Satya Nadella, CEO: Good News for Microsoft Dynamics, Bad News for the Competition

The ascendency of Satya Nadella to the top spot at Microsoft is welcome news to a wide range of internal and external stakeholders. He’s an insider who knows not just where the skeletons are buried, but, more importantly, where the gemstones are buried too.

One of those gemstones is Microsoft Dynamics, and as a result of the Nadella Era you can expect to see much more traction for Dynamics both inside and outside Microsoft. While I don’t expect that Dynamics will overtake Office or Windows any time soon in revenues or influence, with Nadella at the helm the value of Dynamics inside and outside Microsoft is destined to grow significantly.

This ascendency of Dynamics starts with the fact that Nadella used to run Dynamics, which is a pretty good start. In conversations last fall, as the board was avidly searching for Ballmer’s successor, Nadella made it clear that he gets why Dynamics has evolved to hold a strategic position inside Microsoft and the market at large. And that understanding bodes well for the future prospects of Dynamics, and perhaps less well for companies trying to compete with Microsoft.

Nadella’s comments addressed a number of key issues, but the most important was his reinforcement of the notion that Dynamics has a role in helping realize the value of new and emerging Microsoft infrastructure assets, particularly cloud assets like Office365 and Azure.  This is less mundane than it might seem at first blush: As social, mobile, and cloud converge – to use Nadella’s term, or commoditize to use mine  – business process, workflow, and supporting data models become increasingly strategic assets for any vendor.

In fact, this creeping commoditization of some of Microsoft’s – and the rest of the industry’s — core assets is what really should be front and center on Nadella’s to-do list for the next year or two or five or 20. It’s easy, if you take Microsoft apart piece by piece, to see that big parts of what constitutes its core products are individually under attack by some very worthy opponents. Google is pushing on Microsoft’s traditional hegemony on the desktop with Chrome, and it owns search (sorry, Bing), Android is #2 in phones and tablets (sorry, Nokia and Surface), and Google Docs is trying its hardest to usurp Office. Apple, of course, owns cell phones and tablets. SQL Server is under a total assault from multiple quarters: a growing invasion of NoSQL DBs and high-end in-memory DBS like SAP HANA are making SQL Server look a little old and tired.

The list goes on: Lync and Skype – well, actually they are their own worst enemies (note to Microsoft’s third party tech support partners, particularly InfoSys and Accenture: if you’re going to use Lync to debug customer problems,  teach your employees how to debug Lync too.) Xbox is sitting in the middle of a console gaming market that is being eaten alive by mobile gaming. SharePoint is under attack by upstarts like Box and oldstarts like Open Text. Azure is more or less just sitting there, letting everyone else’s cloud strategy grab all the glory. Dynamics is heading right into SAP territory, with Infor fast on its heels.  And on and on.

Looking at this as a list of individual parts, this multi-front assault can only be won by Microsoft by taking the commodity road and competing on the basis of volume and price. It’s a war of attrition that I wouldn’t want to be part of, but if that were the road Microsoft were to take, then the single piece of advice that I would give to a Microsoft competitor would be to divide and conquer.  One on one, in a standalone bake off,  most of the Microsoft products are beatable either on feature/functionality, price, or reputation.

But if Microsoft, and Nadella, can keep moving forward with Ballmer’s One Microsoft strategy, and try to rise above the commodity scrum and work on selling the strategic synergy between the myriad parts of the Microsoft product mix, then it’s a going to be a vastly different game. If well-executed, marketing and selling the sum of the parts would be more than enough to lift Microsoft’s core products out of this commoditizing tsunami and onto some high-value high ground.

The high ground is more than just a question of bundling, though under One Microsoft the company is finally able to actually bundle software, services, and hardware from its many divisions into a single, synergistic offer that can be sold, at the high end of the market, by a growing enterprise direct sales force and in the mid-market by a growing army of “sum of the parts” partners.

There’s an important asset, beyond bundling, that One Microsoft can bring to the table (cue Dynamics), and that’s the ability to enable customers and partners to define and implement strategic business processes that can run on top of this broad, and otherwise seemingly disparate, Microsoft product set. While there may be some good reasons not to have a single vendor too dominant in any particular enterprise domain, the ability of Microsoft and its partners to deliver solutions that innovate core business processes and are optimized across Microsoft’s own hardware, software, and services would be an extremely compelling opportunity for many customers. Not to mention ISVs looking to build end-to-end processes based on a single development environment and a unified hardware/software/services platform.

The fact that Microsoft is the only major vendor to effectively span both the consumer and business worlds means that it can provide a degree of seamlessness between these two worlds – bear in mind that at the end point of every business is a customer – that can make B2C processes more that much more efficient.  Those more efficient B2C processes in turn could drive greater levels of efficiency in the B2B processes that support them: if, for example,  a company has a better connection to its customers and a better sense of its demand (B2C) then it can use that efficiency to better manage its supply chain (B2B). This relatively straightforward example has analogs all over the enterprise.

This potential, as I have written before,  is best seen in the context of the high-level business processes that Dynamics can offer in the market.  Having a Dynamics business process at the apex of the Microsoft value proposition is the best way to showcase the value of the synergy between the disparate pieces of the Microsoft product story.

The good news for Microsoft is that Nadella has been part of the execution of this strategy already: Ballmer started pulling his direct reports together into weekly meetings last year in order to drive this synergy forward, and it’s clear that Nadella, as of late last year, was a believer. If he just stays the course, this strategy will make a huge impact on Microsoft’s market position. And if he refines some of the pieces of the strategy – giving Azure more focus, fixing Lync and Skype, converging Windows Phone and the rest of Windows, continuing to drive the message of desktop/tablet synergy, to name a few – and pushes the role of Dynamics as showcase and raison d’etre for One Microsoft, he’ll be well on his way to defining the Nadella Era as one of growth.

The bad news for Microsoft’s competitors is that if Nadella can pull this off it’s going to be increasingly hard to disparage Microsoft and its products as “late to the market”, “low-cost commodities”, or “not enterprise-class.”  What will matter more than anything is that innovative business processes are enabled in a cost-effective and seamless way, tying the enterprise together from the phone and desktop to the back office and cloud. It’s still a vision, not a reality, but it’s one that Nadella can readily set his sights on with a serious chance of success.

There’s no shortage of work to do, and it’s going to take time to see if this grand vision can be realized. But the nice thing about an insider like Satya is that he won’t spend the next six months trying to get his head around this behemoth of a company, having spent the last 22 years laboring towards that goal. Instead he gets to focus on the real task at hand: making sure those who thought this company is “too big to succeed” are wrong. That, at a minimum, will make this an amazing turnaround to watch unfold.

 

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