller of accounting software from the Solomon division of Microsoft/Great Plains.

Galloway expects that hosted solutions will ultimately become the preferred option for small businesses, who "just want a good solution and don’t want to have to deal with the technology themselves." He expects that evolving technologies, such as Microsoft Corp.’s .Net platform, will propel small businesses to ASPs.

Galloway also envisions hosted solutions becoming preferred by accounting firms, who want to offer technology services without devoting an abundance of resources to them.

"We got away from Solomon because we didn’t want to have to have a lot of Microsoft Certified Systems Engineers on staff," Galloway said. "We want to be able to concentrate on the consulting side and NetLedger can allow us to do that." Apptech has been consulting with companies about Net-Ledger since 1999.

Another NetLedger channel member singing the praises of the ASP is CPAMoneyWatch.-com, a business services firm in Rockville, Md. "Their product is proving to be the right proposition for the SMB market - integrated, affordable and easy to use," said Tony Cord, a company executive.

However, several of the approximately 75 consultants attending NetLedger’s conference in April complained about functions and features.

Ginger Sacha, of Philadelphia-based Computerized Accounting Training, was among those to question NetLedger’s prohibition against unbundling any of the suite’s applications for users that don’t need the whole package. There were also complaints about lack of flexibility in the program’s reporting.

LaBelle said that both of those concerns would be remedied in the next release of Oracle Small Business Suite. "One of the reasons we held the conference was because we know how important it is to get this kind of input from our channel," he said.

Channel input may become particularly important as Net-Ledger proceeds in another new direction - customizing the system for use by specific industries. Goldberg expects resellers, with their advanced skills, to be active in that customization work.

Retailers, distributors, wholesalers and service firms, including lawyers and accountants, are among the vertical industries where NetLedger has already become prominent, according to LaBelle.

Goldberg and LaBelle intend to also continue recruiting consultants, particularly CPAs, noting that consultants have generated about 30 percent of the company’s sales, so far.

One of its newest consultants, John Worsley, a CPA with Complete Financial Services, of Mesa, Ariz., said. "As I get this going, it should nicely supplement the business I now do, but I won’t kid myself - I don’t expect the NetLedger business to grow overnight."

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