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Commentary: Microsoft's quick boost

Gartner analysts say the Navision acquisition will give Microsoft the opportunity to dominate the market for ERP software in the small to lower-end midsize segments.

By Robert Anderson and Yvonne Genovese, Gartner Analysts

Microsoft's proposed acquisition of Navision, in conjunction with its 2001 purchase of Great Plains Software, will give it the opportunity to dominate the market for enterprise resource planning (ERP) software in the small to lower-end midsize segments--that is, companies with annual revenue up to $200 million.

Microsoft's business solutions division will likely benefit in the following ways: It will extend its business offerings globally; it will strengthen weak discrete manufacturing capabilities; and it will facilitate scalability into larger midmarket enterprises.

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The acquisition should strengthen Microsoft's weak position in the general, noncomplex manufacturing market. Although Great Plains gave Microsoft prominence in the accounting and services market, the software giant has found it difficult to exploit that capability outside North America.

Moreover, Navision's global success extends beyond smaller enterprises (less than $50 million annual revenue), which is Great Plains' main base. With an established distribution channel of more than 2,000 partners across Europe, the Middle East and Africa, Microsoft can gain fast market penetration via a recognized brand.

This acquisition will also be good news for Navision's customers. They should gain through Microsoft's viability and an upgraded research & development capability to support current products. However, Great Plains users should monitor the impact the acquisition might have on an eventual merging of Navision and Great Plains offerings. In the longer term, Microsoft's definition of the target ERP market could hurt Great Plains customers who bought products for future manufacturing functions.

Gartner believes that Microsoft faces key challenges once the Navision acquisition closes:

• Potential user confusion between Great Plains and Navision offerings.

• The need to streamline distribution channels and avoid conflict in the United Kingdom and North America.

• Eventual merging of products.

• Potential cultural contention between Great Plains and Navision.

Gartner believes that Microsoft will continue to sell and maintain both Great Plains and Navision products through 2004, since it will likely take at least that long to re-engineer both vendors' offerings to Microsoft's .Net component architecture. However, once that objective is met, the company will likely have few hurdles in merging the two units' multiple product and system offerings.

In the interim, Microsoft faces pressure to articulate a clear vision and market plan for all offerings. Moreover, it must minimize confusion, maintain customer satisfaction and reassure prospects about the potential product merging.

Customers and prospects evaluating traditional ERP solutions in the lower midmarket should continue to be vigilant about vendor viability, in light of this planned acquisition and other merger and acquisition activity it might spawn.

(For a related commentary on Microsoft in the small business arena, see gartner.com.)

Entire contents, Copyright © 2002 Gartner, Inc. All rights reserved. The information contained herein represents Gartner's initial commentary and analysis and has been obtained from sources believed to be reliable. Positions taken are subject to change as more information becomes available and further analysis is undertaken. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of the information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof.