Friday, March 14, 2008

Microsoft Dynamics revenue growth less than stellar

Josh Greenbaum has put together some revenue numbers for Microsoft Business Solutions, the group that develops Microsoft's enterprise applications, and finds that the group has been growing at a rate less than half of that shown by SAP and Oracle.

The numbers are not easy to get at, since Microsoft stopped reporting revenue for the group in 2006. But Josh made note of a mention by Kirill Tatarinov, head of Dynamics, that revenue was now at $1 billion. Comparing that number to the $919 million reported in 2006, it appears that Dynamics has only been growing at an annual rate of 8.8%.

Josh writes:
But instead of something to crow about, $1 billion – a growth rate of 8.8 percent – represents a pretty lousy number for a group that was growing in double digits only a year earlier. It’s even worse when you consider that during roughly the same period SAP grew 18 percent and Oracle grew 30 percent if you include its acquisitions, and an estimated 8.8 percent if you look at pure organic, non-acquisition-based growth. And don’t forget, that 8.8 percent growth includes what everyone at Dynamics calls the hockey puck growth curve for CRM, which, I was told, has been growing at 100 percent per year for the last two years. Which means if you want to understand how non-CRM growth is at Dynamics, it’s safe to either knock a few points off the overall number (7 percent? 6 percent?) or discount the heavy growth in CRM as a largely revenue neutral.
As Josh points out, this less-than-stellar revenue picture could explain the revolving door of top management personnel at Microsoft Dynamics.

So, what to make of the slow growth of Microsoft's enterprise system products? I don't think the blame can be placed on the products themselves, which comprise the Axapta (AX), Great Plains (GP), Navision (NAV), and Solomon (SL) ERP systems. Microsoft obtained these products in its acquisition of Great Plains and Navision in 2001 and 2002 respectively. These were good products prior to Microsoft's acquisition, and Microsoft has continued to develop them. Customers I speak to are generally happy with them. (Microsoft developed its CRM product from scratch, subsequent to those acquisitions.)

I think the problem is that Microsoft is just getting outsold, especially by Oracle and SAP. Microsoft's sales model is 100% through business partners, a model that is more difficult to manage than that of Oracle and SAP, which rely primarily on their direct sales force and supplement it with resellers. Resellers tend to get busy in implementation with a few good accounts and are apt to slack off new sales efforts. Microsoft can't lean on resellers at the end of the quarter in the same way that Oracle, for example, can lean on its own direct sales force.

Furthermore, few resellers have the scale to compete effectively in larger deals. With the rise of globalization, many small and mid-size companies today are truly international businesses, with production and distribution operations throughout the world. A small reseller in Chicago, for example, cannot deploy resources as easily as SAP or Oracle in supporting a customer with operations in Europe and the Far East. If they try to compete, they simply get outsold by the big guys.

Microsoft is apparently having some success in signing up larger organizations as resellers. Witness the announcement this week that Microsoft is expanding its relationship with EDS to sell Dynamics CRM. Such relationships certainly address the scale issue, but I still question how much EDS is going to jump when Microsoft starts pushing at the end of the quarter.

Now we have Steve Ballmer claiming that Microsoft is now the "leading provider of enterprise software" in terms of "total dollar volume" -- a claim that is ludicrous on its face. Apparently, Ballmer is lumping in Microsoft's database (SQL Server) and its collaboration system (Sharepoint) with Dynamics -- clearly apples and oranges.

Microsoft has ambitions to compete in business applications with Oracle and SAP, but it is trying to do so with a sales model inherited with their acquisitions. The revenue picture reflects the reality that in some fashion Microsoft needs to think about having some role in direct sales for larger deals.

Update, 5:00 p.m. A source at a Microsoft reseller points out that Microsoft's direct enterprise sales people do in fact get recognized when a Dynamics sale goes through for one of their customers. However, the sale must be done through a reseller, and the Dynamics products are not included in Microsoft's volume license agreements. But since Microsoft's direct sales people are measured on enterprise license sales revenue, Dynamics is not top of mind for these folks. In other words, I don't believe they have a quota for Dynamics.

Related posts
Microsoft Dynamics: management changes spell lack of direction

1 comment:

Anonymous said...

One comment added to this article hypothesized that Microsoft's direct sales force may not have a quota on Dynamics. In the same comment, a reference is made to the direct enterprise sales force within the Dynamics field organization.

Some added thoughts:
Microsoft actually fields several different selling organizations structured alond a matrix of target customer size, geographies, and other parameters. One of the parameters not heavily embedded in this matrix at present is vertical industry focus, and this (I believe anyway) is a key factor in analyzing the ability of Dynamics to compete in the ERP space at present. This scenario magnifies dramatically when you extend that same postulate to and thru the various reseller channels that Microsoft sits on top of.

Microsoft has been in catch up mode on developing, deploying, and perfecting a verticalization model that works in a partner-centric go-to-market model. It is making strides in this effort, but still has a ways to go to have resellers (who currently tend to be product generalists) in a position to effectively sell against competitors with strong vertical value propositions and the internal subject matter expertise to make those vertical value propositions relevant to their target buying audience.