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Microsoft's $10 billion ambition

The tech giant expects Doug Burgum to build a huge business selling software to small and medium-sized businesses. But this time, the company can't rely on its Windows monopoly to get from here to there.

Fargo, N.D., may not enjoy a reputation as a hotbed of high-tech, but this remote heartland city happens to be the headquarters for one of Microsoft's most ambitious initiatives in years.

The plan is nothing less than to build a $10 billion unit specifically charged with selling software into the small and medium-sized businesses market. But as a relative latecomer, Microsoft has its work cut out making good on its goals.

Not only is the small and medium-sized business segment being targeted by other enterprise application makers, but the market has stagnated over the last two years. Still, that has not dissuaded Microsoft from acquiring Great Plains Software and Navision, a European counterpart of Great Plains based in Denmark, to constitute the Microsoft Business Solutions unit.

The executive put in charge of spearheading the effort is Doug Burgum, a 46-year-old North Dakota native who was formerly chief executive of Great Plains. Burgum's history at Great Plains stretches back to 1983, the year he joined the then-15-person company. He took it public in 1997, eventually growing the business to reach more than $200 million in sales and 2,000 employees. All the while, Burgum kept a down-home vibe at the company, holding an annual Stampede partner conference and a Pioneer Day employee party.

The Stanford M.B.A. graduate, who has a talent for roping calves, will certainly need to tap his wrangling abilities to make Great Plains and Navision a cohesive Microsoft unit while restructuring a raft of different software products. He recently talked to CNET News.com, reflecting on life as part of Microsoft, the future of the battered business applications market, and how he's dealing with merging cultures.

Q: Would you agree that your business strategy is to dominate the midmarket for business applications--not just in accounting software, but in anything an enterprise would need to run its business?
A: There are four broad business types that we're going to focus on. There is a core functionality that would cut across all businesses, including things like payroll and accounts payable. We want to be participating in that core.

Moving up from those core components, there are four broad types of businesses: retail, services, manufacturing and wholesale/distribution. We are going to provide extended functionality in those areas through applications that can be purchased from us or software partners. We want to provide broad functionality in those four areas. Outside of that, there is a lot of white space for software partners.

Microsoft's move into business applications was described to me as like the movement of a glacier--very slow, but taking out everything in its path. Through acquisition or competitive force, will Microsoft narrow the competitive playing field in the business applications market, as it has in operating systems?
First of all, coming up in April, it will be two years that Microsoft has been in the business applications market. There are close to 3,900 Microsoft people deployed on this, and we are No. 1 in midmarket. To say Microsoft is like a glacier--going from no presence in the market to being huge--I would have to contest that.

The market today is not anywhere near the size it could be, or will be, or should be, because (software) companies haven't demonstrated transformational value to most businesses. We are going to change the value equation and create a bigger market. In doing so, there will be lots of opportunities for corporate information technology shops, independent software vendors and IT service providers to stand on the shoulders of the work we're doing, to do even greater things for their customers. That's the idea. It's not a zero-sum game.

The goal in the operating system business is to have your OS on every machine. And there is a cap to the market, which is the number of machines shipped. In the applications market you can just keep doing better and better stuff. There is no cap on what we can do.

When people apply the metaphor of a zero-sum game to application market they don't understand how crude the applications are today that we're shipping--and not just Microsoft. Even though they're great, they're still too hard to use, too difficult to maintain, and so on. We have a lot of work to make those things go away.

Another area of software that needs a lot of work is computer security. Microsoft's software remains a major target of viruses and worms such as the recent Slammer virus, yet a major message from Microsoft Business Solutions is that companies should connect with one another online. Why should companies buy into your vision, given Microsoft's record on security and the ever-present dangers of e-business?
It's not enough to say it, but the security issue is super-super-important. One of the major corporate pushes that Microsoft has underway is the "Trustworthy Computing" initiative. There are major investments by Microsoft and others in the industry in this area. We, as a corporate citizen and purveyor of operating systems, feel a deep responsibility to contribute this way. If we don't solve this problem for the whole industry, there will be less investment in IT because of legitimate fear.

People have to feel as comfortable with (computer networks) as they are driving a car. So we have to minimize the risks--although it can't ever be risk-free, as long as there are humans involved in anything we build. But we have to get to a point of risk that people feel comfortable (with). Our job as an industry is to get to that point sooner, rather than later.

But isn't the current lack of computer security a barrier to what Microsoft is trying to accomplish with its .Net initiative and the Business Solutions Group?
Any time you're trying to accomplish something in the course of business, the context and the background is either "wind in your face" or "wind at your back." The wind at our back is that systems will become more secure. Even things like the Slammer virus raise awareness and get people more conscious of wearing their seatbelts and making sure they have the latest safety equipment. Since network security is everyone's responsibility, not just a single company's, when you raise social awareness, that's good. Systems are becoming tighter and better, and computer power is greater.

What's the wind in your face?
Socially, people may not be ready. They may not have the comfort level in the same timeframe we have products available. That's a risk.

Isn't another risk the massive task Microsoft is undertaking in rewriting most of its Business Solutions software, which consists of several millions of lines of code? Microsoft has estimated it will take three years and involve some 1,500 programmers and developers. What are some of the challenges involved in that?
First of all, I would frame this as an opportunity. To take advantage of all the great stuff that's coming. Today, on the market, we have fabulous solutions that are leading-edge and great. But there are some architectural shifts coming along in this decade, and we're trying to time ourselves around those shifts. When those shifts happen, we want to have the latest, greatest and best capability to take advantage of new transformational functionality.

What is transformational functionality?
It's to have everyone connected to everyone else. We haven't yet exploited several things, such as massive amounts of computing power and a global computing network. That's what we're trying to catch up to. That's why we're doing it--not because we have to, but because we want to.

What's exciting is I'm not sure that anyone is mounting a big effort against it. A lot of people have research and development efforts focused on building on the technology of the '90s. The goal for businesses is having better connections between customers, partners and suppliers. But a lot of great ideas got washed away over the last couple of years, when valuations went away. I think Microsoft is in the position to put in the work needed over the next 10 years to make it happen. So some of these ideas got washed out, and we're going to keep working on them. Not all of them are 10 years out--some are two to three years out.

Is Microsoft eyeing further acquisitions in this market to get there?
I can't talk about future acquisitions. There are two anchor tenants, if you will, in Microsoft Business Solutions (Great Plains in the United States and Navision in Europe). We don't have the coverage we need yet in Latin America and Asia Pacific. Those are areas where we are looking for partnerships.

Is acquisition another way Microsoft is considering entering those markets?
It could be. There are also ways to go to market through partnerships with people, with independent software vendors.

In terms of global expansion, it seems like you have your hands pretty full already bringing together operations in Redmond, Wash.; Fargo, N.D.; and Denmark. That must be something of a culture clash. How are you dealing with the cultural differences between these groups?
Fortunately, there was some common culture and background. When you take a look at the core pieces of the Business Solutions Group, which were Great Plains, Navision and Microsoft bCentral, all were building on the Microsoft platform and we were all doing applications. We were all serving small and medium-sized enterprises. Culturally, when you have shared technology, shared customer segments and shared philosophy of building solutions, you have a lot of things you can build on. So that's made it easier.

It's a total nonissue?
I don't want to minimize the effort of doing anything on a global scale. But Navision and Great Plains were not local companies, and certainly Microsoft is a global organization. We had a lot of diversity going into it. It doesn't matter that the people involved are from different places. It's a small planet at the end of the day.

Some Microsoft resellers have complained, though, that the former Great Plains unit seems to operate independently of Microsoft and that there's lack of coordination between the two. Is this a problem?
Some of that has to do with the natural progression of integration. We completed our acquisition of Great Plains two years ago in April and completed the acquisition of Navision in July. This summer, we're going to be showing more how we're bringing them together.