Convergence=Integration

Microsoft acquired most of the products making up its Dynamics product line, and what a motley crew. New products and versions bring the Dynamics line more into the Microsoft family, in part by convergence—or increased integration with the company's other software.

Shortlist:

• New Dynamics versions—NAV 5, GP 10 and SL 5—incorporate user-interface elements and concepts from Office 2007 and Windows Vista. NAV 5 is available this month, and the other two products are expected to release in June.
• Microsoft released Dynamics Client for Microsoft Office and SharePoint Server, which provides 12 tools for making Office the front-end to back-end ERP applications and for better incorporating SharePoint capabilities with ERP software. Microsoft will offer the software in separate $195 per-user and $395 per-user versions.
• Microsoft unveiled an unnamed online finance community for finance professionals that uses Windows Live infrastructure.
• A new certified for Microsoft Dynamics logo program mimics similar programs for Office and Windows.

For today, the Dynamics Office and SharePoint client is the main focal point for integration, as it extends an important, longstanding and marginally successful Microsoft strategy: To position Office as the front-end to back-end systems, rather than businesses using clients from companies like SAP or Web browsers. If there is an anti-Web 2.0 strategy, Office smart client is it.

Assessing Integration's Value
Microsoft's approach to cross-product integration is mixed merits and shortcomings, which value businesses must carefully assess.

One major problem with cross-product integration is logistical—and has been since the 2003 release cycle. Integration creates dependencies to adjacent—or even distant—desktop or server applications. Development delays could ripple from one product through to delays of two or three other products. Microsoft touts legitimate benefits of integration, but not without penalties in other areas, such as on-time delivery of software.

The on-time delivery is particularly important for businesses purchasing software through volume licensing with Software Assurance. While volume-license subscribers have upgrade rights to newer versions during the two- or three-year Software Assurance contract, Microsoft makes no guarantee that a new version would be available. Windows XP is an example where, for some companies, Software Assurance proved to be wasted upgrade investment, because Windows Vista shipped more than five years after XP released.

The 2007 release cycle appears to be highly coordinated, considering the huge number of products Microsoft will release from November 2006 to November 2007. For businesses making volume-licensing decisions today, the challenge is the future. Will Microsoft release new versions of products in timely enough fashion to justify Software Assurance for upgrade protection?

The break-even point for cost, where full-cost product would be about the same as buying into Software Assurance, is about three and a half years, according to Microsoft.

Past Platform Predictions
Back in 2003, when I worked as an analyst, and Microsoft released a new slew of new products, I made some observations and predictions about Microsoft's cross-integration strategy:

• Microsoft was responding to slowing sales in its core market, North America, by extending the number of platforms. More than any other release, Microsoft pushed Office as a development platform.
• Microsoft would increase the amount of cross-product integration and use Office's dominance on the desktop to pull more sales on the server.
• Microsoft would later position products from its Business Solutions Group as another development platform. Today, Microsoft started seriously talking about Dynamics as a development platform.
• Microsoft would position Office and Dynamics (the brand didn't exist in 2003) as "horizontal" platforms on which smaller developers would build "vertical" solution. The concept: Rather than create independent software, developers would extend from Office and Dynamics for vertical markets. That clearly is Microsoft's focus today.
• .Net Framework and Visual Studio would be the glue for cross-product integration and foundation for the platform positioning. One enterprise benefit to the integration approach: Integration extends multiple platforms, from a development perspective.
• Microsoft's approach, which created need for businesses to buy multiple products, would increase upfront software acquisition costs, particularly for server software.

My past observations and predictions hold true for Microsoft's 2007 product release cycle. The point: Years ago, Microsoft set in motion the strategy supporting today's announcements, and the company has stayed the course. If anything, last year's combining of the Office and Business Solutions groups in the Business division is sign of increased emphasis on the cross-product integration and platform extension.

Today's announcements are "as much a platform play as a new product offering," said James Utzschneider, Microsoft's general manager of Dynamics marketing.

Middle-child Syndrome
Microsoft's cross-product integration and supporting volume-licensing programs probably offers most benefits to midsize businesses—or what Microsoft calls "the midmarket"—because they are more likely than larger or smaller operations to use mostly Microsoft software.

The cross-product integration would pay off most for businesses:

• Willing to take the short-term hit of increased software acquisition costs against the potential long-term TCO benefits.
• Ready to move large sections of their infrastructure to the newest Microsoft software.
• Prepared to mostly, or completely, standardize on Microsoft software.

Midsize businesses are probably best-suited for this approach, with one caveat: While Microsoft has made some product and licensing improvements for the market, midsize businesses also typically pay more for the company's software than do larger or small businesses. Microsoft licensing programs and product offerings favor small or very large businesses.

Example : A business with fewer than 75 seats can purchase Small Business Server for around $1,500 (there is a less-featured, lower-cost version for about $900). The software offers a tidy integration of Exchange Server, SharePoint Server and Windows Server products. Midsize businesses would have to purchase each product separately and the associated CALs (client-access licenses).

In a future post, I will specifically look at software acquisition costs for Microsoft software and how volume licensing favors smaller or larger shops. If there's a middle child syndrome, midsize businesses have got it.