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Stability Drives Sanity For Microsoft

BOSTON -- Microsoft Dynamics has turned the corner.

This brand, a group of enterprise research planning (ERP) solutions united under the Microsoft Business Solutions (MBS) umbrella, has been bleeding cash and struggling to gain acceptance in the market.

Created in 2001 with the acquisition of Great Plains, and further expanded by the 2002 acquisition of Navision, MBS has been plagued by poor definition and communication of its product strategy.

But according to James Utzschneider, general manager of Microsoft Dynamics marketing, MBS is now "on the cusp of profitability."

Utzschneider told internetnews.com that MBS finally achieved profitability in the company's second fiscal quarter of 2006 (ending December 31, 2005).

The division will have gone back in the red during Q3 because of additional marketing expenditures, he said, but the trend is unmistakable.

MBS has generated revenue growth of 19 percent, 17 percent and 21 percent over the last three quarters, and new license revenue grew by 28 percent during the most recent quarter as well.

That's more than twice the revenue growth for the ERP market overall, which analysts believe is in the high single digits.

"We've turned the corner this year. We're going to generate between $850 million and $1 billion in revenues, and we're going to be profitable," said Utzschneider.

Utzschneider admitted that MBS had struggled to integrate its new acquisitions, blaming "indecisive leadership" for its struggles.

It was also, he explained, the first time that Microsoft had tried to swallow such large pieces -- and non-Microsoft shops to boot.

"It was much more challenging than we anticipated," he said.

Utzschneider credited better overall leadership under chief operating officer Orlando Ayala for the division's turnaround, saying turnover at the executive level has been almost non-existent, allowing the company to focus on execution.

"Stability drives sanity," he said.

He also credited Ayala with unifying the various products under a single brand.

That move created strong positive sentiment among both customers and channel partners.

"The Dynamics brand is a proxy for a larger number of technologies that worked together," he said.

Laura DiDio, an analyst with the Yankee Group, also credited Microsoft   with incorporating the best aspects of the ERP companies they acquired.

"They kept the agility and the sales channels," she said.

Other analysts are less sanguine, pointing out that the company's joint launch with SAP   of Duet creates competition with Dynamics AX at the upper end of the ERP market.

But Utzschneider said that in most cases, SAP installations are much larger than those of AX.

Indeed, some of the larger SAP installations run to several hundred million dollars, while AX rarely if ever crosses the million dollar threshold.

And where they do compete, said Utzschneider, "we compete like gentlemen."

Joe Wilcox, who follows Microsoft for JupiterResearch, argued that MBS isn't a significant art of Microsoft's overall vision, but here Utzschneider strongly disagrees.

MBS is an important strategic piece for Microsoft, he said, because it allows the company to offer complete packages rather than just pieces.

"People don't buy middleware, they buy solutions," he said. "Being in the application space is extremely important for Microsoft."

And, he argued, MBS is not exactly small potatoes, even in the context of Redmond.

"We don't have that many billion-dollar companies growing at 20 percent in the company," he noted.