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Microsoft's hefty legal expenses aren't its only financial challenge. If you peek behind the Redmond earnings curtain, it quickly becomes apparent that all is not rosy in Microsoft Business Solutions land.
Microsoft Business Solutions (MBS) — the Microsoft division comprised of the Great Plains, Navision, bCentral and Microsoft CRM teams — is Microsoft's small/mid-size business (SMB) unit.
For Microsoft's FY 2004 Q3, MBS had $153 million in revenues, down from $190 million in Q2. MBS is the second smallest (revenue-wise) of Microsoft's seven business units. (The only one that's smaller is mobile and embedded.)
Microsoft execs on the company's Q3 earnings call this week acknowledged that MBS' results are nothing to crow about. They attributed the weak showing to too many new district sales folk in the U.S., as well as a slow start for the company's merged MBS/corporate sales team. (Microsoft officially merged the teams as of July 1, 2003.)
In fact, the only real bright spot for MBS in the quarter were strong Navision and Axapta ERP sales outside the U.S.
MBS has other challenges on its plate, too, which it didn't detail during this week's analyst call:
Dampen the chilling effect of Green: After spending countless hours talking up its long-term ERP strategy (Project Green) a year ago, MBS officials are now doing their best to distance themselves from it. Instead, MBS execs this year made a point of emphasizing all the interim Great Plains, Solomon, Navision and Axapta releases the unit plans to roll out before Green comes to fruition. MBS needs to assure customers they won't have to wait three-plus years for Green in order to get new features/functionality.
Clarify which of its ERP products makes sense where. How is a customer supposed to choose from among MBS' four seemingly competing ERP products? MBS needs to do a better job explaining the distinctions between Axapta, Navision, Solomon and Great Plains (if there really are any, beyond the arbitrary).
Broaden the MS CRM customer base: MBS has 1,600 MS CRM customers, according to Microsoft. But the majority of these are in the "upper mid-market." Microsoft needs to find a way to make MS CRM more appealing and affordable to the much larger SMB customer base.
Get is licensing act together. MBS is very reliant on channel partners to resell its wares. Last year, it earned its partners' ire when it made MS CRM available directly to customers through Microsoft's own volume-licensing program. MBS officials insist that the company has no plans to put any of its other MBS wares into volume licensing, but can they convince partners that they will hold true to their word?
Win the hearts and minds of ISVs: Microsoft also needs independent-software-vendor partner allies if it is to succeed in its goal of establishing its "industry-enabling layer" (consisting of a growing family of MBS components) as a foundation platform upon which companies can build their applications. Microsoft has alienated some ISV partners with this strategy, with partners complaining that Microsoft has designs to compete head-to-head with them in vertical markets.
Microsoft MBS chieftain Doug Burgum told financial analysts in March that MBS will be in the black by the end of this calendar year. It seems like Burgum and his team have a long way to go to make good on this promise.
What's your take? Is MBS facing too many insurmountable obstacles to become a key revenue source for Microsoft going forward? What do you expect Microsoft to do next to kick-start its SMB division? (And do you hear what I hear: That Microsoft is looking to make an MBS-related acquisition some time soon?)
Write me at mswatch@ziffdavis.com and
let me know what you think.
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