Thursday, November 11, 2010

Update on Microsoft Dynamics products and plans

I'm participating today and tomorrow at Microsoft's Dynamics Fall Analyst Event--a series of briefings at Microsoft's facilities here in greater Seattle area. I won't attempt to do a complete rehash of what was presented, but rather a few key impressions.
  • CRM is where the action is. Although Microsoft Dynamics ERP products (AX, NAV, GP, SL) were presented, the discussion always seemed to lead off with MS Dynamics CRM. I'm left with the impression that many of the new deals are for CRM, although ERP deals probably carry a higher average price.

    Why would this be? It is probably no coincidence that the CRM product is the most recently developed, with the most up-to-date architecture, and the most innovative features, such as new mobility options being introduced in the 2011 version. Such characteristics garner more mind-share from partners and prospects. Some good new features are being introduced in the ERP products as well (e.g. we saw some interesting new features in AX for retail) but one senses that these enhancements do not generate the sort of excitement as what Dynamics is doing with CRM.

    It also helps that Microsoft is aggressively discounting the CRM product on a promotional basis, as discussed in a moment.

  • Microsoft Dynamics serious about going "all in" on the cloud. Traditional on-premise license sales may still account for the bulk of Dynamics sales, but the most interesting developments are in its cloud offerings. These offerings are still in a state of flux--hosted deployments are currently provided by Microsoft partners. But uptake has been good, as evidenced by the four customers Microsoft put forward to tell their stories and take questions from the analysts gathered here. Microsoft's Azure services--primarily platform-as-a-service (PaaS) and software-as-a-service (SaaS) are still being built out. But we had a fairly deep dive into what Azure's data centers look like, and what the build-out of services will include. It's an impressive initiative and an enormous investment by Microsoft.

  • Microsoft not afraid to compete on price. As just mentioned, Microsoft is offering promotional pricing on its CRM product with online deployment, starting at $34 per user per month. This is well below the entry point for, generally perceived as the leader in SaaS CRM.

    I've often wondered why more vendors don't take this approach, to compete explicitly on price, especially under current economic conditions. As my late business partner, an expert on strategy, told me: there are only two basic business strategies--low-cost leader and differentiation (everything else). But most software providers choose to compete based on their claim to be able to offer something "unique"--something that demands a premium price. The reality, however, is that as the ERP and CRM markets mature, premium pricing for advanced functionality may not be the best path to success. Frankly, many prospects these days just want a good, basic product they can grow with, offered at a reasonable or low price. Never underestimate the power of lowest price.

    Now, Microsoft will never concede the uniqueness or superiority of their product offering. Nevertheless, its willingness to compete on price shows that they understand what is really driving deals these days. I've heard that Oracle is also aggressively competing on price for its Oracle CRM On-Demand offering, further confirming where the basis for competition is moving--at least for CRM.

    And, it's no coincidence that these two low-priced products are both on-demand offerings. To sustain a low-price strategy you have to have a low-cost delivery model, which only an on-demand offering can provide.

  • The partner channel continues to be a key to success. Microsoft Dynamics sells nearly all (if not all) of its deals through sales and implementation partners. For all the changes in the products, there is no change in this sales model. Nevertheless, I was interested to find that the Dynamics partner classifications of gold, silver, etc. has become muddled, with the majority of partners listed in the "gold" category. This is upside-down and absolutely of no use to prospects or customers. As in the mythical town of Lake Wobegon, all the children are above average. Or, more directly, if everyone is gold, then no one is gold.

    Microsoft realizes the problem with the classification of its partners and is taking steps to address it. However, I had one Twitter conversation with a Microsoft business partner who feels the certification exams are meaningless--a complaint we've heard concerning other vendors as well.

    To be fair, some impartial observers consider Microsoft's partner program to be better than most. Nevertheless, as critical as its partners are to Microsoft, it is essential that it put real teeth into its certification and classification processes.
Dynamics is in an interesting, and in some ways, difficult position. It is a business unit of one of the world's largest technology companies, with access to deep pockets and technology that for many organizations is "industry standard." At the same time, many of Dynamics' competitors, such as Epicor, Infor (Syteline), or Syspro, are building on the same technology--which means that the "big" Microsoft enjoys the same or similar pull-through of Microsoft technology, whether the deal is won by Dynamics or one of these competitors. So, in some ways, Dynamics is an independent software vendor (ISV) that happens to be located within Microsoft's four walls.

Current economic conditions are not easy times for Dynamics competitors, however. The new developments across all of Dynamics products show the benefits of being inside those four walls.

I'll update this post, as appropriate, based on additional insights gained tonite and tomorrow.

Related posts
Key success factor for SaaS suites: functional parity
Shifting strategy: Infor casts its lot with Microsoft
Enterprise software: who wants to be the low-cost leader?
Recession prompts great financing deals from IT vendors


Matthew King said...

Hi Frank,

As mature as it is, there is still a large gap between packaged enterprise functionality and business needs. The large amount of customisation by many enterprise customers is testament to this problem - and other problems. This has two implications.

1. By dominating infrastructure, platforms, and development tools, Microsoft can leverage a vast ocean of ISVs to collectively deliver what would otherwise be an insurmountable task – yet still keep a foot in the (most profitable) application areas with their Dynamics products etc.

2. The CRM price war might have as much to do with in-cloud market share as it does CRM market share and functionality de-contenting. But I agree that customers want something simple which they can grow with. Enterprise customers of all sizes need to be protected from complexity as much as possible. They need a lot of functionality - but not the functionality they don't need...

Robb Gilmore said...

Hi Frank,

I can tell you for sure that weakness of the Microsoft implementation partner here in Pittsburgh was one of the primary reasons why Dynamics was eliminated from our short list when we made our ERP decision. All the technology benefits were outweighed by that weakness. We found out during our time with Infor that a weak implementation or support partner can be crushing. I think Microsoft would be wise to follow your suggestion and use a process more like their developer certification program, coupled with some requirement to show a track record of satisfied customers. Just my 2 cents!

Frank Scavo said...

Robb, thanks. You are touching on a key point. In contrast to most other vendors, Microsoft sells and delivers services 100% through its partner channel. Yet the performance of that channel is uneven--outstanding in spots, unacceptable in others, and in-between with others. Nevertheless, the current certification scheme does not highlight those differences.

The good news, based on a direct interview with the head of the partner channel, is that Microsoft realizes the problem and is taking actions to remedy it. This includes "firing" some partners, though they would never characterize it as that. The question in my mind, however, is whether the way Microsoft is going about it will be enough.

As I mentioned, other vendors look to Microsoft as an example of how to manage a partner channel. On the one hand, that may be encouraging to Microsoft. On the other hand, if Microsoft is having to make improvements, it doesn't speak well for how software vendors in general manage their channels.