Microsoft's ERP Wave Hits Shore

When Microsoft Corp. acquired Great Plains Software Inc. in 2001 and Navision in 2002, the force about to be unleashed in the ERP marketplace was not well understood. Many people wondered what Microsoft was up to. How could they expect to be successful in the ERP space, which is so different than all their other markets?

Companies implement ERP software to automate business processes across all departments. The challenge is that there are so many different types and sizes of businesses - each with their own requirements - how could Microsoft succeed in this fragmented marketplace with hundreds of products? The smaller ERP developers build their systems for a specific industry and specific does not mean just manufacturing. It means apparel manufacturing or lumber production. You will find many systems along with knowledgeable ERP consultants in each of these specific industries. Not only do they have the systems, but they also have the knowledge and experience of best practice for the industries they support.

Initially, Microsoft's strategy was to merge their ERP line of products under one code base. This initiative was called Project Green. Project Green morphed into an evolutionary process where wave one would bring a common user experience across all products and wave two would be the fulfillment of Project Green. Microsoft has delivered on wave one, but wave two is way out there and does not look like it will happen. Instead, what's more likely is that each of the existing ERP systems will become differentiated by target market, but will share the same platform. Although Microsoft was quiet about Project Green at their annual Convergence conference, wave one was celebrated.

On March 11-14, Microsoft Dynamics hosted its annual Convergence conference for technology partners and customers focused on the ERP and CRM spaces. There were about 8,500 attendees gathered in San Diego for four days of keynote speakers, product demonstrations, 190 sessions, hands-on labs and almost 200 exhibitors. The significant product announcements made and the number of Microsoft technology partners and customers attending the conference reflected the company's ERP momentum. Microsoft recognizes that employees everywhere struggle with their ERP systems and that only a small percentage of employees actually work with ERP. To improve the user experience and ensure ease of adoption, the company is making its ERP solutions look like familiar software they all already work with - Microsoft Office system. Microsoft is also tightly integrating its ERP lines with Microsoft Office system. The biggest announcement at Convergence was Microsoft Dynamics Client for Microsoft Office and SharePoint® Server.

As Microsoft likes to keep things simple, I suggest that they rename this product quickly. The product contains a collection of self-service applications that are built into the Microsoft Office release and SharePoint products, such as Time and Attendance for Microsoft Dynamics GP, Project Time and Expense for Microsoft Dynamics SL, and DrillDown Viewer™. Also included in this new offering are licensing rights for customers or industry partners to build their own Office Business Applications, a new category of programs where Microsoft Office becomes the front-end for accessing the back-end ERP functionality of Microsoft Dynamics. This last bit of news may really open up the flood gates as developers will be able to offer ERP functionality from Office at lower costs than ever before.

At Convergence, Microsoft also announced that the company will focus their efforts on five industries - namely manufacturing, distribution, retail, professional services and the public sector. Though they did not make it clear what this means in terms of functionality or specific industry. The other part of this announcement is that Microsoft is encouraging their technology partners to focus on an industry and develop niche functionality using Microsoft development tools. This strategy is one that already works for the company, as was evident in the exhibitor's hall. The technology partner and customer Expo was filled with a wide variety of solutions demonstrating extended functionality. Each booth was swamped with attendees asking for more information. According to Microsoft, there are 5,000 products built by their partner ecosystem.

One big problem with relying on technology partners to deepen functionality for a specific industry is the need for Microsoft customers to rely on the support of relatively small companies which have developed these add-on products. To counter this risk, Microsoft also announced at Convergence their new certification for products developed by their technology partners. The certification will reduce risk, but Microsoft is not going so far as to guarantee or support the certified products.

Microsoft targets small and mid-sized businesses, but is finding that their competition at the high-end of the market is Oracle and SAP. Oracle and SAP, on the other hand, have run out of Fortune 500 companies to sell their wares. They now aggressively target companies with revenues of $200 million and up and so does Microsoft. In the past, SAP and Oracle were considered the safe choice by the larger enterprise companies. Today, these companies are turning to Microsoft, which offers lower cost of ownership not just in license fees, but also in implementation services. Below the $200 million revenue threshold, there are a host of ERP developers. Many of these will be washed away as Microsoft's ERP wave hits shore.