VideoFor an operation that has fallen short of expectations and been a consistent money-loser, Microsoft's business-applications unit certainly gets a lot of attention.
As part of its seemingly endless effort to acquire PeopleSoft Inc., Oracle Corp. responded to federal antitrust charges this summer by describing Microsoft Business Solutions (MBS) as a growing threat to its own enterprise-applications business. Oracle contends that Microsoft is intent on taking its relatively new unit, built largely through acquisitions, upmarket. While MBS ostensibly targets small and midsize businesses today, Oracle argues, Microsoft is working hard to position the unit as a viable option for large enterprise buyers of software that runs financial, manufacturing, human resources, and other key corporate processes. "There can be no reasonable doubt that Microsoft will increase its focus on larger enterprises over time," said Oracle in a filing in the San Francisco federal court where the antitrust case was awaiting a ruling at press time. While some analysts were ready to dismiss this as a transparent effort by Oracle to paint a more competitive picture than really exists for ERP and related software, Microsoft added fuel to the fire by acknowledging that it had discussed a possible acquisition of ERP giant SAP AG nearly a year ago but eventually dropped the idea.
These mixed signals have created confusion over Microsoft's intentions, but a closer look at MBS suggests that it lacks the necessary products, the near-term product development road map, and the distribution model to compete with Oracle, SAP, and PeopleSoft. True, Microsoft could buy its way into a market whose sales are already showing signs of peaking, but only at enormous cost, both in dollars and management attention, and probably in organizational cohesion. That's why few rivals, analysts, or customers think Microsoft is anywhere near mounting a challenge to Larry Ellison's Oracle.
"I've seen a lot of speculation about this, but I've not seen any evidence that Microsoft is addressing large enterprises," says Cory Eaves, corporate vice president, solutions management and research, at SSA Global, which competes with Microsoft for midsize business sales. Paul Hamerman, vice president, enterprise applications, at Forrester Research, agrees: "My take is, not now and at least not for a few years, if ever." And Jim Shepherd, vice president, research, at AMR Research, says, "I don't believe they are seriously interested in becoming a high-end ERP player."
Microsoft executives have also consistently disavowed designs on the large-enterprise-applications market. Tami Reller, corporate vice president at MBS and former CFO of Great Plains Software (which Microsoft acquired in April 2001, instantly becoming a major player in the midsize applications market), says her unit targets businesses with $1 million to $1 billion in sales. "We've been very consistent about that target market," she says.
In fact, given the company's continuing troubles with antitrust regulators in Europe and Asia, concerns over security vulnerabilities (see "Flagging on Security?" at the end of this article), the growing threat from open source software, the decision to delay a long-anticipated feature in the next major release of the Windows operating system, and recent disappointing sales in the small-to-midsize market it claims to be concentrating on, one could wonder how Oracle CEO Ellison could keep a straight face when billing Microsoft as a promising player in high-end ERP.
In the 12 months ending March 31, MBS did manage to grow revenues by 21 percent, but growth was a disappointing 4 percent in the March quarter. For the year ended in June, MBS achieved $804 million in revenue, but that is light years from the $10 billion business Microsoft managers predicted a couple of years ago. (Those were "aspirational" forecasts, says Reller.) Heavy ongoing investments in both research and development and expanding the reseller and independent software vendor partnerships that are usually key to serving midmarket customers have also contributed to continuing losses in the MBS unit.
In the hope of goosing that sluggish performance, Microsoft has shuffled the management at MBS in recent months. Senior vice president Doug Burgum now reports directly to corporate CEO Steve Ballmer, who has hosted several planning sessions with MBS executives. Ballmer's increased involvement is a sure sign that Microsoft is dissatisfied with the unit's results but considers the business important enough to soak up top management's attention. "Steve has a history of getting involved when a business struggles. If it's something that's critical to Microsoft business, he wants to get close to it," notes Chris Alliegro, lead analyst at Directions on Microsoft, an independent Kirkland, Washington, research firm that focuses on Microsoft.
As one possible sign of lowered expectations, Microsoft has cut back on the lone development program that offered hope of future sales to large enterprises. The company recently reassigned 130 engineers who had been working on Project Green, next-generation software built around Microsoft's .Net (pronounced "dot-net") Web services platform (for more on the implications of Web services, see "Coping with Complexity"). Some had cited Project Green as further evidence of Microsoft's upmarket ambitions, but analysts now say that due to cost concerns and delays in the related Longhorn project (the next generation of the Windows operating system), Project Green probably won't bear any fruit until 2007.
Reader Comments» Post a comment