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NetSuite to Sell Customizable Apps For Niche Markets

Software magnate Larry Ellison's NetSuite (NYSE:N) plans to turn its business-management software service into a platform for developers to create customized management programs for small and medium-size businesses.

The company, which delivers its software as a service over the Internet, sees customers and developers adding features for niche markets, then selling those products.

NetSuite sells software that small and medium businesses use to manage their finances and sales activities as well as to run Web stores. It sells a version that is customized with extra features specifically designed for software makers -- the same package it uses to manage its business.

"But we don't know how tractors get traded in. We don't know how salespeople who sell tractors get paid," CEO Zach Nelson said in an interview.

He is hoping a company that already develops software for farm-equipment makers would take NetSuite's base package and add features for distributing agricultural equipment.

NetSuite will require every software developer to pay a commission to license the software and for using its data centers, which run the programs.

Shares of NetSuite rose 64 cents to $21.63 on the New York Stock Exchange on Tuesday. The company went public last December at $26 and surged to $45 on hopes it would consolidate its position as the dominant software maker delivering business software to small businesses over the Internet.

It hit a low of $18.41 on Feb. 27, after forecasting that sales growth will slow this year.

The 10-year old company has yet to report a quarterly profit. Last year it lost $24.9 million, but revenues climbed 62 percent to $109 million.

AMR Research analyst Bruce Richardson said the platform-style model makes sense. "NetSuite is saying, 'We don't have the time to develop all this. We're not sure we have the sales resources,'" Richardson said.

One early participant is Daston, a contractor that does consulting and technology work for government agencies and built a package to run its business using the NetSuite platform.

It replaced four programs that didn't communicate with each other very well, cutting Daston's annual IT spending by at least $150,000, said Greg Callon, Daston's vice president.

Daston has started marketing the product to other government contractors.

Nucleus Research analyst Rebecca Wettemann said NetSuite, which is adding 65 jobs this year to its sales force of 135, needs the help. It has 5,600 active customers.

"They need a lot of people with subject matter expertise who are a lot closer to the customer," Wettemann said.

Ellison, CEO of Oracle (NASDAQ: ORCL) and its biggest shareholder, holds a majority stake in NetSuite.