When Microsoft acquired US business software supplier Great Plains for $1.1bn (£650m) in December 2001, many experts raised an eyebrow at Redmond's unexpected conversion to a sector it had avoided for years.
Five months later, another $1.3bn (£768m) was spent buying Danish vendor Navision, and analysts were taking seriously Microsoft’s plan to establish itself as a leading supplier of applications to small and medium-sized enterprises (SMEs).
Now the company is developing its own products, and is planning to launch a customer relationship management (CRM) offering in the UK later this year.
But this is a highly competitive market. Specialists such as Sage have a worldwide customer base, and major players – SAP, for example – are setting their sights on smaller companies.
Computing talked exclusively to Doug Burgum, formerly chief executive of Great Plains and now senior vice president of Microsoft Business Solutions, about the software giant’s plans for the SME applications sector.
Why did Microsoft decide to move into the small business software market?
It’s a very large opportunity, with emerging markets around the world in Asia and Eastern Europe. This is a big market that is still very fragmented and it is under-served.
Microsoft is already a big player in SMEs but its revenue is mainly from software such as Windows or Office.
Why did you buy two different companies?
When Great Plains was approached by Microsoft, there was already substantial consolidation going on in the industry.
I said to Microsoft: “There’s consolidation in this market which will continue, so if you buy us, you really should buy at least two players because Microsoft has a global strategy.”
To complete the strategy and give the foundation for growth it was necessary to make that second step, and that was Navision.
You inherited two products from Navision, one from Great Plains, and now there’s CRM. Isn’t it confusing to customers to have so many different offerings?
The situation in the UK is unique. When we acquired Navision, 80 per cent of its revenue was from Europe – Great Plains was 80 per cent North America.
Very few countries had substantial overlap, but the UK did. We have to work with our partners to make sure we correctly position those in the market to avoid any confusion. We have an embarrassment of riches – multiple product lines. That creates interesting choices.
Do you plan to move to a single product in the future?
We have committed to supporting the existing products until 2013. But we are working on a next-generation software, called Project Green.
Businesses vary in their needs according to both geography and industry. Most suppliers that are building vertical or local products for SMEs are replicating code that is being built in every country and market.
Green is the codename for a set of standardised components with basic functionality that we will ship as part of solutions.
But we will also make it available to vertical software suppliers, which maybe don’t want to build a new general ledger and can buy that from us.
We see ourselves as becoming a supplier of core technologies, not just tools but applications. Suppliers such as Scala are already licensing our CRM and building that into their own products.
Green will be new code, and the other products will continue. At some point down the road, post-2013, the option for a customer would be moving to the latest version of Green, instead of the next version of Great Plains, say.
If a customer maintains Software Assurance contracts, they will be able to do that at upgrade prices. There will be a path from their existing products.
We believe that, when Green comes out in about 2006, there will be some real competitive advantage for ourselves and our partners.
Won’t it be expensive maintaining so many different products and developments?
It is. That’s the advantage for Microsoft. It’s probably one of the only companies that can take on R&D of that scale.
Part of the value we bring to customers is that we make the big bets. Microsoft’s view is that most software systems today are too complex, too expensive and too difficult to use and integrate.
If we do a great job in R&D we can have a higher-volume, low-price model that lowers the costs for customers and increases their satisfaction.
That’s the long-term goal. We believe the industry is still in its infancy and we can do a much better job down the road than is done today.
Do you plan to compete with all the specialist SME software providers, many of which develop their products using Microsoft’s tools?
The strategy is to provide more value to developers and customers. There is a lot of misinterpretation; people felt that Microsoft was going to compete against its third-party partners. There isn’t anyone in Microsoft who thinks that.
There are more than 40 million SMEs in the world, and there’s no way we can add value to them without partners.
Microsoft is trying to enhance Windows as a platform for software companies. We have been working on the Microsoft Business Framework (MBF), which will ship as part of Microsoft’s platform tools. It will allow software vendors to build applications for small businesses quickly and easily.
These tools should be available ahead of Longhorn (the next version of Windows, due in 2005).
By the time Longhorn ships, developers could have new versions of their products out as well. MBF is also the toolset upon which Green will be built.
The MBF technology and the 300 developers working on it come from both companies, along with platform and tool architects from Microsoft. That’s a lot of technical talent.
Do you plan to target bigger companies too?
No. That’s an easy no. At the high end of the market it is saturated. There is lots of competition – all the big consulting organisations are involved, all trying to serve the large corporations.
SAP and PeopleSoft are partners of Microsoft and a lot of their business is on Microsoft platforms. As SAP comes downmarket we compete with it, but in its core business it is a partner of Microsoft.
That market is not fragmented, it is well served, and it has a high-cost, low-volume structure with a direct salesforce.
The core strengths of Microsoft are low prices, high volumes, through channels and partners. It is natural for Microsoft to focus on smaller customers.
