Microsoft Business Network (MBN)--Coming of Age? Part Two: Market Impact

Market Impact

At the end of March, during its annual conference for North American customers, Convergence 2004, Microsoft Corporation's (NASDAQ: MSFT) Microsoft Business Solutions (MBS) division previewed upcoming versions of its enterprise resource planning (ERP) and customer relationship management (CRM) solutions: MBS Axapta, MBS Great Plains, MBS Navision, MBS Solomon, Microsoft CRM, and related services. The main takeaway was that MBS continues to invest in its current offerings to provide customers with the enriched functionality they need to remain competitive in today's evolving marketplace and exploit their existing information technology (IT) investments by streamlining business processes, and by more easily accessing the information they need to make educated business decisions.

Given the immense ongoing development undertaking, which began at MBS even before its strategy was espoused in 2002 (see Microsoft Lays Enforced-Concrete Foundation for Its Business Solutions), the incremental approach towards building a more complete enterprise applications portfolio seems logical, if not the only possible option. MBS strives to hereby not only retain the existing install base within the maturing ERP product lines, but also to stimulate the acceptance of recent ERP-adjacent product extensions. Some of these are featuring parts of the latest Web services-based technology, and drive sales or upgrades of high-volume products like Microsoft Office 2003 within the MBS' large install base that is nearing the 300,000 mark.

Hence, one should not be surprised by MBS' recent, more upbeat results in a great part from up-selling so-called "surrounding" applications like Microsoft Business Network (MBN), Microsoft Demand Planner, or Microsoft Business Portal to its existing ERP users (see Microsoft Keeps on Rounding up Its Business Solutions). In late 2003, MBS enhance its current line of ERP business solutions and service offerings in terms of helping its small, mid-market segment and even certain large corporate customers improve the effectiveness of current ERP investments and announced the general availability of MBN, and the upcoming delivery of two demand planning modules.

This is Part Two of a four-part note.

Part One detailed recent events.

Part Three will cover challenges and competition.

Part Four will continue discussing challenges and make user recommendations.

Possibilities for MBN Abound

During Convergence 2004, however, MBS announced its ongoing momentum and upcoming plans to expand the reach of Microsoft Business Network to a broader audience of trading partners and it also highlighted the solution's success thus far and road map for the future.

The Microsoft Business Network (MBN) product has certainly drawn most of our attention during the recent user conference. There are many reasons for that, but the major one would be its potential to possibly deliver on the never really (or hardly ever) realized benefits of early dot-com era Internet trading exchanges or networks that could reasonably effectively link customers to their trading partners., As the complexity grows, this network could possibly become part of many larger exchanges, connecting companies in the same vertical industry or horizontally, across various industries.

There is also a lucrative potential of selling software licenses to every participant and of generating recurring revenue from network membership fees (similar to popular Internet service providers [ISP], such as, well, Microsoft Service Network [MSN], EarthLink or America Online [AOL]) and even from specialized services (e.g., community building, performing request for quotes [RFQs], conducting auctions and reverse auctions, etc.), often without charging single transaction fees and unnecessarily repelling the customers wary of being "nickeled and dimed" till "blue in face".

To that end, MBN has been for some time (over two years) in live use in Mexico and Argentina as a part of Microsoft bCentral integrated on-line marketing services for small businesses, where it has been used to link 25 large retail trading hubs to some 4,000 trading partners. MBN allows trading partners to exchange business documents germane to supply chain management (SCM) transactions, such as price lists; purchase orders (POs); sales orders (SOs); acknowledgements; ASNs and shipping manifests; invoices; and so on, by using secure extensions to Outlook or Excel products. The intent is to automate the transactions and minimize (if not completely eliminate) phone calls, faxes, and the resultant errors that come from manual data entry and paper-based processes. Accordingly, as mentioned earlier on, MBN will facilitate system-to-system communications via XML, traditional value-added networks-based (VAN), electronic data-exchange (EDI), or Internet-based EDI (on the AS2 standard at first).

That MBN is not necessarily suitable only for retailers. Consumer packaged goods (CPG) suppliers, and other smaller manufacturing or distribution enterprises on MBS back-office systems might prove the example of Northrop Grumman, a large defense contractor and SAP user, which is using MBN to link with more than 800 suppliers to communicate and collaboratively share information on order status, delivery, and production scheduling. Thus, one should not be surprised with our interest in analyzing the product, which offers several compelling reasons to evaluate.

For one, it should help companies deal with approximately 80 percent of their trading partners that typically account only for an estimated 20 percent of revenues, and yet originate around 80 percent of the operational cost for administering them (due to the need to handle them manually, with pesky and dreaded error-prone re-keying exercises). Conversely, remaining 20 percent of trading partners that account for hefty 80 percent of the company's revenues, would originate only 20 percent of the operational cost to administer them, given their use of EDI or any other automated information exchange technology.

MBN is also relatively easy to install, configure, maintain, and upgrade—implementations can be as fast as installing Microsoft Project, while the training is also fairly straightforward, since users will work with familiar tools they are already likely using—Outlook and Excel. With the current release, MBN users will be able to see additional options on their Outlook, Excel, or MBS Great Plains screens. In Outlook, for example, it will look like an MBN inbox that will contain the received XML data, as all business documents sent and received via MBN will be available there. Users can then repurpose that data, such as passing that data from a purchase order into a sales order without re-keying it. Excel is the MBN template client and is used to view, modify, create, and send MBN documents, whereas for MBS Great Plains' users, MBN documents will be inserted directly into the system's transactional database, but will also be always visible within Outlook and Excel.

The aspect of the community building (a hub), from the largest to the smallest trading partner, is also worth mentioning. For example, above-mentioned Mikimoto (see Part One) has reportedly created a trading partner list template that was imported to MBN by using customer and supplier master data from the MBS Great Plains back-office system. A circular e-mail invitation was sent to business partners inviting them to join MBN by simply clicking on a hyperlink within the e-mail and follow the instructions. Additionally, there are document store and forward services (for trading partners that are often off-line), digital certificate and public key infrastructure (PKI) services, while MBS currently provides business process templates for "order-to-cash" and "supplier visibility" processes, with many more to come in the future, most likely from partners.

Possibly the biggest reason for watching MBN could be its prospects of aligning with Microsoft's well-known success in selling large volumes of software at reasonably low prices. The estimated retail prices (although the products will only be available through value added resellers [VARs]) start at $399 (USD) license activation fee for one user for MBN Standard edition (enables the use of Microsoft Outlook 2003 and Excel 2003 for managing business documents) and $1,999 (USD) license activation fee for one user for MBN Professional edition (includes all MBN Standard features, plus integration with MBS Great Plains 7.0 or 7.5 and Microsoft BizTalk Server 2002, the ability to invite customers and suppliers to join the trading community, an the ability to create and distribute business process templates), with an annual subscription fee per user of $99.95 (USD) for both editions. There is also a separate, optional annual subscription charge of $4,999 (USD) for hosted community building services, which includes partner network management, partner invitations, publishing new document formats, and some other services that are yet to be defined.


Despite the appeal of fairly low on-ramp costs, some notable presentation of return on investment (ROI) justification (even for companies that would keep a certain percentage of their manual and paper-based transactions beside MBN) and integration with omnipresent desktop and productivity products, the MBN success is not automatically granted. Namely, the MBN release 2.0, which is slated for the second part of 2004, will address some of the current obvious weaknesses of the product, such as the lack of browser-based user interface (UI) for sending and receiving business documents, the flexibility of business process template customization and integration, international launch, integration with other MBS ERP and CRM product lines, and deeper integration with multiple EDI systems.

Web-based access to the product would certainly motivate many more of smaller suppliers to join in and participate without upgrading to Office 2003 or installing the on-site components required by the current MBN 1.0 release. The price goes on top of the above-mentioned ones thereby tainting the appeal of low costs. EDI support is critical to gaining support for MBN among mid-size manufacturers and distributors who have been extensively using EDI-based networks.

At this stage, MBN users talk to each other only with XML, but they also have a need to trade via EDI with their partners, although still over MBN. Hence, expectations are high in the mid-market that MBN will trigger enormous customer interest in EDI, at least in XML and Internet flavors, just as Microsoft CRM was earlier anticipated to create the awareness for front-office sales force and marketing automation functionality.

Although EDI has earned a reputation of a complex, rigid, and expensive means of business document and data exchange among trading partners, transportation, finance, insurance, and other industries have heavily leveraged EDI and proprietary communications lines to conduct business. Also, major manufacturers, such as automotive original equipment manufacturers (OEMs) and CPG companies, have embraced EDI and mandated that their suppliers do the same. For example, Owens Corning has relatively recently mandated that several hundred of its suppliers implement Internet EDI, or they will be charged $50 (USD) for each paper invoice submitted, illustrating the widespread current trend of larger companies giving their smaller suppliers mandates of "my way, or highway". Many other large corporations (e.g., Wal-Mart, Home Depot, Target, etc.) have also found Internet-based EDI to be productive and cost-effective, and have typically mandated its use to their suppliers.

Even without these mandates, smaller suppliers that may not be prepared to buy into EDI right now might gradually become aware of its many potential advantages. Although not very interactive or fast enough to handle collaborative activities like planning, the technology might still help these companies with their more strategic initiatives, such as strategic sourcing and spend management (i.e., how to select and negotiate with suppliers, automate requests for quotes and proposals (RFQ/P), conduct bids and reverse auctions, etc., see The Hidden Gems of the Enterprise Application Space). To do these things effectively, they require a consistent method to capture transactional data for all suppliers and monitor and track supplier performance, which cannot be achieved with antiquated paper processes, but rather in an institutionalized electronic manner, where MBN too seems to fit the bill.

This concludes Part Two of a four-part note.

Part One detailed recent events.

Part Three will cover challenges and competition.

Part Four will continue discussing challenges and make user recommendations.

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