by Seth Fineberg

Fargo N.D — Not so long ago, hearing Microsoft and accounting software — or business applications, for that matter — in the same sentence was as uncommon as hearing McDonald’s and steak.

But the company has done much in a short time to establish itself as a contender in this competitive field and make its Microsoft Business Solutions division more of a household name — at least among small and midsized businesses.

MBS is only one of seven divisions at the Redmond, Wash.-based software giant, but the company’s unwavering — some say aggressive — commitment to this sector is well-documented. Many industry analysts agree that even though it is relatively new to the accounting and business application space, MBS’s position and future vision cannot be discounted.

Microsoft Business Solutions at a glanceMicrosoft Business Solutions
Fargo, N.D.
www.microsoft.com/businesssolutions
(800) 456-0025
Year founded: 2001
Employees: More than 3,000 team members.
Senior executives: Doug Burgum, senior vice president; Tami Reller, corporate vice president of marketing and strategy; Jodi Uecker-Rust, corporate vice president; Satya Nadella, corporate vice president; Dave O'Hara, vice president, business development; Jeff Young, general manager, emerging solutions.
Main products:
• Axapta. Original release - 1996. Product of former company Damgaard Software; merged with Navision Software in November 2000; purchased by Microsoft with Navision.
• bCentral. Original release - Fall 1999.
• Microsoft Business Network. Original release - October 2003.
• Microsoft CRM. Original release - January 2003.
• Great Plains. Original release - 1983. Purchased by Microsoft in April 2001.
• Navision. Original release - 1987 (as Navigator). Purchased by Microsoft in July 2002.
• Small Business Manager. Original release - November 2001.
• Solomon. Original release - 1980. Purchased by Great Plains in June 2000; purchased by Microsoft with Great Plains.

“Given their view of the future, I think they stand to turn the current accounting scene and small packaged solutions on its head,” said Katherine Jones, enterprise applications analyst at Boston-based researcher Aberdeen Group. “They have the potential and inclination to do it.”The division, and many of its products, has relied heavily on the support of its reseller channel — some of which dates back to the 1980s with technologies such as Great Plains and Solo­mon. Over time, the MBS channel has grown significantly and currently totals 36,500 worldwide.

Despite the growing size of the channel, and numerous changes in ownership and leadership, many of the core resellers remain committed to MBS and have become a part of what the division calls its Inner Circle, which Microsoft relies on not only for significant sales but overall direction of the channel as well.

It’s no surprise that this division’s growth and presence in the market was made possible through investments, something Microsoft has shown no fear of doing when necessary.

In April 2003, Microsoft announced plans to invest $10 billion over the next five years to develop its offerings for small and midsized businesses. At the same time, it agreed to invest $2 billion in research and development for SMB software over the next year.

MBS officially came into being in April 2001, just after Microsoft’s acquisition of accounting software maker Great Plains, which had owned the Solo­mon enterprise resource planning solution since June 2000.

Great Plains had its own accounting lines, such as Dynamics, RealWorld and an arsenal of specialty applications it had picked up since it went public in 1999. Great Plains had also bought the financial reporting and analytics product FRx Software before joining Microsoft.

The division quickly followed through with building its ERP arsenal, buying Denmark-based Navision Software, which also owned Axapta.

The most recent addition to the MBS family has garnered some of the most attention, from the press and MBS marketing — that being its branded customer relationship management product, Microsoft CRM. MBS also has its own, lower-end accounting solution, Small Business Manager, which is actually a reconfigured version of a former Great Plains product.

To round out MBS, it was only fitting that Great Plains’ chairman and chief executive Doug Burgum take the division’s helm. These days Burgum and his group do have some added sales and marketing help from another Microsoft division, the Small and Midmarket Solutions & Partner Group, which is headed up by worldwide Microsoft sales and marketing guru Orlando Ayala.

While there were some initial questions about Burgum remaining in any kind of leadership capacity, he attempted to quell those concerns at the company’s Worldwide Partner Conference in October 2003.

“There are days I feel I’m working on getting processes in place to be competitive versus just working on products, but now with all of the [internal] alignments made, I am more focused on building great solutions,” Burgum said. “There is a great sense that next year will be more about customers and partners for me. In some ways, my job is now more like being the CEO of a business again.”

Today, MBS considers its SMB business applications family complete, at least for the near term, yet its commitment to the sector dates back to the Great Plains acquisition, as Tami Reller, corporate vice president of marketing and strategy at MBS, explained.

“At the point we purchased Great Plains, Microsoft was very decisive in choosing to commit to driving very significant value to SMBs,” she said. “When the acquisition happened, some said it was very interesting but it was a niche-oriented move. Our vision is very strategic, in terms of how it can penetrate key customer segments, like SMBs, and overall growth for Microsoft.”

While MBS considers the small to midsized enterprise its core customer base, it still sees a broad range of businesses fitting that description. Essentially, their target market consists of larger small businesses (with more than five people) and larger mid-market businesses with up to several hundred million dollars in annual revenue.

The products themselves also fit into a hierarchy in the MBS scheme. For the U.S market, the clear flagship product is Great Plains, with Navision and Axapta gaining some ground. In Europe, however, Navision has a comparatively strong presence, though Great Plains is supposedly gaining awareness in “certain English-speaking countries” in Europe. Axapta’s multi-language capabilities have afforded it a more global presence.

As for the nascent CRM product, it is on the rise, garnering over 1,000 customers in its first year, but MBS executives admit that there is still much work to be done to garner broader adoption. One proposed method was announced in August 2003, when MBS said that it is broadening channel distribution of MS CRM and “aligning the product with Microsoft’s volume licensing program” — one that the company has had in place for other, non-MBS products.

The move was met with some consternation by MBS partners who were not as familiar with volume licensing, but MBS is standing by its decision.

And with 36,500 certified partners (29,000 Microsoft “classic” or non-MBS and 6,000 MBS partners, plus 1,500 Gold Certified) worldwide, MBS may well get the job done.

Terry Petrzelka, president of Tempe, Ariz., reseller and MBS Inner Circle member Tectura, agrees that there was some initial shock among the channel when MBS announced the volume licensing program. Even so, he sees it as a necessary step towards the growth of MBS products, as well as individual reseller businesses.

“You have to ask yourself, are you happy playing where you are? Partners of the past saw themselves maybe being a generalist and you are no longer able to do that if you can say I can go out and get big deals of any size I want to,” he said. “The goals [MBS has] to achieve are tremendously larger than ever, and in order to do that you have to change the game plan, but I don’t think their core values have ever changed.”

Microsoft’s competitive attitude has also been well documented over time. For MBS, exactly who that competition is remains a matter of opinion.

In Reller’s view, competition is highly fragmented depending on geography and the size of the customer. “I’d say that we run into SAP [particularly with its BusinessOne product] very much and in more geographies than others like Sage or Best,” she said. “We consistently run into Intuit in the U.S. as well.”

Reller also believes that MBS distinguishes itself from the competition in its devotion to research and development. “From the very start, our products are designed specifically for our target market,” she said. “Our investment in R&D is significant and we can put out substantial releases with new functionality on a regular basis.”

In 2003, MBS made some fundamental upgrades to most of its product line, releasing Great Plains 7.5, Solomon 5.5, Navision 3.7 and Microsoft CRM 1.2. But the real improvement to its product line is still some years away.

Some in the market are only just becoming aware of “Project Green,” which is essentially Microsoft’s plan for a branded project management and accounting product. Although its release is still nearly 10 years away, MBS is working to get the brand message out to the public. The product, in its current vision, will have all new code and “the best features of all our current accounting and project management products,” Jeff Young, general manager of emerging solutions, said during an interview at the Worldwide Partner Conference.

“We are ultimately choosing to make the MBS brand much stronger, and in the future you will know us not by Solomon, Great Plains or Navision, which, from a prospect perspective, do not have great brand recognition,” Young said. “In the future, I see accountants and project managers working together more and I plan to go to market with the project management and accounting message.”

MS CRM will also receive some future upgrades — version 2.0 is expected in the fourth quarter of 2004.

In addition, MBS is considering hosted and even vertical-specific versions of its accounting products, though Reller indicated MBS is looking to its channel for these kinds of products — particularly its independent software vendor partners.

“For ISVs that produce software for specific vertical industries, partnering with MBS provides the horizontal financials functionality that they can customize, verticalize and add on to operational software to provide customers the total solution,” she said.

MBS also has a hosted version of its CRM product, through Lexington, Mass.-based channel partner Surebridge Inc. Much as it did with its accounting and ERP lines, MBS is also looking to its channel partners for hosted or on-demand versions of its CRM product.

Another effort already in the works is the unification of classic resellers (those that sell Windows Server, et. al.) and the MBS channel, the idea behind which is to see how each can work together and offer customers a full suite of products and services.

The attempted unification began at the Worldwide Partner Conference, where thousands of classic partners and comparatively few MBS resellers converged at a New Orleans convention center. The result, for most MBS partners, was a bit overwhelming but a true learning experience for MBS partners and executives alike.

  “The level of activity in channel business model rethinking is at an all-time high,” Burgum said. “The beauty of having different business models is that they will figure out ways to do things that we haven’t thought of. We are agnostic about the form of collaboration and zealous about satisfaction.”

There are also plans for an overall shift in how MBS partners are ranked and rewarded, also announced at the conference.

Starting Jan. 1, 2004, partners will be evaluated on their value from customer feedback and business strategy, as well as sales volumes. These ratings will ultimately help a partner achieve Gold Partner status or better, affording them benefits such as additional training and marketing support.

Beginning next spring, partners will be able to track the progress of their status on a newly designed Web site.

Microsoft’s general manager of channel development, Don Nelson, realizes that many partners may not take to the new program so quickly, but has confidence in its design.

“We know that having a point system in place will be a challenge, so that is why we are giving it a year and allowing partners to check on their status throughout that time,” Nelson said. “Volume and size does matter in the end, but now even a boutique shop with a handful of consultants will have better opportunities. They will have to be really, really good in customer satisfaction and areas other than just volume business, and it will be challenging.”

Nelson is also taking notice of the feedback since the conference and plans to apply that. “The conference was a first step in the transition, and going forward we will be holding seminars to educate the MBS and classic channels and lots of formal education in the future,” he said.

Partners have had some time to absorb the affects of MBS’s future plans, but realize that the full scope of the division’s plans have yet to materialize.

Lisa Kianoff, president of Birmingham, Ala.-based L. Kianoff & Associates, is a Great Plains and Microsoft CRM partner, as well as a Best Software reseller. While she has had some challenges with MBS, she said that she is “encouraged by the fact they are doing more surveys with partners to get a sense of the real problem areas.”

Kianoff also said that, despite the lack of MBS-specific material at the last partner conference, she is going into the new year with positive thoughts about the future.

“We are looking at different ways our clients can be productive and we hadn’t even thought about Office before,” she said. “It’s a good start for clients to get ready for CRM. Nobody thinks twice about getting Office or SQL, but it takes more thought to get an accounting package, so it’s a good in.”

Money and aggressive plans aside, MBS realizes that its greatest challenge is awareness of the brand, the products and the division’s overall direction. Even so, Reller believes that MBS is ready to meet it.

“We are in the first step for people becoming aware that Microsoft is in business applications,” Reller said. “We know it’s an uphill battle to establish that we are serious about this.”

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