HolidayBuyer's Guide

Microsoft unit key to new strategy

Vista may be late, but Microsoft's business software division is on schedule and ready to tackle services.

DALLAS--In recent years, Microsoft's Convergence conference has served as the stage for unveiling the latest shift in the company's business software strategy. But at this year's show, Microsoft had a surprise: No big shift.

"In a sense, there is no news at this conference," said James Utzschneider, general manager of marketing for Microsoft's Dynamics business. "We've delivered what we said we'd deliver."

No news is good news for the company these days. While its Windows and Office units grapple with delays, its Business Solutions group is touting a software plan--remarkably similar to last year's plan--that calls for all four of its enterprise resource-planning products to be updated over the next year.

The money-losing Microsoft Business Solutions unit is also rounding the corner financially. Last quarter, it turned its first-ever profit as well as a 17 percent rise in sales. The company expects it to dip back in the red for a little while longer, in part because of a new $50 million ad campaign, but hopes to continue the sales growth.

"I want to abolish any artificial distinction in how customers deploy the technology."
--Brad Wilson, Microsoft

And, as Microsoft continues to formulate its business software services strategy, MBS is poised to play a starring role.

That's a dramatic shift from five years ago, when Microsoft started its midsize-business applications push with the purchase of Great Plains Software. The company now has four separate ERP (enterprise resource planning) products--all gained via acquisition--along with a homegrown CRM (customer relationship management) product.

For years, the Convergence conference has been marked by angst among Microsoft's resellers and customers.

"There was a lot of confusion," Utzschneider said, because customers were unsure of Microsoft's long-term plans and worried that the company would cancel one or more of its product lines.

The company is moving to unify the products, but has scaled back its original plan to rapidly integrate the four ERP products--"Project Green"--in favor of a more evolutionary approach. Now, much of the work in the coming years will focus on ensuring that the four products have a common look and feel, as well as have links to Microsoft's other software programs and its Visual Studio development tools.

Forrester Research analyst Ray Wang said that the MBS unit is starting to operate as a single team, even as it continues to support all four versions of the Dynamics ERP software. With much of its development resources concentrated, he said, Microsoft can focus its work on adding ties to Office, SQL Server and other Microsoft products as well as integrating Web services support.

"That is a credible threat," Wang said. Over time, Microsoft still faces choices of which parts of each product to maintain and what its common data model will look like. For now, though, partners and customers are happy with Microsoft's plans, he said.

Big, but how big?
It is unclear just how far Microsoft's ambitions stretch. Until now, the company has stuck to the notion that it is focused on the midmarket.

In a 2004 videotaped deposition, given in the government's attempt to block the Oracle-PeopleSoft deal, Microsoft senior vice president Orlando Ayala said the software maker did not plan to enter the market for large corporate customers in the near future.

"These are sales that take a lot of time and resources," Ayala said. "Even for the midmarket, you don't enter them overnight...It will take years for us to be big in the midmarket."

Now, however, the company's ambitions seem larger.

Our products "can scale up to cover a super, super high percentage of all businesses in the world," Chairman Bill Gates told CNET News.com this week. "When (companies) want to pick a new software application base, we will be in there competing in 95 percent of the cases."

Satya Nadella, a corporate VP in product development in the MBS unit, said a significant portion of the revenue from the CRM product is coming from enterprise customers. Even Microsoft--a big Siebel and SAP shop--is now using Microsoft CRM in a few places throughout the company. Microsoft's new midmarket group, for example, chose the new software.

"They realized they could get up and running faster with Dynamics CRM than by installing further-out Siebel," Utzschneider said.

Wang said that the company's industry builder program, which rewards partners that help tailor Dynamics products for a particular industry, could help the company win over some large accounts. "There's an opportunity for a few showcase accounts in the enterprise," Wang said.

One of the challenges, Wang said, is that the key to winning small and midsize customers is having a strong base of partners that can help the companies install and manage the software. To reach the largest customers, by contrast, companies typically need a large direct sales force, Wang said.

Services proof-of-concept
Even as it tries to grow its own business, MBS is also serving as something as a testbed for Microsoft's software-as-a-service strategy. With the latest version of CRM, for example, customers can either buy the software and use their own servers, or run a hosted version on a subscription basis.

This week, Microsoft announced a version of the CRM software that is specifically tailored for Web hosters, with additional software for provisioning and monitoring the CRM installation. Those who want to offer hosted CRM would pay Microsoft a monthly fee for each business user they sign up, and then resell the service at a profit.

While Microsoft is making this possible with the current CRM product, the version due next year will allow hosters to run more than one company's CRM installation on a single server. That feature is needed to make it viable to sell CRM to companies with fewer than 25 users of the software.

Gates noted that Microsoft will eventually have hosted options for many of its products. "Everything Microsoft does, over time, will be available either running as a server or you can run it on-premise or it can be hosted," Gates said.

One of Microsoft's key selling points is its flexibility, said Brad Wilson, the former PeopleSoft executive who joined Microsoft a year ago as general manager of the CRM business. Customers can start out using a hosted CRM option, but then move the software in-house. Because it is the same code in both cases, such transitions shouldn't take more than a weekend, he said.

"We want to blur the line," Wilson said. "I want to abolish any artificial distinction in how customers deploy the technology."

Clearly, Microsoft has come a long way in the CRM business. However, Credit Suisse analyst Jason Maynard doesn't expect Microsoft to unseat Salesforce.com, the leader in the hosted CRM market, anytime soon. He said Salesforce's approach seems to have more appeal in today's market.

"(Microsoft's) Live CRM did not garner a lot of airtime at the conference, and it doesn't appear that on-demand is a top priority for the company at this time," Maynard wrote in a report released Tuesday. "We like the look and feel of Microsoft's new CRM product, but we believe that Salesforce.com's clear, on demand-focused approach is more in line with market demand at this time."

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