Microsoft Dynamics ERP on Azure: What Are the Benefits?

Last week I attended Microsoft’s annual Convergence conference, for users and partners of its Dynamics line of enterprise applications. The back-to-back briefings were a great opportunity to get an update on where Microsoft is going with enterprise applications.

But the big news from my perspective is that by the end of 2012, two of Microsoft's ERP products, GP and NAV, will be available on Microsoft's Azure cloud.

Click on the video interview at the right for my initial thoughts, which I am expanding upon in this post.

Azure Complements Existing Hosted Offerings

Microsoft customers have always been able to deploy NAV (formerly, Navision) and GP (formerly, Great Plains) on-premises. In addition, some customers have chosen in the past to have Microsoft partners host their systems in partner data centers. MyGPCloud is one of the largest such partners, hosting GP for thousands of small business customers. Likewise, Tribridge offers similar hosting services for all Dynamics ERP products.

Now, Microsoft is offering customers the option to deploy their GP or NAV systems on Microsoft's Azure cloud, which runs in Microsoft data centers. This offering will not replace partner hosting but simply will be another deployment option for customers.

Through back channels, I've heard some partners express uncertainty about this new development. Is Microsoft attempting to go direct with customers? How will the partners make money? During the session, Microsoft executives made clear that, under Azure deployment, partners will still maintain the customer relationship and deliver the services for implementation and ongoing support. The only difference is that with the Azure deployment option partners will be relieved from the need to maintain data center infrastructure.

What Are the Benefits?

Over the past two years, I've been one of those encouraging the Dynamics team to go faster in moving to Azure, as cloud ERP is already available from competitors. But now that Microsoft is on the verge of actually doing it, I wanted to know, what are the benefits? Specifically, if customers can already have these systems hosted by a Microsoft partner--and if Microsoft will still work through partners in selling and supporting systems deployed on Azure--what are the added benefits of Azure?

I asked this question a year ago at Convergence and, frankly, the answers were not that clear. After asking this same question in several briefings this year, and adding my own analysis, I think the benefits picture is now emerging.

• Azure deployment is cheaper than hosting. Azure is a true elastic cloud platform, with data center economies of scale that traditional hosting cannot come close to matching. This should allow Microsoft to price these services at a lower cost than what partners can offer.
• Azure deployment scales beyond partner hosting. As a true cloud platform, Azure deployments can scale instantly beyond what partner hosting can offer. Hosted ERP relies upon dedicated resources, which must be planned and expanded manually to meet changing customer requirements. With Azure, customers will never exhaust the resources available.
• Azure supports worldwide deployments better than partner hosting does. Microsoft runs Azure data centers worldwide and can move customer systems and data between them as needed. Hosting partners do not have this capability, unless they are utilizing a true cloud IaaS, such as Amazon's EC2. The move to Azure is therefore a better choice for organizations that are running separate instances in different parts of the world.
• Azure deployment provides easier version upgrades. With partner hosting, upgrades and maintenance are handled more or less as they are with on-premises software: each customer is treated separately (though I suspect some partners are more organized about this than others). With Azure deployment, Microsoft will have a more disciplined approach to application management: rolling out new versions, upgrades, and patches to its customers, similar to what it does today with Microsoft CRM (even though, as I point out in the interview, CRM is not yet an Azure service).
• Azure deployment is provided directly by Microsoft. Most new prospects will have a higher level of comfort with cloud services provided directly by Microsoft and backed by the Microsoft brand and service level guarantees. Hosting is often delivered by service providers who are relatively unknown. The direct Microsoft relationship is also simpler and easier to explain. The software comes from Microsoft and the cloud services are delivered directly by Microsoft.

It is also important to point out at least one advantage of Azure deployment over partner hosting that Microsoft is not claiming--that is, that Azure deployment provides the ability to inter-operate with other Azure services, such as Office 365 or other future Azure data services (some of which I was briefed on). Microsoft has made a big deal about its vision of the so-called "hybrid cloud," meaning that customers will be able to move selected "workloads" to Azure while keeping other workloads on-premises or in partner-hosted data centers. Therefore, if I want to inter-operate Microsoft's Office 365 with my NAV system, it should not make any difference if my NAV instance is on-premises, in a partner data center, or on the Azure cloud.

Optimizing Azure as a Cloud Platform

I am struck by the fact that I've had to piece together this value proposition for Azure ERP myself, lobbing softball questions to Microsoft executives, parsing their answers, and adding my own analysis. If Microsoft itself is not prepared to articulate the value proposition of Azure ERP, how can it expect that its customers or its partners will perceive it?

Therefore, I do not envision customers and prospects staging a mad rush to Azure. As I said in the interview linked above, what if Dynamics throws an party and no one shows up?

Nevertheless, from a strategic perspective, I do believe that moving to Azure is the right thing for Dynamics. Mike Ehrenberg, one of only a handful of Microsoft Technical Fellows, told us an interesting story. He said that when they first spoke with CEO Steve Ballmer about moving Dynamics ERP to the cloud they told him that they could do it in one of two ways:

1. The quick way: hosting it in Microsoft data centers in a highly virtualized environment, as they had done with Microsoft CRM, or
2. The strategic way: working with the Azure team to optimize the Azure capabilities needed to support true scalable enterprise business applications, such as SQL Azure, until it could support Dynamics ERP.

Mike reported that Ballmer thought for about two seconds before choosing the second option. He likened it to Microsoft Windows and Microsoft Office, years ago. It took the requirements of Office as a set of user applications to make Windows "become better" as a PC platform. Likewise, it would take Dynamics as a set of enterprise applications to make Azure become better as a cloud platform.

The problem, of course, is that it's taking much longer to develop Azure as a enterprise-class platform. In the meantime, competitors such as NetSuite, Workday, SAP, Plex, and others have already become established as cloud ERP providers and have gained market share in this emerging market. Nevertheless, Microsoft entering this market later this year is a welcome development that will mean an increasing number of choices for buyers.

Postscript: watch for Part 1 of my market overview of cloud ERP over the next few weeks.

Tech Vendors: Not All Bad, Not All Good

There’s something I’ve noticed over the years that bothers me. That is, the tendency for industry observers to take unqualified positions for or against certain technology vendors. My feeling about this runs deep, so, hopefully, this post will help others understand why I sometimes react the way I do in my comments on public forums such as Twitter and blog comments.

No technology vendor is 100% “good”—there is always at least something that is not so good. Likewise, no vendor is 100% “bad”—there are always positive attributes. But with some commentators, certain vendors can do no wrong and other vendors can’t do anything right.

If you are someone who always rises up to defend certain vendors, it makes me question your objectivity. This is especially true if you have some sort of commercial relationship with that vendor, whether it is advisory work you have done for them in the past, former employment, or some other connection. But in other cases, even without any commercial relationship, it appears some simply have favorites.

Likewise, if when you hear a positive report about a vendor, you cannot help but criticize, I also question your objectivity. I’ve said in the past, if you can’t say something bad about a vendor, don’t say anything at all.

Now let’s get specific and look at some examples of what I mean.

Apple

Apple is at the top of its game these days, and nowhere is there more unabashed enthusiasm. By market capitalization, Apple is now not only the largest technology vendor: it is now the largest company in the world. Over the past several years, Apple has disrupted entire markets (e.g. music and smartphones) and it has created entirely new ones (e.g. tablet computers). It popularized the concept of an “App Store,” which now everyone is imitating.

It wasn’t always like this. Many of Apple’s most devoted fans are too young to remember a time when Apple nearly failed. It fired Steve Jobs and many were calling for Apple to license its Macintosh operating system to other computer makers—in other words, to imitate Microsoft. Thankfully, Jobs came back, and Jobs had his own ideas. Today, 16 years later, Apple is going from strength to strength. I admire Apple.

So, can Apple do no wrong? Just consider Apple’s business practices that at least border on, if not cross over into, unfair competition. For example:

• Apple’s iBooks Author EULA, which appears to restrict paid distribution of "works" created with the software to Apple’s iBookstore only
  
• Apple’s proclivity to block apps that compete with Apple’s own products or services
  
• Apple’s refusal to approve an e-book for sale in its iBookstore because it had “too many links” to Amazon, a competitor
  
• The US Department of Justice’s plan to sue Apple (and others) for price-fixing on e-books
  

Just substitute the name Microsoft for Apple in the above bullets and imagine the media reaction. But because Apple is “cool,” Apple gets a pass.

Microsoft

Microsoft is the technology firm that many observers still love to hate. Years ago, with a near-monopoly in desktop operating systems, Microsoft faced relentless attacks from media, governments, and competitors. Apple’s desktop market share remained tiny, except in a few markets, such as education and graphic arts. Linux showed promise, but never gained traction as a desktop OS.

Microsoft still has a dominant (though less so) position in desktop PCs. Its developer tools are widely adopted, and its position in the data center continues to grow. It’s also had success with its game platform. But in the biggest growth markets—mobile and cloud applications—Microsoft lags industry leaders, such as Apple and Google. In other words, Microsoft continues to hold a dominant position in slow growth markets. The Microsoft haters see it as justice served.

I am neither a Microsoft lover nor a Microsoft hater. In my view, Microsoft Windows and Office are bloated and difficult to use (one close family member still doesn’t understand the right mouse button). Windows 8 doesn’t look to be an improvement either.

On the other hand, I feel some of the criticism that Microsoft receives today is undeserved. Merely mentioning Microsoft to some analysts provokes a visceral response, almost revulsion. Yet, in some respects, Microsoft is starting to become the “good guy.” In terms of privacy, I am much more comfortable using Microsoft’s Bing search engine than I am in using Google, who I fear is building a personal dossier on me. Microsoft’s Dynamics line of enterprise systems have good functionality and user adoption.

So, with Microsoft, I see some “bad,” but I also see some “good.”

SAP

SAP is a vendor that many in the enterprise software market love to hate, and I stand as second-to-none in terms of my criticism of SAP. Go to my blog, The Enterprise System Spectator, and do a search in the right hand column on SAP. To save you some time, here are some examples: my mocking of SAP for whining about price cuts; my post after post after post criticizing SAP's maintenance fees; and my hammering of SAP for fighting third-party maintenance at the same time it was offering 3PM to Oracle customers.

So, is SAP all “bad?” Certainly not. I have interviewed SAP top executives, its CEOs, and some of its board members. I can say, without a doubt, that SAP’s leaders care about its customers and that they struggle to find new and better ways to improve business value. They recognize that the TCO of their Business Suite is too high. They know that cloud providers such as Workday and Salesforce.com are eating their lunch. They also recognize that mobility apps are essential and are trying to turn the ship to provide better support for small developers. Finally, they used a skunk-works approach to develop an in-memory computing technology (HANA) that could potentially disrupt the relational database market and transform many business applications.

Will SAP be successful on any of these initiatives? Who knows? But with the largest installed base of any enterprise system provider, I hope for the best—not for the sake of SAP or its shareholders—but for the sake of SAP’s customers.

Oracle

Here’s a vendor that is hard to love but deserves respect. Once again, I stand second-to-none in my criticism of Oracle. Over the years, I’ve written about Oracle's excessive margins on software maintenance; the unhappiness of its installed base; its penchant for creating fear, uncertainty, and doubt; its mockery of its competitors; and its lack of openness.

On the other hand, Larry Ellison is a visionary. He had the foresight to be a large early investor in Salesforce.com and NetSuite long before cloud computing was fashionable. Apparently he knew he was better off making those investments in start-ups rather than trying to develop cloud applications within Oracle, where they would likely lack focus.

Furthermore, around the turn of the century Ellison saw that the enterprise software marketplace was fragmented and overdue for consolidation. Then, he acted on that insight and took advantage of it. I predicted that Oracle’s bid for PeopleSoft would fail, but I was wrong.

In terms of execution, Oracle is nearly flawless. I might mock co-CEO Safra Katz's comments on conference calls, but I have heard Oracle employees praise her ability to get things done.

Finally, on the technology front, I personally know individuals working in Oracle product management. They are some of the smartest people I know, and they are going deep into certain industry sectors. Oracle’s latest product, Fusion, might just be the last great new on-premise enterprise system ever to be developed. From the little bit I’ve seen of it, the user interface is outstanding and the embedded collaboration and business intelligence capabilities are noteworthy. I also like what I hear about Oracle’s public cloud initiative, although I’m waiting to see how it plays out in terms of pricing, terms, and conditions.

Cloud Vendors

Now we come, not to one vendor, but to a whole category: cloud providers. I am a huge proponent of cloud computing. In 2006, I wrote a report for Computer Economics on the business case for software as a service, and in 2009 I wrote of the inexorable dominance of cloud computing.

But as I’ve said in the past, “You don’t get a pass, just because you’re SaaS.” The technology is one thing, but the vendor’s behavior is another. Yet, some industry analysts cannot seem to bring themselves to criticize certain cloud vendors. Why not? When vendors misbehave, do they not deserve to be called out, or is cloud a get-out-of-jail-free card? Many of the executive leaders at NetSuite and Salesforce.com came out of Oracle. Do you think that background and experience have any influence on how they do business in their current positions? If you can criticize Larry Ellison for unfairly bashing the competition but you can’t criticize Marc Benioff for doing the same thing, then I have to question your objectivity.

This is by no means a complete list. I could go on with IBM, HP, Amazon, Infor, and many others. None are all good, and none are all bad.

Let's Be Fair

In some ways, the situation is like our political scene. Over the years, political discourse in the US and in other parts of the world has gotten more and more polarized. A political leader from “our side” must be defended from all attacks. Likewise, a public official from the other side of the aisle can never do anything right. What matters is not what is said, but who said it. This is wrong. It shouldn’t be this way in political discourse, and it shouldn’t be this way among industry observers.

Now, I accept that a vendor’s own employees and business partners may take strong unqualified positions, especially those in a sales, marketing, or top management role. But I don’t think it’s appropriate for those of us that advise technology buyers to be uncritical fans or relentless critics.

This doesn’t mean that when it comes to specific situations we shouldn’t take a position. Buyers do need us to say, “For this particular need, this vendor is good and that vendor is not good.” We have to make the tough calls. There have even been times where, because of problems with certain vendors, that I have refused to consider them in any new deals. But I try not to become hardened in my viewpoint. I try to always hope for improvement.

We all have our biases, including me. But can we all make an effort to recognize them and try to be fair?

Infor and Salesforce.com: More Than a Barney Relationship

Last year, Infor's CEO Charles Phillips took the stage with Salesforce.com's Marc Benioff to announce a partnership between their two companies. Coming in the midst of all the other announcements during Dreamforce, it would be easy to miss the significance of this one.

Now, with another announcement today, there is another step forward, which should be seen in light of the mutual commitments that Infor and Salesforce are making to each other:

• Out-of-the-box integration. Today's announcement is for a new software product, Inforce Everywhere. This is a native Force.com application that will make back office data from Infor's various ERP systems available to users within Salesforce.com's CRM applications. It also makes key Salesforce.com entities available within Infor ERP, as shown in the graphic nearby. See today's press release for more details. Additional products in the Inforce series are due out over the next 18 months.
  
• Reseller relationship. As announced at Dreamforce, Infor is now a reseller of Salesforce.com's Sales Cloud and Service Cloud, one of only three third-parties to attain this status. (The other two are Intuit and Dell.) This means that Infor can now sell SFDC and deliver first-level support to Infor's own customers.
  
• Financial commitment. Also, as announced at Dreamforce, Salesforce.com has become a financial investor in Infor. Salesforce has skin in the game.

Taken together, these three commitments mean that the partnership between Infor and Salesforce.com is much more than the typical tech industry "Barney Partnerships" (I love you, you love me) that never go much beyond the press release and perhaps a few joint deals.

On the surface, the two may appear to be strange bedfellows: Infor, commonly seen as a roll-up older enterprise software companies, and Salesforce--the hot young leader of a new breed of cloud apps providers. But dig a little deeper and you can see how this relationship--which has real and substantial commitments--makes a lot of sense for both parties and for their joint customers.

What's in It for Infor?

By teaming with Salesforce, Infor gets immediate credibility in cloud computing. Rather than build its own true cloud-based sales or customer service functionality, Infor joins forces with the leader in this market space.

There's not much product overlap. Interestingly, although Infor has dozens of products in its portfolio, it does not have a best-of-breed CRM offering. Several of its ERP offerings, such as LN and Syteline, have their own SFA offerings, but those are limited to customers of those ERP systems. Its one standalone CRM product, Epiphany, is more of a marketing automation solution (and, in fact, will be the focus of a future product in the Inforce series).

Finally, Infor now becomes an option for Salesforce.com's many CRM customers who are looking for ERP solutions. Because Salesforce does not offer a complete business suite, cross-referrals from Salesforce can be an attractive sales channel.

What's in It for Salesforce?

Though not immediately apparent, the benefits to Salesforce.com may be even greater. For further growth, Salesforce needs new channels. Moreover, with over 70,000 customers, Infor's installed base is a large market. In terms of ERP revenue, the No. 1 player (SAP) and No. 2 (Oracle) are both fierce competitors to Salesforce, leaving Infor (No. 3) as the largest available option. (Microsoft, also with a large ERP installed base, is likewise a head-to-head competitor with Salesforce.com). The more I think about the larger market dynamics, the more Infor appears to be a great choice for Salesforce. The fact that Salesforce is putting its money where its mouth is (i.e. becoming an Infor investor) is further evidence that Marc Benioff views this relationship as strategic. On a side note, Benioff will be speaking at the Infor's annual user conference in Denver this year, in April.

What's in It for Infor Customers

Of course, Infor customers and prospects now will have an option to go with the market leading solution for cloud CRM. Furthermore, today's announcement of out-of-the-box integration will make the decision easier. Many ERP users choose Salesforce.com today, but I have seen first-hand that integration concerns do produce friction in the sales process. Salesforce and its implementation partners have some good answers for how they will handle integration, but generally each deal is a custom integration, raising uncertainty about the effort and cost.

What Inforce Everywhere does, in my mind, is to make ERP the system of record for Salesforce.com entities that should be managed in ERP: customers, contacts, quotes, orders, shipments, invoices, payments, and returns. Most problems with ERP/CRM integration involve duplicate and redundant data. If Inforce Everywhere works as advertised, it takes away buyer concern about integration and offers a 360 degree view of the customer to users of both CRM and ERP.

What Could Go Wrong?

Although overall I'm positive about the Infor-Salesforce partnership, it's important to take a balanced view. So what are the potential pitfalls? I can think of several.

• Will Infor's direct sales and partner channel be eager to resell Salesforce.com? Selling traditional software licenses carries large up-front commissions and recurring maintenance revenue. Other traditional vendors have had a hard time making the transition to selling subscriptions. It's easier if there is a completely separate sales channel for cloud, but I haven't heard that Infor is planning that. If so, how will Infor overcome the inherent disincentives to selling Salesforce?
  
• Will Infor's customers really be a large market for Salesforce? The 70,000 customer number may be a bit misleading, as a significant percentage of those customers are on older versions of Infor products that will not be able to take advantage of Inforce Everywhere (which uses Infor's new lightweight ION middleware for integration.) Furthermore, Inforce Everywhere today is only available for Infor's LN (formerly Baan) and its distribution systems (A+ and SX.e). Infor's XA (formerly MAPICS), Syteline, and Visual are scheduled for Q2 this year, followed by S21, Sun Systems, LX, M3 (formerly Intentia), and Adage integrations later this year and next year. (Interestingly, I do not see Lawson's S3 on the roadmap that Infor shared with me last week.) When taken together, this means that the addressable market for Inforce Everywhere is less than meets the eye, at least for today.
  
• Will Salesforce.com customers choose Infor over other options? Infor is not the only ERP choice for Salesforce customers, and Salesforce's relationship with Infor is not exclusive for ERP. In fact, there are other ERP providers--notably Rootstock and Kenandy--that are built purely on Force.com. If one counts more narrow providers, such as FinancialForce and Glovia, the options multiply. With the exception of Infor's Syteline as a cloud-based offering, all of Infor's ERP solutions are traditional on-premise or, at best, hosted offerings. How attractive will these be to Salesforce.com customers that have made a commitment to cloud computing?

Although there are several obstacles to success, I see great value in this partnership. Infor's customers now have an interesting and compelling way forward for CRM and for cloud computing generally, while Salesforce.com has a great opportunity to do an end-run around SAP and Oracle to gain mind-share with a large body of installed ERP customers.

I look forward to hearing the experience of some early adopters of Inforce Everywhere at the Inforum conference in April.

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