Microsoft tries new tack with small firms

Company readies software specially tailored for businesses with between 50 and 1,000 employees, a market Microsoft hasn't cracked.

Ina Fried Former Staff writer, CNET News
During her years at CNET News, Ina Fried changed beats several times, changed genders once, and covered both of the Pirates of Silicon Valley.
Ina Fried
5 min read
Microsoft on Wednesday launched a renewed effort to target midsize companies with a specially tailored package of server software.

Code-named Centro, the midmarket server software will combine the Windows Server operating system, Exchange e-mail server as well as management tools. The package will be based on the company's Longhorn version of Windows Server as well as the next release of its Exchange Server, code-named Exchange 12.

The new software isn't expected to arrive for more than a year, however. "Centro will come in the same time frame as the Longhorn Server wave of products," Bill Gates, Microsoft's chairman, said on Wednesday. Longhorn Server isn't expected to debut until 2007.

Gates made his comments at a conference for midsize firms being held at Microsoft's Redmond, Wash., headquarters.

Also at the event, Microsoft launched a new online resource center and rebranded several of its Microsoft Business Solutions products under a new "Dynamics" moniker. The Dynamics label will be applied to new business software the company has been building under the Project Green code name.

The company said new releases of its existing business software will be rebranded under the Dynamics label over the course of the next year. Later this year, Microsoft's Great Plains software will be renamed Microsoft Dynamics GP and Microsoft CRM will become Dynamics CRM.

Next year, Microsoft's Axapta software will become Microsoft Dynamics AX, Navision products will become Microsoft Dynamics NAV, and Solomon products will become Microsoft Dynamics SL.

"It's a huge commitment to business applications. We have a lot of ambition here," Gates said.

The plan represents Microsoft's latest attempt to crack into the software market populated by companies employing between 50 and 1,000 workers. The software giant's interest is understandable: There are roughly 1.4 million such firms worldwide, according to AMI-Partners, that are potential customers for Microsoft's new products.

However, past efforts by the company to target midmarket companies have not gone far enough, said executives.

"In a revenue sense, there's as much opportunity for us in the midmarket as anywhere else in the world. (But it) takes a little more work to understand it than the consumer or enterprise markets," said Microsoft chief executive Steve Ballmer on Wednesday.

Orlando Ayala, senior vice president of Microsoft's Small and Midmarket Solutions & Partner Group, acknowledged that although the company has profited from small and midsize customers, it has not done enough work to get to know the needs of such businesses so that it can create more products tailored for them.

"These companies are kind of in a sandwich. They are not quite like a big enterprise, with all of the resources and all of the stuff. They are not quite a small enterprise--they cannot basically put all of their stuff in one server," Ayala said.

Of course, that precarious position is not new. For years, large technology companies have noted that small and midsize firms are a fast-growing but underserved market. However, analysts and customers have complained that in many cases, they were offered largely the same products.

Ayala said Microsoft is taking a different approach this time. "I think it starts with R&D," he said, pointing to the improvements Microsoft was able to get with its Small Business Server, noting that the software package enables small businesses to get up and running in 20 minutes--a process that used to take two days.

"That kind of stuff has not been achieved for midmarket customers," he said.

The art of thinking small
Microsoft says it has spent the last several years studying such firms, looking specifically at individual job roles. In an e-mail message to customers, Ballmer said the company's research included following workers around as they did their job and taking pictures of their desks.

"And we learned an important lesson: Today's business software doesn't look enough like today's businesses," Ballmer said in the e-mail.

Ayala did not have an estimate on how much Microsoft is investing on specific engineering for midsize firms, however. "We have people doing it full-time," Ayala said. "I don't have any number to quote."

In addition to spending dollars, though, Microsoft also needs to make a cultural shift, IDC analyst Ray Boggs opined.

"The R&D challenge is a bit different," he said, noting that smaller customers are less interested in whiz-bang features and more so on tools that make the technology easier to manage. That runs somewhat counter to Microsoft's typical way of doing things. "As an engineer, you want to do the neat, advanced stuff," he said. "It is, in effect, a cultural change, and it's one that is driven, in fact, by senior management at Microsoft."

Steven VanRoekel, who has been heading up Microsoft's midmarket server efforts, said the internal work has been his initial focus. "We view our first job as really changing the mind-set within Microsoft on behalf of small and midsize customers."

The products themselves will take longer. It will be at least 2007 until Centro arrives and, although the MBS products will start sharing a brand and some visual similarities, the work to unify their underlying code will also take years.

In the meantime, Microsoft plans to keep in place a midmarket promotion that gives customers a discount on a specific bundle of server software. Such pricing helps make sure that midmarket customers aren't paying more than both small businesses that can run Small Business Server and larger enterprises that can take part in Microsoft's most heavily discounted volume purchase programs.

As for having the event now, VanRoekel said it is designed to share the work that Microsoft is embarking on with both customers and Microsoft's resellers.

"It's to let customers know the cavalry is coming," VanRoekel said. "We're focusing. We're investing."

Boggs said there is some logic to the work, including rebranding the MBS products even before they are fully integrated.

"In some respects, it is kind of like a moon shot," Boggs said. "You don't aim your rocket where the moon is now but where it is going to be when you get there."

Although Microsoft's event is centered on midsize firms, Microsoft is also using the event to launch its Small Business Accounting product. That product takes aim at Intuit's QuickBooks. Ahead of Microsoft's move, Intuit outlined some of the planned features for an updated version of its package, dubbed QuickBooks 2006, that is slated to launch in the fall.

Microsoft is launching the midmarket push with 55 events around the globe. At the main event at Microsoft's headquarters in Redmond, Wash., Chairman Bill Gates and CEO Steve Ballmer are both slated to speak, which Ayala said is something that "we very rarely do."

"It's trying to signal how important we think this is," Ayala said.

CNET News.com's Mike Ricciuti contributed to this report.