"It's all about the platform" as two Microsoft units merge
By Staff -- Manufacturing Business Technology, 12/1/2005 7:00:00 AM
In late September, Microsoft announced a major reorganization that collapses its seven business units into three. For manufacturers, the eye-opening part was the integration of Microsoft Business Solutions (MBS)—now rebranded Microsoft Dynamics—with the Office group.
What exactly is behind the reshuffle in Redmond?
In an e-mail to Microsoft employees, CEO Steve Ballmer wrote, "With the new division, we have a unique opportunity to take Office to a new level by more deeply infusing it with the capabilities needed to address core business processes within organizations. And we will make it easier for Microsoft Dynamics to automate business processes with familiar and easy-to-use programs, and servers and services that already touch hundreds of millions of information workers around the world."
The merger of MBS with the Office group was, for the most part seen as a natural. "This was the culmination of Microsoft's cross-integration strategy for the 2006 release cycle," says Joe Wilcox, senior analyst, Jupiter Research. "If you're an all-Microsoft shop, there will be benefits—easier integration chief among them."
But Wilcox points out that MBS/Dynamics isn't strictly for small and medium-size organizations. "Microsoft recognizes that big businesses don't always operate as a single enterprise, and this will help them take advantage of heterogeneous IT environments in larger companies."
Jim Shepherd, a VP with Boston-based AMR Research, is bullish. "It makes perfect strategic sense to have Office and Dynamics under one leadership team," he says. "And by further integrating the Great Plains and Navision acquisitions, Microsoft can now focus on building next-generation products on one architecture, and with one look-and-feel. There is less risk of bureaucracy slowing development."
Shepherd also sees the latest move as a synchronization of Microsoft's heavy bets on business intelligence and CRM, both of which will leverage close integration with Office.
Nima Bakhtiary, practice director, Microsoft Business Solutions, with IT integration services provider Unisys, sees the merger in terms of the ongoing "platform war" involving SAP NetWeaver, Microsoft .NET, IBM WebSphere and DB2, and Oracle Fusion.
"It is all about the platform," says Bakhtiary. "Most CIOs don't decide on functionality anymore—they look at the total cost of ownership [TCO] and viability of vendors."
Claims Jupiter's Wilcox, "Microsoft will argue that it offers the lowest TCO," adding, "It depends. For any organization, there are both bundling and decoupling products."
While the applications may offer lower integration costs over the long term, Wilcox adds, to get optimal performance, companies also may have to purchase many client-access licenses, as well as Exchange, SharePoint, or BizTalk servers—all of which increase up-front costs.
Some analysts have speculated—and competitors whispered—that the red ink flowing from MBS in recent years was evidence of Redmond's less than full commitment to the market. Skeptics might even say Microsoft was trying to cover up the losses by merging MBS with the Office group, which remains responsible for the lion's share of Microsoft's revenue and profits.
"MBS wasn't losing much money by Microsoft standards," says Shepherd. "But that market perception is now gone." Shepherd also speculates that the different channels and sales resources for Office and Dynamics could be combined into one huge growth-driving mega-channel.
Microsoft's own projections have Dynamics generating $10 billion in revenue in just five years. In other words, Microsoft expects that by 2010, Dynamics will be the cash cow Office is today. But Wilcox recently wrote on the Microsoft Monitor blog, "I see no signs this division will achieve profitability in the near future."
Still, whether MBS/Dynamics is profitable or not, it's hard to picture Microsoft backing away from a market in which it has invested so heavily.
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01/01/2004
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