Microsoft reiterates commitment to ERP software

Microsoft last week laid out the road map for its business applications and the concepts that are driving product development as the company tries to find footing as an ERP vendor.

As part of its announcement, Microsoft sought to counter sluggish revenue performance, organizational changes and layoffs in its Business Solutions Group (BSG), reiterating its commitment to research and development investments in four ERP products: Great Plains, Navision, Solomon and Axapta.

Microsoft says there will be new versions of all the products within the next nine months, starting with Great Plains 8.0 later this month. That will be followed by Solomon 6.0 in July, Navision 4.0 later this year and Axapta 4.0 early next year. Microsoft also announced a nebulous set of design concepts, such as Best Total Cost of Ownership and Connected Business, which would be used across the four products. The company promised more details in the coming weeks.

Revenue growth for BSG has been hard to come by, hitting only 4 per cent in the company's third fiscal quarter.

"The fact that they didn't hit their numbers raised some real concerns about what is going on," says Chris Alliegro, an analyst for research firm Directions on Microsoft.

Just last year, CEO Steve Ballmer said he would grow BSG, which has yet to turn a profit, into a US$10 billion revenue producer by 2011. He predicted revenue growth between 24 per cent and 32 per cent for fiscal 2004, which ends June 30.

To hit the low end, Microsoft will need revenue of US$234 million in the fiscal 2004 fourth quarter, nearly US$44 million more than BSG has produced in a quarter.

"I don't think they have a chance to hit US$10 billion by 2011," Alliegro says.

Microsoft lately has been quiet about Project Green, a new ERP platform based on .Net that eventually will replace the current ERP products, which will be supported through 2012.

The company outsourced development of Solomon recently and laid off about 110 people. It also reorganized the structure of BSG with Senior Vice President Doug Burgum now reporting directly to Ballmer, and moved its Small and Midmarket Solutions and Partner Group from the Information Worker division to BSG to better align its applications and partner plans. Microsoft also announced that it had held merger talks with SAP late last year after steadfastly denying it had interest in the ERP market beyond small and midsize businesses (SMB).

Despite all the turmoil, Microsoft's partners say the real problem is that SMB customers are not buying new ERP systems.

"Microsoft has a good product if the market was there, but it's not there. People aren't buying," says Jeff Markle, president of Markle and Co., a Great Plains reseller.

Analysts say Microsoft is still a power player in the crowded SMB market, which now includes IBM, SAP and PeopleSoft.

"Microsoft still has great ambition," says Dwight Davis, an analyst with Summit Strategies. "The challenge internally is to integrate products and consolidate components. But I see similarities with their MSN efforts, which also had great expectations but didn't hit its target. Microsoft stuck with it and we're likely to see the same thing with the (BSG)."

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