Microsoft's $2 billion bet
Microsoft's Orlando Ayala is a man in a hurry. Charged with expanding sales to small and medium-size businesses, he's got a big checkbook and a tight deadline to make things happen. But Microsoft faces a load of new challenges. Curious what's on his agenda?
Ayala, former head of Microsoft's worldwide sales organization, is settling into his new responsibilities as chief of Microsoft's Small and Midmarket Solutions and Partner Group.
One task is to boost sales of Microsoft products from all seven divisions to small and medium-size businesses with 1,000 or fewer employees. To succeed he must rely on and improve relationships with about 800,000 dealers and consultants worldwide. While Microsoft has had great success selling to larger corporations, the company has struggled to achieve even a fraction of the penetration into the overall small and medium-size business market.
At the same time, Ayala is charged with turning the Business Solutions group?s products--Great Plains, Navision and Microsoft CRM--into a $10 billion business by 2010. Projected sales for fiscal 2003, which ends June 30, are $550 million.
In this sense, Ayala has the difficult of task of serving two masters. He is trying to expand the sales of Microsoft's core small and medium-size business products while trying to get more companies in the market segment to buy Microsoft software. He recently spoke with CNET News.com.
Q: Why is this market so important to Microsoft?A: We believe this is a market with a lot of pent-up demand to be fulfilled. We come from the assumption that the market is very fragmented and solutions are very difficult to use--specifically if you want to automate a small business.
The company has decided to make an important push with $2 billion in investments over the next 12 months. That's going to be in line with a good percentage being in research and development. We believe the company is going to be positioned as the largest enterprise-producing solution for small and medium-size businesses.
How much does this market contribute to Microsoft revenue?
| The company has decided to make an important push with $2 billion in investments over the next 12 months. |
We kind of managed Navision and Great Plains somehow for the last few years kind of on the side. Now they're becoming mainstream...The fact that I am taking on this organization, being part of the executive committee of this company--we're sending a pretty strong signal to the marketplace that we're going to go very, very serious about that.
To clarify, what do you mean by $500 million? Revenue for the division?
In this fiscal year, we're probably going to run about $550 million for the Microsoft Business Solutions group. Don't take that as revenue for small business. That's just the revenue stream for Navision and Great Plains today. That's the one we want to grow into a multi-billion dollar business.
But your total reach of responsibilities touches all seven Microsoft divisions, is that right?
That's exactly right. I have responsibility for all the other products. My value proposition has to be the integration of all that technology plus all the other associated services, many of them delivered through (dealer, consultant and software) partners.
What would you say Microsoft's penetration into this market is compared to the enterprise market?
What do you mean by penetration?
There are a number ways to quantify it. One way might be to look at Microsoft's Licensing 6 program.
Most of Licensing 6.0 is in the enterprise. We are very underpenetrated (in the small and midsize markets), because of the things like piracy. Based on the base of customers of about 370,000 entities worldwide, I don't think we have been able to reach more than 20 percent of them. The reason has to do with many things, like I said some of that has to do with piracy.
What size company do you see as being a small to medium-size business?
We make a segmentation at 1,000 employees and all the way down to a few employees or few PCs. Through all the range of customers, we want to offer the possibility to be automated and be able to basically behave like a worldwide enterprise.
Who do you see as your biggest competitor in this market?
Even though I have the responsibility of selling all the solutions into the small and medium-size space, my responsibility also is Microsoft Business Solutions. Next year, even though I don't directly manage the enterprise team, we're giving quotas to the corporate accounts to sell Microsoft Business Solutions products. We're going to expand upwards as some of our competitors are coming down.
In the range of 5,000 employees, we see companies like Oracle to be a head-on competitor.
What about SAP?
Then you have SAP, which is a partner we care for a lot. They continue to be an important partner of ours. I just came from Germany, and as you can imagine, in Germany this is a really hot topic. I was pleased to see both companies were being predictable about how they were going to cooperate and compete. They're going to come down--all the way down to medium and small businesses--with a new product they call Business One. At the same time, we're going to go up. We're going to compete in some accounts, but also we're going to cooperate closely.
| If any one company can put together all the pieces, including financing, that would be IBM. |
IBM is certainly a competitor. If any one company can put together all the pieces, including financing, that would be IBM. Then locally, we have a lot of other competitors. In every country you have local ISVs (independent software developers) that have decided to do their own CRM, ERP and so on. We're working with them, and many of them are Microsoft partners already.
What about Linux?
Linux is a big, big challenge for us. But I think many customers want to buy the experience we offer.
What about the smaller ISVs you partner with? How will you deal with them?
This is really a platform play. What the company is trying to do is enhance the basic platforms--.Net and Windows--and expand that to a horizontal platform. Too many ISVs are focused on horizontal platforms with no differentiation. We want them to outsource their R&D to us.
How important will the channel be in reaching this market?
There's no way we can succeed in this space without the partners. If you really want to set a footprint that is global--reaching out to this very large number of customers--there is no company that can do it on its own.
Let me give you some numbers. We have about 800,000 partners around the world. These are partners that basically sell everything. Out of those 800,000, with Great Plains and Navision, we are talking today about 6,000 partners that are fully skilled to sell these type of solutions. My goal for the next 18 months is to increase that by at least 50 percent, so in the range of 9,000 or 10,000 partners. These are very, very skilled types of partners, who can sit down with a small business and tell them how to connect to suppliers and squeeze all the value out of the CRM investment that we made.
What incentives are you giving partners to work more closely with you and sell Microsoft products?
We're going to make heavy investments in partners, and, of course, partners are very critical for the company. Together we can deliver great solutions. When I say solutions, I mean more than just the price of the software. There are many people who deliver things around those bits. The question is how do you deliver those bits. Financing and licensing, I think, are very important. I think, again, that the industry has been very fragmented around how this value is delivered. Microsoft wants to create a real value proposition for customers that involves all of these pieces.
What balance must Microsoft meet to offer the right incentives to motivate the channel?
I am working very hard on making sure that the combination of risk-reward gets to be very, very well balanced. Otherwise, partners will never invest in us...One of things that's very important to me is how do we expand the channel and keep those rewards. When I talk of $2 billion in investment next year, a good chunk of that is going to come from rewards to partners...In this case those partners with full authorization to sell the Great Plains, Navision and CRM products will have rewards in line with that.
Do you plan to offer financing options to either partners of customers?
Yeah, absolutely. We've started to use Microsoft Capital...We are allowing partners to use this resource to finance everything--Microsoft products and non-Microsoft products. One of the things we have to understand here is how do these customers start buying. That is the thing the industry has not been able to grasp clearly...These people buy in a very specific way. I'm not going to rest until we get to be the best in the business.
