Microsoft 'The Great' Poised To Conquer Mid-Market, Once and Again Part 2: Challenges and User Recommendations

Event Summary

On May 7, after couple of weeks of the press' speculations, and the parties' courting and 'playing hard to get' game, Microsoft Corporation (NASDAQ: MSFT), the world's largest software provider, announced it has reached an agreement to acquire Navision (CSE: NAVI), a Danish provider of enterprise business solutions for mid-sized companies. The acquisition is seen to bring together the complementary geographic and product strengths of Navision with Microsoft Great Plains Business Solutions, enhancing Microsoft's ability to deliver interconnected .NET business solutions for small and mid-market businesses. The acquisition is structured as a stock and cash purchase based on an offer to shareholders of 300DKK per share. The total transaction value is estimated at approximately $1.3 billion.

This is Part 2 of a 2-part analysis of the acquisition of Navision by Microsoft.

Part 1 covered the announcement and the Market Impact.


Nonetheless, the acquisition is not without caveats as there is seldom a significant gain without an equivalent pain. Microsoft's strategy has long been to encourage applications software providers, both mighty and smaller, to develop software that runs on the Windows platform. In exchange for this collaboration, the software giant has pledged that it would not compete with them. In that regard, Great Plains' acquisition has largely been hushed up, given the products acceptance by the really lower-end of the market (enterprises with less than $50 million in revenues), and its low competitiveness in the manufacturing sectors.

Now, Microsoft could run into the same problems as Oracle has had on the database side - i.e. it could find itself in a direct collision course with major technology development partners like Oracle, Siebel, SAP and PeopleSoft, given Axapta's scalability and strengths that are on par with those of e.g., J.D. Edwards', IFS' or Baan's. Even if Microsoft may want to stay at the low end of the market and, therefore, also out of the way of its big applications developing partners, it will not be that easy as many Tier 1 applications vendors have increasingly been targeting the same market segment (see SAP Tries Another, Bifurcated Tack At A Small Guy).

And what about a plethora of smaller vendors that are now direct Microsoft Great Plains' competitors and whose products are also Microsoft-centric (e.g., Epicor, Frontstep, Made2Manage, Syspro, Lilly Software, Scala, Exact Software, etc.)? At least now these will inevitably see Microsoft's move as predatory; while most of them will not likely make any abrupt radical move away and may continue to compete with Great Plains/Navision based on a particular vertical focus and other order winners.

Some may also explore other avenues such as porting the product to Linux (like in case of QAD and MAPICS), Java, or to IBM iSeries (formerly AS/400) and DB/2 platforms. Some vendors, like SSA GT and Infinium have renewed their vows to the iSeries. In fact, IBM and Linux resellers may benefit in the long run, becoming bigger nightmares for Microsoft while reinforcing Mircrosoft's paranoia, than, e.g., the contest between .NET and J2EE frameworks. As a matter of interest, in February, Navision and IBM announced an alliance to deliver affordable, integrated e-business solutions to small-to-medium enterprises (SMEs) based on IBM eServer platforms. While the acquisition in case will likely dissolve this alliance, there are so many other vendors itching to work with IBM. Also, as Axapta runs on Unix and Oracle DB (in addition to Microsoft's platforms), it will be interesting to watch how Microsoft will handle the support for these adversarial technologies under its roof.

Furthermore, contrary to Great Plains' acquisition, this one brings about many more ramifications and liabilities. One will likely be uncertain and confused while, e.g., watching Microsoft Business Solutions' commercial on CNN some time in the future, to discern which one amongst the handful product lines the ad is referring to. Despite the complementary nature and different target markets of the main product lines, the pain in appropriate positioning of these remained even during former Great Plains (versus Solomon) and Navision (versus Damgaard) entities. It is much more likely that the channel partners will face even bigger conflict in terms of market overlaps, as well as traditional association with a certain product line regardless whether it is the best fit for a certain opportunity. Not to mention the effort of cross-training in case of VARs willing to forsake their attachments to certain product lines.

While the idea to enable the R&D team to gain economies of scale by leveraging .NET Framework to build common application components as commodities that can be deployed within the entire product portfolio is tempting and promising in a very long run, the flagship back-office product lines will have to remain on separate tracks for some time to come, owing to their disparate proprietary technologies and large user bases that are still using these (e.g., Navision's proprietary integrated development environment C/SIDE, which includes a proprietary Navision Server database and a proprietary 4GL programming language; strong analytical features using Sum Indexed Flow Technology (SIFT); and the proprietary MorphX graphical development suite for Axapta). However, leveraging additional e-business and e-collaboration initiatives for both flagship products should be expected, Navision's Commerce Gateway and Microsoft CRM being good examples.

This brings us to another fuzzy area. Microsoft has long signed a deal with CRM vendors Onyx and Pivotal Software, and has recently announced its CRM software for the SMEs (see Microsoft Throws .NET At SMEs, With CRM As Bait). Navision, however, offers native CRM in its flagship products, on top of its alliance with Siebel (see Siebel Has Done It Again - This Time with Navision). Enter Great Plains' partnership deals with the CRM leader Siebel Systems, e-procurement vendor Clarus, and SCM vendor Logility (for more information, see Siebel: Great Plans for Great Plains, Microsoft Great Plains Procures eProcure At Last and Great Plains Supply Chain Series To Be Powered By Logility). As, for its part, Navision has a number of other partnerships in place with vendors such as Oracle, Compaq, Fujitsu Siemens, Hewlett-Packard, IBM, and Citrix, one should imagine the magnitude of the management's soul-searching exercise in the future. The officials' reticence to comment on any timelines of product integration and operations mergers, to our belief, stems from their genuine inability to foresee it at this stage - it is extremely difficult to lay much out now. Still, although the indications that the business will continue to be as usual are strong, Microsoft may eventually decide to streamline its diverse, likely redundant, product mix, staff, and channel. Once Microsoft figures it out and gets a much clearer picture, it should emerge as a mid-market leader making its competitors scramble to better its value proposition.

User Recommendations

Although experience teaches us to be wary of the outcome of mergers' and acquisitions', current Great Plains' and Navision's customers can be assured of their software provider's viability, particularly if one is to judge by the outcome of Great Plains' acquisition so far. It may be somewhat different situation regarding product development and service & support strategy. While we believe that this merger will be successful in the long run, some growing pains, initial confusion and eventual discontinuation of redundant products are not that unlikely, although that will not happen in next two years. Consequently, until the merger is consummated, any organization evaluating Great Plains/Navision should keep itself informed, and consider existing functionality only.

Users, particularly Great Plains' prospects with strong manufacturing requirements are advised to follow the newly formed company's new product introductions and keep a close eye on its future strategy. Particularly vigorously question the management about the viability and future of the above-mentioned dozens of partnerships.

As the current market trend is towards vendors that can provide well-rounded but vertically focused solutions for medium-sized companies, Navision seems to have positioned itself well by garnering the above arsenal of products. Potential and existing Navision/Great Plains customers should evaluate the offered product lines, bearing in mind what the competitors have to offer too. As with all new releases, users should employ a critical approach in their evaluation of the products, and require the local reseller to demonstrate specific technological and functional capabilities.

As a general rule of thumb, consider Great Plains Dynamics/eEnterprise/Solomon and/or Navision Attain/ Navision Financials if you are rapidly changing small or medium enterprise with less than $100 million in revenues. On the other hand, Navision Axapta should be evaluated in less agile and changing medium and large enterprises (up to $250 million in revenues) where the traditional product feature-functions and scalability still play very important part of the selection. Although the MorphX Development Suite can be used to customize application components, such as tables, forms, reports, queries and menus, customers should ensure that the system modifications are preserved during the product upgrade. The product is best suitable for manufacturing companies with less than 250 concurrent users within less than 2,500 employees.

Navision customers with products based on Navision's proprietary technology, custom systems or products from other vendors should review the affiliate's development capabilities in order to gain data integration between their various systems. Existing Navision XAL and Navision C4/C5 customers should be asking Navision whether and when the above CRM and B2B capabilities will be added to their investment. They should also inquire about any possible impact (or benefits) of migrating towards more advanced offering.

More comprehensive recommendations for both current and potential Navision users can be found in Navision Enhances Its e-Vision And Looks To Expand Vertically. Also, very detailed information about flagship Navision and Great Plains products is contained in the ERP Evaluation Center.

This concludes Part 2 of a 2-part analysis of the acquisition of Navision by Microsoft.

Part 1 covered the announcement and the Market Impact.

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