Event Summary
At
the end of September, Microsoft Business Solutions (MBS), an enterprise
applications division of Microsoft Corporation (NASDAQ: MSFT), the largest
software company in the world, fleshed out the contents of its seemingly well
crafted and diligently thought-out product and services strategies aimed primarily
at the small-to-medium enterprises (SMEs) applications market, consisting of
many intriguing value propositions such as an indication of simplified no-frills
pricing and enticingly mitigated financing. A central component of Stampede
2002, MBS' annual event for global partners and value added resellers (VARs),
the two-hour session, showcased MBS' recent extensive development efforts across
its new and existing business applications.
This
is Part Two of a four-part note.
Part
One detailed the announcements concerning MBS.
Part
Three will discuss Challenges, and Part Four will make User Recommendations.
Market Impact
Much
sooner than many expected (while many competitors likely hoped otherwise --
that the Navision acquisition would take longer to filter through and
thereby give them more breathing space) Microsoft made some sense out of a seemingly
initially unwieldy jumble of inherited overlapping applications and proprietary
technologies. Frequent flier miles earned on flights between Redmond, WA, Fargo,
ND and Vedbaek, Denmark, as well as large phone bills during last several months
of intensive intercontinental collaboration, have been fruitful (in addition
to vicariously helping out embattled airlines and telecoms).
Even the biggest naysayer should finally realize that Microsoft means business in the enterprise applications market, evidenced not only by the sheer magnitude of its recent acquisitions' expenditures, but also by the ongoing biggest R&D investment within the applications market (when most of competitors' budgets will have shrunk lately), and by its attempts to cultivate the seemingly fertile small and mid-sized enterprises ground, where the company has long sowed its seeds. This market segment has standardized on its infrastructure, substantiated by over 90 million Outlook and over 250 million MS Office users.
Also, since Microsoft has long earned strong market and mind share (i.e., brand equity) and accompanying user loyalty within the small business market segment with its other desktop and office networking groupware applications, one should expect firms with less than few hundreds users to more readily adopt Microsoft's simple, MS Office ever resembling enterprise software. These customers have also been loath to deploy proverbially mutilated' large-enterprise vendors' solutions at discount prices or with no modifications' fine print clauses and/or with a plethora of disabled functional features.
Consequently, Stampede 2002 has prompted a few interesting observations. First and foremost, it has radiated moderate optimism within VARs and other attendees, which was in a sharp contrast with many other user or industry conferences we have attended lately and where we have felt a generally somber, anxious, or at least subdued mood. Small wonder for this isolated ebullience, given that, despite the current soft market, both MBS and most of its partners are still operating well, are discussing closing new accounts, and even expanding. The lingering initial concern about the ramifications of the Navision acquisition might have also been dispelled by the above-outlined sound and plausible MBS' strategic announcements, which included immediate and near-term product releases, some modest and justifiable products consolidation and renaming, and a foretaste of the next generation development plans.
.NET Is For Real
Almost no hyped talk at all about .NET platform would be another observation from Stampede, possibly due to the fact that soon to be available Microsoft CRM is the first .NET framework-based product proving that .NET is for real. The .NET strategy has been Microsoft's view of harnessing Internet based on XML, Simple Object Access Protocol (SOAP), and it is a view of the next-generation Internet computing environment as consisting of Web Services accessed by devices that interact with other services and content applications.
As
to achieve the proof of concept for its .NET and Web Services initiatives, Microsoft
has been enticing enterprises to adopt its vision, architecture, and essential
products and it has had to rally many other software vendors to build complementary
solutions and/or to make their existing products .NET-compliant. It has apparently
succeeded there, judging by a spate of recent announcements of the first .NET-based
products delivery by other ISVs such as Frontstep (see Frontstep
Ups The .NET Ante), Best Software (now SalesLogix' parent),
Pivotal, Made2Manage, Epicor Software (Epicor
Claims The Forefront Of CRM.NET-ification), and Scala being only
some.
In recognition of its ability to create market share and an army of followers, Microsoft has recently claimed the title of an industry visionary, as shown by the company's intent to rely increasingly on internal R&D and innovation. The company still remains aggressive, with growth in mind — which requires aggressive moves into new areas in order to grow over huge customer bases.
Therefore,
with the blitz of all the recent frenzy surrounding Web services in its .NET
strategy, Microsoft seems to have kept its Java archrivals on their toes. Recently
released Visual Studio.NET (VS.NET) has finally provided Microsoft
with a tool to compete on an equal footing with the formidable Java 2 Enterprise
Edition (J2EE) community. Therefore, having gained traction for .NET, MBS has
lately focused more on solving customers' business requirements, where the technological
foundation can do only so much and does not typically grant product differentiation
without a functionally strong application.
Product Introductions Upstaged Technology Talks
That
was why some notable new product introductions at the conference upstaged the
technology talk. The long-awaited and soon to be generally available Microsoft
CRM product, while possibly light on functionality is nonetheless very attractive,
nicely integrated into Outlook, and aggressively priced. The functionality includes
basic contact management (interaction and opportunity management) as part of
Sales Force Automation (SFA), simple e-mail based marketing campaign tools,
and call management (customer service ticket queues) with a basic customer service
knowledge base, and content authoring and approval workflow. These features
are what the targeted customers currently might only need — an affordable, no-frills
out-of-the-box application with minimal implementation risk and innate integration
to Outlook, web browsers, and MS Exchange server. These features will
likely strike a chord with this market segment, since most salespeople spend
numerous working hours exactly within Outlook to, e.g., create/retrieve contacts,
tasks, e-mail reminders, calendar updates, etc.
On
the back-office product strategy front, MBS will continue to sell and enhance
four major product lines under its overarching brand: Navision (formerly Navision
Attain), Solomon, Great Plains, and Axapta (formerly Damgaard
Axapta). Moreover, not only that former Solomon and/or Navision products
and their customer bases have not been stranded by products' discontinuation,
as some have speculated at the time of acquisitions, but also these teams will
have been kept almost intact while the products' traits have even been leveraged
in much needed upcoming vertical solutions. Good examples would be the upcoming
retail management and professional services automation (PSA) vertical solutions
to the SME market. Both solutions are targeted to relatively low-penetrated
sectors and are tightly integrated to the Office and, in the case of the PSA
offering, there is integration between highly popular and functionally strong
MBS Solomon Project Accounting and the MS Project applications. Very few if
any other vendors will be able to match the MBS' value proposition, i.e., the
combination of functionality and integration at a lower price point.
Another
notable upcoming feature across all the products with anticipated Office
11 release in 2003, currently available only for MBS Great Plains and Microsoft
CRM products, would be .NET SmartTag technology, that should allow users
to easily incorporate structured and unstructured information, or information
from multiple systems, into a single document (e.g., there will no more be a
need for duplicating customer activities both in Microsoft CRM and Outlook Calendar
or Tasks). The creation of, e.g., requests for quotes (RFQs), dunning letters,
purchase orders, and other common business documents appear simple this way,
making thereby obvious what a quick-fix contemporary methods of document and
information management have traditionally been.
Further, while MBS has announced baseline vertical solutions for retail, PSA, manufacturing, and distribution, it has also picked former Navision management's brains in enticing partners in a "laisse faire" manner to decide at their discretion which other industries or even their sub-segments they would like to target, develop solution extensions and own them. Partners must determine their expertise and target market and then choose which product base they will deliver to the market. Although the word synergy' has been worn out with its too liberal use everywhere, it should at least exist in this case of further industry specialization through partners.
MBS Marketing Initiatives
From another angle, MBS has also laid out a series of what it referred to as market-changing moves, although calling these market-abiding or market-influencing moves would have made more sense, as these will likely have an effect on buyers and other application vendors. The following five initiatives are:
- Scalability
- refers to the deployment of a set of products that addresses a gamut of
enterprise sizes, from those with less than dozen employees (served by MBS
SBM, Navision or Solomon) up to the lower-end of the large corporate market,
with even a thousand of employees (served by MBS Great Plains and Axapta).
- Branding
refers to the establishment of the overarching MBS master brand and the
four subordinate major product brands intended to eventually cover the entire
range of the SME target market by size and vertical requirements. Partners
will have to establish their expertise and target market and then choose which
brand(s) they will deliver to the market.
- Packaging
refers to an effort to simplify the product set while also giving customers
greater flexibility in incrementally selecting and combining only needed product
components.
- Pricing
refers to an initiative to create consistent and visible pricing/discounting,
with bundled pricing for servers, software and services, resulting with list
prices under $2,000 per user and $65 per casual users, which will certainly
further hard press the competition. There is now a great likelihood that Microsoft's
well-known low pricing will lead corporate CFOs to assume the costs of enterprise
applications will be dropping even lower, which will squeeze the market even
further.
- Total Solution
Financing refers to an initiative in which the partners will be able
to offer financing packages backed by the enormous cash resources of Microsoft
Capital, in the form of loans or leases to end-user customers for both MBS'
and partner ISVs' software licensing, hardware, and implementation costs.
Allowing small and mid-market companies, which do understand that technology
can help them transform their operations to gain greater efficiencies and
streamline processes, but that cannot afford not to approach their IT investments
in a frugal manner, to now buy new business systems with just a series of
more digestible monthly payments could make life very difficult for competitors,
as already witnessed in the recent car manufacturers' pricing creativity competition.
Although a need
for enterprise applications still exists, the poor state of the economy and
subsequent reduced buying power have made "indefinite decision postponement"
a major reason for crippling new license revenue in the entire enterprise
application market. To that end, Total Solution Financing could be a "silver
key that would open an iron lock". These new initiatives should also benefit
VARs, giving them an expanded range of options to use when working directly
with their end customers to offer maximum value, as they will be paid immediately
by MBS upon completing the delivery.
It
is also quite likely Microsoft will seek to re-entice corporate users to a subscription
model for its products, as it can afford to enter the market at a low price
with the objective of taking a huge portion of market share. Given its humongous
R & D budget is also spread across the more humongous customer base, few vendors,
if any, can afford to keep up in the price wars. On the other hand, the difficult
economy has created a situation where the customers too seem to prefer the subscription
model, as capital budgets have been slashed, and everyone would prefer to avoid
one up-front lump payment and stretch it over a prolonged period of time. Although
the move from software as a standalone, or pre-packaged, solution to software
as a service will not happen overnight, given unsustainable financial model
of many early applications service providers' (ASPs) and due to many hosting
snafus of the recent past (see Hosting
Horrors!), in a few year's time, gigantic IT providers such as IBM,
EDS, Oracle, Accenture and the likes will likely be competing
with Microsoft in the ASPs market, giving it thereby another fresh breath of
air.
Most importantly, all the pieces of the above-outlined strategy seem to also have been done with an evolutionary approach, which is intrinsically practical and achievable. Allowing customers and partners to migrate and learn new technologies at their comfortable pace is the name of the game. Although one would always prefer not to have to deal with a product portfolio this diverse, MBS might be one of rare vendors able to cope with it, since it has a development team large enough to enhance existing products and build new ones, while its VARs will likely only sell selected products and therefore reduce the learning curve steepness.
Although
large established Tier 1 vendors, such as PeopleSoft, Oracle, Siebel
and SAP, will not likely directly face off Microsoft in a serious competitive
situation any time soon, these major players in the market cannot rest completely
at ease, notwithstanding. The fact that after the initial announcement of Microsoft
CRM and its Navision purchase, many applications vendors defensively rushed
to shrug off any possible ramifications on their future business might indicate
that they are not that indifferent after all. And they should not be, especially
those with dwindling revenues and cash resources and without much differentiation
traits (e.g., established vertical industry expertise or local geographical
leadership). Microsoft's mere presence in a market should be enough to cause
shudders, as many smaller and financially wobbly vendors will be feeling increasing
pressure as they ever often encounter Microsoft on selection shortlists.
Already with over $500 million in revenues from over 260,000 customers worldwide, and with strong base product lines, strong development (over 1,600 developers) and marketing teams and an extensive sales channel in place (over 4,000 partners), MBS has established itself as an up-and-coming powerhouse in the overall enterprise applications market. True, to fully accomplish that feat, Microsoft has yet to concurrently garner sufficient experience in the enterprise level business application market, a vertical industry savoir-faire', and in notable system integration partnerships, and, consequently, it has not yet developed a strong mind-share among the C-level executives (decision makers) at the larger corporations. It has been proven many times in the past how hard it has been to implement any business application that is driven by underlying complex business processes in large corporations. To deploy it with any success, certainly requires significant systems integration and business analysis skills and savvy. MBS does not appear to yet have these in any ample measure, given Axapta's least developed customer base of all the product lines, and that would be the only product capable of competing in the upper-end of the market.
Still, it does not take a genius to speculate that over time and with the acquired features in place, the MBS product offering might appeal to the more sophisticated prospects as well, as it should offer better Total Cost of Ownership (TCO) due to the native integration to the Microsoft technology pile and the rest of the MBS product portfolio, all founded on the .NET framework. Ultimately, due to users familiarity with Microsoft's desktop applications look and feel, user companies might start doing away en masse with traditionally cumbersome user interfaces (UI's) of enterprise systems in favor of Outlook-like UI's or of Microsoft SharePoint portal, relegating enterprise systems to the less visible infrastructure level. MBS has a powerful brand, financial muscle, global coverage, broad products range, and a very effective channel, which is not just a very large and geographically diverse sales and support organization, but also most of the VARs are independently owned businesses that are aggressive, experienced, and seasoned in their niches. Enterprises of all size might, sooner rather than later, be attracted or at least intrigued by the touted ease of use, flexibility, pricing, financing, and underlying technology.
This
concludes Part Two of a four-part note on Microsoft's strategy for its MBS division.
Parts One covered recent announcements,
Part
Three will discuss Challenges, and
Part
Four will make User Recommendations.