Microsoft Hones Its Enterprise Position

There’s always a lot to say about Microsoft, and, like any big company, it’s usually a mix of good or bad. Having spent two days last week at the Microsoft Dynamics analyst event, I think that when it comes to the enterprise, most of what there is to say about Microsoft isn’t just good: Microsoft’s enterprise story just gets better and better, and while there are holes and issues abounding, the old maxim that Microsoft eventually gets it right was very much in evidence last week (with one notable, and important exception).

Perhaps the best sign that Microsoft is focused on getting it right for the enterprise was the presence of CEO Satya Nadella on day two of the analyst event. Satya once ran Dynamics, but he wasn’t there for old time’s sake. Satya was there to clearly articulate the role of Dynamics as one of the three key pillars in Microsoft’s strategy: Azure provides the necessary cloud services and infrastructure, Office 365 provides the productivity apps, and Dynamics provides the business processes that light up the other two.

There are many many more parts of Microsoft than just those three – Windows 10 is coming, SQL Server and Power BI are taking their place in the world of big data and big analytics, Sharepoint is starting to recover from the file and sync crowd’s attempts at usurping it. (And then there’s Windows Phone, still screwing things up for Microsoft as a whole. I’ll save the details for a separate post.) But the fact that Satya did something his predecessor never did – take a seat at a Dynamics analyst event as CEO to talk about the enterprise – highlighted the commitment he has for the success of Dynamics and its role in the overall success of Microsoft.

And as anyone who has studied organizational dynamics in companies the size and scope of Microsoft will tell you, CEO-level commitment is what makes – or breaks – any individual business unit. With Satya’s support, Dynamics is positioned better than it ever has been inside Microsoft from both a political and technical sense.

It was that technical sense that was the other key theme from the analyst event. I’ll take my favorite among many important new offerings, Lifecycle Services. LCS, as Dynamics calls it, is a cloud-based set of tools and services that are designed to provide support for customers as they implement and run their cloud-based and on-premise apps.

LCS runs in Azure, of course, but just living in the cloud is only the beginning. Running Dynamics AX or CRM in Azure means being able to also run test and dev environments in the cloud – a huge advantage from a deployment standpoint – regardless of whether the customer is ultimately running on premise or in the cloud. (Are you listening SAP? Wouldn’t it be nice if Solution Manager could do this?)

LCS takes this functionality a step further by allowing a customer to stand up a test environment that can be used to debug a functional or technical problem, and then, once the fix has been found, to install that fix directly from the test environment into a cloud or on-premise system. This effectively creates a simulation environment that leverages Azure to do a whole lot more than just provide elastic cloud services á la Amazon’s AWS.

This capability is one of the reasons Satya called out the intersection of Dynamics and cloud services in his remarks to the analysts. Doing this kind of lifecycle support in someone else’s rented cloud – which is pretty much what SAP, Infor, and other competitors are doing – is hard and/or impossible, and making it possible would entail a closer embrace than these vendors might be willing to engage in.

Doing this with Azure is also hard, though definitely not impossible, and the expected results clearly give Dynamics a leg up in the crucial, though poorly appreciated, issue of managing the full lifecycle of an enterprise system. LCS has other advantages, including project management, business process modeling, customization and upgrade analysis, diagnostics, and other desirable features of a life-cycle management tool that are made all the more desirable because of Azure.

The Office 365 connection was also front and center at the analyst event. The use of O365 as the user experience for Dynamics CRM and AX is a key asset for Microsoft as its competitors – particularly SAP and Infor – scramble to provide new user experiences to run on top of tired, old legacy software. While all three companies have been part of a de rigeur revamping of the user experiences that they inherited from their respective on-premise systems, the ubiquity of Office 365 and Outlook gives Dynamics an instant advantage by virtue of the familiarity that O365 provides.

These advantages and successes don’t just look good in a roadmap slide. The contributions of Dynamics to Microsoft’s recent quarter, which generally exceeded financial analyst expectations, could be seen in the numbers Dynamics’ head Kirill Tatarinov shared with the analysts. Dynamics overall grew 13 percent in the last quarter, with AX growing 21 percent and CRM registering major growth and customer wins. Dynamics now counts 375,000 customers and 6 million users, not too shabby at all.

Also looming in the background of Dynamics and its role in the greater Microsoft – though it was hardly mentioned at the analyst event – is the pending availability of Windows 10. This is the cross-platform version of Windows that will, at least in theory, offer a single development environment for apps that can span the full range of devices Microsoft supports, from wearables to the cloud, with all points in between.

The promise is nothing less than stunning from the enterprise software developer’s standpoint: a single code base that can be used to build an app that not only spans all possible devices required to support a given business process, but also has device or platform-specific functionality built-in. This is Microsoft’s answer to the artificial distinction that Steve Jobs made between consumption (the iPad) and creation (Mac) – mostly as a way to justify selling more hardware – which has succeeded in making business process innovation a matter of living in two or more device worlds simultaneously.

In Windows 10 land, this distinction will be gone, which will go a long way towards shoring up Microsoft’s strategy of making the industry’s only multi-platform touch experience available to creators – and office workers – as well as casual content consumers. As a user of a Windows 8.1 touchscreen laptop, the superiority of touch in a traditional productivity environment is not to be denied.

There are, however, three problems with this strategy that Microsoft has to overcome. The first is a built-in bias on the part of the Windows team against the enterprise as personified by Dynamics. The Windows 10 announcement wasn’t billed or promoted as an enterprise apps event, and the people who were in the room listening to Satya talk about the role of Dynamics in Microsoft’s enterprise strategy last week weren’t invited to the Windows 10 launch party. Does Microsoft think the desktop crowd is going to be able to articulate the value of Windows 10 in the enterprise, and then go out and build those apps? Really?

This is all the more short-sighted because of the next problem, which is that, even among the Dynamics crowd, the definition of a killer Windows 10 enterprise app was AWOL at the analyst event. I have a few ideas about what that killer app could look like, but it’s clearly going to take a village: Leading the market, and Microsoft, with a clear vision of what Windows 10 will do for the enterprise – if for no other reason than to help justify the leapfrogging from Windows 7 to Windows 10 that Microsoft will be pushing its enterprise customers to do – is going to have to be up to Dynamics, its partners, and their developers (and we enterprise software analysts J). No other set of stakeholders in the Microsoft family will get that enterprise, cross platform vision right.

Certainly not the Windows Phone gang, who deserve being singled out as the spoilers in this grand scheme. I’ll go through all the gory details in my next post, but suffice to say that Windows Phone is so primed for failure that even a fan like myself – and I own one of these misbegotten phones – can’t see how Microsoft gets out of this one.

That pending failure of Windows Phone, at least in the U.S. market, puts the unified development platform strategy behind Windows 10 in question. There is no doubt that enterprise software development is in full mobile first mode across the entire industry. It’s a mantra you hear from every vendor, Microsoft included. But if the main mobile platform for Windows can’t be relied upon to have not just critical market share (which it clearly doesn’t have, having scraped up a little over 3 percent market share recently, putting it in a statistical dead heat with Blackberry, all puns intended) but also a critical mass of carriers (#1 U.S. carrier Verizon is clearly exiting the Windows Phone market, having removed several Windows phones from its online store and having decided not to offer Windows 8.1 upgrades to existing customers) who will actively support the operating system and its users, then I have to wonder what the fate of Windows 10 will actually be?

That collateral damage that Windows Phone will inflict on Windows 10 isn’t Dynamics’ responsibility, though in the spirit of the One Microsoft strategy that Satya inherited from Steve Ballmer and has willingly embraced, Dynamics will feel some of that collateral damage as well. This is far from a fatal error, though Microsoft will spend a lot of time scrapping the egg of its face if this proves to be true. It’s going to hard to push Microsoft as a devices and services company if one its main devices gets left behind.

From an enterprise standpoint, Windows Phone aside, there’s still enough strategic assets on the table to make the next few years important ones for Dynamics. As I wrote before, there’s a lot of opportunity in the market for what Dynamics has to offer. Grabbing a chunk of the 70,000 Infor laggards would be a nice prize, as would sopping up the Salesforce.com users who are tired of a tired old UX and a lot of hidden costs. SAP and Oracle are also vulnerable, particularly as Dynamics continues to court the global SIs who have helped over the last 20 years to create the market for the enterprise software product categories now being offered by Dynamics.

The bottom line is that Dynamics continues to grow, and in particular grow into the cloud, in a number of important ways that sets it apart from its competitors. Just having the same code base for both cloud and on-premise is pretty impressive. Doing so with a superior UX and a market-leading cloud platform is even more impressive. And being more and more focused on a solutions sales, like the newly announced Sales Productivity solution, which bundles Dynamics CRM, O365, and Power BI in a single product set for $65 per user per month – is all the more impressive.

And while there’s no shortage of obstacles for Dynamics, in the end the enterprise software market isn’t a zero sum game. While the large enterprise space is still more of an Oracle or SAP opportunity, at least today, the rest of the market is prime territory for Dynamics. If you’re a vendor and Dynamics isn’t on your radar, you’re making a mistake. And if you’re a prospective customer and Dynamics isn’t on your short list, you may also be making a mistake. Dynamics may not be for every enterprise software customer, but the exception list grows shorter every day.

 

 

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