Burgum's Big Challenge

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Doug Burgum, head of Microsoft Business Solutions, has a changed role within Microsoft and some big challenges.

Doug Burgum’s organization is the team to beat in the sale of accounting software. It was a leader when it was Great Plains Software, and became the odds-on favorite to dominate the market when Microsoft purchased the Fargo, N.D.-based company in 2001.

Now called Microsoft Business Solutions, the operation encompasses the former Navision, purchased last year, and bCentral, the online arm that Microsoft started before it bought Great Plains. The division employs about 3,800 and has annual revenue of around $600 million, with the completion of the Navision purchase. Revenue for the four quarters trailing March 31, which did not include a full year of Navision revenue, was $474 million.

RealWorld-The Problem with Installed Bases

Partner Insights

Early in 2000, Great Plains purchased the former RealWorld, a Manchester, N.H.-based accounting software company that made Cobol-based Classic and the Windows-based Expertise lines. The succeeding history gives one indication of why MBS still had about 42,000 DOS installations reported last fall.
As part of Microsoft Business Solutions, RealWorld products were officially supported until 2002. But according to figures supplied last fall by MBS, the company still had just over 17,000 users of the RealWorld products. Great Plains planned to convert many of these users to its Small Business Manager, but while the company is gone, RealWorld's software lives on with the support of users and resellers, as well as developers who continue to provide enhancements.
Mark Bennett, owner of Clarity Systems Software based in Springfield, Mo., explains how the RealWorld community continues. Bennett was a RealWorld reseller from 1991 "until Great Plains cut me off. I'm currently a dealer for Passport Software." Bennett is also president of the Business Reseller Software Alliance, a group formed to work with RealWorld Corp., and which still lists 37 organizations as members on the organization's Web site.
Because RealWorld dealers had poor relationships with both vendors, Bennett's comments cast doubt on the numbers of Classic and Expertise products provided by MBS.
"For years, RealWorld asked dealers to fill out registration forms that apparently went into a black hole," he says. RealWorld "only started seriously trying to collect user information in about 1998, but did it so awkwardly that they angered their dealers, many of whom actively tried to obstruct the process." After RealWorld was sold, dealers withheld accurate information from both Great Plains and then Microsoft, who, Bennett claims, "tried to market around the dealers direct to the customers, in many cases blatantly trying to coerce an upgrade to Dynamics." So Classic VARs and users continue to buy the Cobol product from Passport Software and Custom Software Experts, companies that Bennett says have licenses to sell the software and who pay Microsoft royalties on the sales.
Bennett notes, "From a dealer's standpoint, when Microsoft announced that Classic was a dead product and would no longer be supported, my reaction was 'So what?' They haven't really supported it since Great Plains bought the company, but I've supported it and still do, so I don't care what Microsoft announces.'"

MBS Software Customers

Great Plains Accounting..........18,239
Classic/Expertise....................17,012
(former RealWorld products)
Great Plains Select..................14,091
Great Plains Edition.................8,748
Solomon III..............................7,951
Solomon Select.......................7,554
Solomon Edition......................3,508
Source: MBS, September 2002

Because of the Microsoft ownership, Burgum, a Microsoft senior vice president, is in demand. Thirty-eight press and analysts in March attended Convergence, the Great Plains-originated customer conference that has continued under the Microsoft flag. Resellers and competitors want to know his views about the mid-market accounting software market and the direction that Microsoft is taking its foray into applications, after its years of success in operating software systems.

His overall view? Burgum predicted, “Microsoft Business Solutions will be a profitable business for Microsoft, and it should be in the sense that we have a very real, understandable business model, and as it is going to be a function of growing revenue faster than we grow costs.” He continued by describing Navision and Great Plains as two essentially profitable organizations, which were combined with the unprofitable, but smaller, bCentral.

“We’ve taken those three things and put them together, and we have dramatically stepped up R&D, which is also public knowledge from the previous financial statements. And we’re doing that because we’re investing across both current generation and next generation,” Burgum noted.

But MBS hasn’t been profitable and losses have accelerated over the last year, which became known as Microsoft began reporting operating results last fall. For the half ended Dec. 31, revenue was $246 million, while the operating loss was $161 million. Operating income (or loss) had not been reported for the third quarter ended March 31 when this story was written.

There have been major changes recently. Microsoft created a worldwide organization, headed by Orlando Ayala, group vice president of the Small and Mid-Market Solutions & Partner Group, an organization that will handle sales and marketing efforts for MBS. Don Nelson, a long-time vice president under Burgum, was pulled out of Fargo and placed in Ayala’s organization. Meanwhile, the company launched the long-awaited Microsoft CRM into a market in which back-office sales have been sluggish.

Next Generation

Ahead lies the next-generation product, a product designed to give the four accounting lines-Great Plains, Solomon, Navision, and Axapta-a common engine, while delivering different functionality. That product is expected to debut about 2005.

Burgum did not talk about next-gen at length, but the subject was addressed by Mitch Ruud, product planning manager, .Net Business Framework, at Convergence.

Asked what MBS tells customers who are uncomfortable about plans for a unified code base on a future product, Ruud replied, “Today we have a set of applications that may meet the needs of that customer very, very well. If they do, the customer should be encouraged to purchase those applications today.” Ruud indicated that customers who purchase today “can get value out of those applications for the next three to five years very, very efficiently.” He also promised that MBS customers who purchase the current line will be able to migrate to the new system.

The goal is not just a new system. Burgum has been charged with growing MBS to $10 billion over the next five years. It’s a goal he has said will be accomplished via sales of a mixture of front-office and back-office systems.

Having completed 20 years with the organization and 12 heading the group now called MBS, Burgum shares his thoughts on his company and its future.

About This Story

This story combines information given in a one-on-one interview with Doug Burgum at the Convergence user conference in March, and during a question-and-answer session with press and analysts that immediately followed. It also includes information from a separate one-on-one interview with Burgum by Accounting Technology in October. Answers have been arranged in order of topics discussed.

Accounting Technology: Is Microsoft serious about applications and is it committed to the channel?

Burgum: I think Microsoft has lived up to all the promises it made. We merged with Microsoft SM&B. We acquired Navision. Each of those moves has strengthened Microsoft’s commitment.

AT: Do you agree that one of the reasons for the slow sales of accounting software over the last two years is that the market is saturated?

Burgum: No. The global SME market is huge. It is underestimated, underpenetrated, and underserved.

AT: Do you foresee business improving significantly anytime soon?

Burgum: I feel more optimistic about 2004, 2005, 2006, and 2007. During the Y2K boom, businesses bought all these seats they thought they might use. So the market was probably never that big. The decline is also probably overstated. There is plenty more demand than it appears. I am probably more bullish on the market indicators today. The sweet spot of replacement is about seven years. The echo of Y2K will probably happen in 2005, 2006, and 2007. So I think that what you’ll see starting in FY ‘04, we’ll get more leverage out of the sales model because of the interaction with broader Microsoft, and then we’ll also start to see some of the fruits of the R&D effort. We’ve got a clear path, but it would be inappropriate for me to sort of suggest when that path would lead to specific dates or times or margins around profitability. But I want to be real clear that we’ve got a path there.

AT: How does the sales organization under Orlando Ayala operate in relationship to Microsoft Business Solutions, and how will it affect sales of MBS products?

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