Enterprise Applications Battlefield Mid-Year Scoreboard Part 2: Microsoft

Enterprise Applications Battlefield Mid-Year Scoreboard

Part 2: Microsoft
P.J. Jakovljevic - August 27, 2002

Event Summary

The market has recently witnessed a number of high-profile announcements of stalwart vendors in the enterprise applications space. Given the contrasting nature of these announcements, from impressive to disappointing financial performances on one hand, and from new acquisitions and/or job openings to massive layoffs on the other hand, it becomes painfully obvious that the overall picture largely consists of many shades of grey.

This is a four-part note covering large and small ERP vendors, scoring their progress during these unsettled times.

Part One discussed recent financial results of:

• Microsoft Corporation
  
  
• IBM Corporation
  
  
• Siebel Systems
  
  
• i2 Technologies
  
  
• SAP AG
  
  
• PeopleSoft

This part discusses the Market Impact on Microsoft. Part Three will cover the Market Impact on IBM. Part Four will cover the other ERP vendors, CRM, SCP, and make User Recommendations.

Market Impact:

Oh boy, was that a quarter to report within! While size and diversity (i.e., the completeness of the offering) should help particularly throughout the slump period, the devil will inevitably be in sustaining the growth and in eventual lack of nimbleness for the likes of Microsoft and IBM gigantic sizes. Still, the results from providers of strategic infrastructure that have more technology irons in the fire have typically proven better lately, if not spectacular, with one hoping these would even spark new spending in the enterprise arena. Some indications indeed hint that a steady increase in investment in strategic infrastructure, across vertical industries and by companies of all sizes, will intensify going into 2003.

Microsoft Corporation

To that end, Microsoft reported solid results and gave a great deal of credit to its activity in the enterprise segment, especially server products, consisting of Windows NT/Windows 2000 server and .NET enterprise server products. While Microsoft dominates the markets for PC software, desktop operating systems & applications and Web browsers, and while this segment still accounts for the largest share of its revenue, it is the slowest growth area notwithstanding.

Microsoft is therefore becoming a huge force in other aspects of software and computing, such as consumer computing, consisting of MSN/Web properties, forays into interactive TV, mobile and gaming markets. This is the smallest segment, yet it is growing fast and holds the most potential, keeping Microsoft partly insulated from the business downturn because it makes consumer products such as the Xbox game platform. And, all its products are typically cheaper than the competitive counterparts, which particularly helps during the times of depressed budgets.

It is a no-brainer that Microsoft is getting quite serious about the enterprise applications market too, evidenced by its Microsoft Business Solutions (MBS) division (just by the sheer magnitude of the Great Plains and Navision acquisitions' costs, let alone by the ongoing biggest R&D investment within the applications market), and by its attempts to deliver its own CRM product and thereby cultivate the fertile small enterprises ground, where CRM penetration is far less than 10%. Also, since Microsoft has long earned strong brand equity and accompanying user loyalty within the small business market segment with its other desktop and office applications, one should expect firms with less than 100 users to readily adopt Microsoft's simple, Outlook-centric CRM and other business management software.

Furthermore, like it or not, Microsoft has even recently claimed the title of an industry visionary, the latest hiring initiative showing 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 hoopla surrounding Web services in its .NET strategy, Microsoft seems to have kept its Java archrivals on their toes

The .NET strategy is Microsoft's view of harnessing Internet based on eXtensible Markup Language (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 had to entice 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.

Recently released Visual Studio.NET (VS.NET) might be the technology trump that should help Microsoft in its above cause and to put it at least head-to-head with the opponent Java technology. VS.NET may finally provide Microsoft with a tool to compete on an equal footing with the formidable Java community. Therefore, look for Microsoft to become an up-and-coming powerhouse in the overall enterprise applications market.

Microsoft Challenges

True, to accomplish that feat, Microsoft has to concurrently garner sufficient experience in the enterprise level business application market, a vertical industry savoir-faire', and a notable system integration partnership (which might force the company to consider buying a high-profile consulting/system integration firm similar to IBM's acquisition of PwCC, rumors about Accenture being the target abounding lately). Consequently, it has not developed a strong mind-share among the C-level executives (decision makers) at the larger corporations.

Nevertheless, in addition to the always residual resentment in the market for alleged monopoly practices, and for often controversial licensing deals and software security issues, Microsoft's ambition will be its greatest challenge too, as it is concurrently experiencing another almost disruptive technology transition similar to the transition from character-based DOS to graphic-based Windows OS platform on the PC-based infrastructure of early 1990s. Nowadays, it is about the transition from Windows to .NET, using Internet rather than PCs.

While the company is engrossed in a gigantic task of transforming Internet from a presentation-only to a programming medium as well by promoting open standards based Web Services, its applications competitors/partners have solely been focused on their core competencies (i.e., product functional footprint). There has also been much confusion about .NET as a next generation of Windows, as well as about its progress so far.

The term ".NET application" also remains at least as vague as the term ".NET." First, it seems that .NET is a platform strategy although at a higher level than Windows OS, which is a platform itself. Second, the question whether ".NET applications" only leverage .NET Web services, or whether they are applications that provide .NET Web services, or both, cannot be answered that easily either. Confusion is further aggravated with the term ".NET" being associated with products like Enterprise Servers (e.g., SQL Server, Exchange Server, InterBiz Server, etc.). Consequently, .NET remains a humongous work in progress while the development tools and basic standards support have been mastered, the rest of the infrastructure needed to support Web services is still outstanding — such as real-time communications capabilities, secure authentication, reliable transactional messaging and a single data store technology.

The .NET infrastructure still today consists mainly of retrofitted products and XML add-ons, which have merely been renamed and not closely integrated. The last but not least challenge remains to keep its tools easy to use while concurrently enabling developers to perform more complex tasks in distributed computing environment.

This concludes Part Two of a four-part note scoring the major ERP vendors in these difficult times. Part One covered recent developments for these vendors. Part Three will discuss the Market Impact on IBM. Part Four will cover the other major ERP vendors, CRM, SCP, and make User Recommendations.