Doug Burgum, head of Microsoft Business Solutions, has a changed role within Microsoft and some big challenges.
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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
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.
MBS Software Customers
Great Plains Accounting..........18,239
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.
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.
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?