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Is Microsoft Dynamics ERP in it for the long haul?

Microsoft may be squandering a great enterprise product set with Dynamics ERP, says one analyst, but others believe that the platform is just undergoing a shift to cloud.

What's the deal with Microsoft Dynamics ERP? That's the question that analyst Joshua Greenbaum has been asking for a while.

The respected industry analyst who has followed the enterprise software market for many years as the founder of Enterprise Applications Consulting questioned Microsoft's commitment to the Dynamics ERP product suite in a blog post this past June. While acknowledging that Microsoft is making strides in the enterprise world with its Azure cloud platform and Office 365 productivity suite, Greenbaum said that Microsoft has been strangely quiet about its ERP and CRM suite. The odd thing, he noted, is that the products are market leaders, and are "right up there with the best of the best."

Not only that, Greenbaum said that Microsoft is also missing a huge opportunity as customers increasingly move ERP systems to the cloud. The notion that Microsoft is squandering this potential advantage "isn't just curious, it's also tragic," Greenbaum said.

Leadership lagging

So what is happening with Microsoft Dynamics ERP? Is Microsoft in it for the long haul? If not, why does it appear that it's wasting a solid set of cloud ERP products in a market that could use the competition?

One explanation is that there's a lack of leadership from Microsoft, leaving Microsoft Dynamics ERP to languish as other products get the lion's share of the attention.

In an interview, Greenbaum acknowledged that the recent Ignite 2017 conference improved the prospects for Dynamics somewhat, particularly for the CRM products, but the lack of a clear top-down strategy for Microsoft Dynamics ERP was still evident, even as Microsoft pushed the cloud-based Dynamics 365 (D365). In general, Microsoft vice president James Phillips, who is head of the business applications group, made a case for the synergies between D365 and other products, like LinkedIn, but leadership still appears to be lacking.

"Many of the senior people are gone, and there isn't a strategic head of Dynamics that I can tell who reports up to Phillips," Greenbaum said. "There seems to be a group of executives that report to him, but in terms of who clearly owns Dynamics or can promote Dynamics as a spokesperson, I'm still not sure that individual exists."

Dynamics may also be losing out because Microsoft is not focusing enough attention on its developer community, Greenbaum added, although this may be more a matter of poor communication than inactivity.

"Certainly, Dynamics was not front and center at Microsoft Build [a developers' conference held in May]," he said. "And I believe a lot of the opportunities they present to the developer community are much more focused on the traditional Microsoft applications."

Microsoft declined to address the Dynamics situation directly, instead forwarding marketing materials that touted Dynamics 365's "array of competitive solutions" and compatibility with the broader Microsoft ecosystem.

The push to the cloud ...

The problem may be one of perception rather than outright neglect, as Microsoft appears to be pushing D365 harder than the legacy on-premises Dynamics systems, according to Eric Kimberling, founder and managing partner of Panorama Consulting Solutions LLC, an independent research firm that focuses on ERP.

"It seems that Microsoft -- along with Oracle, Infor and SAP -- is promoting their cloud solutions at the expense of their legacy on-premises solutions," Kimberling said. "Sales reps and VARs [value-added resellers] are being comped much heavier for the cloud solutions, since that generates more profit for the vendors. So Microsoft and others are doubling down on their cloud investments."

Microsoft Dynamics ERP isn't losing market share, according to Panorama's research, but Kimberling believes that some customers are reluctant to migrate to D365.

"They appear to be making inroads with larger enterprises, although it seems they may be losing market share among small and midsize businesses as they move away from AX, NAV, and GP and push D365 instead," he said. "The former were, in some cases, better suited for smaller organizations. So while the D365 focus may be helping them with larger enterprises, it may be hurting them on the lower end of the market."

... But not everyone is on board

Microsoft has done a good job integrating Office, Skype, LinkedIn and other products into D365, but not all partners are on board with the cloud transition, said R "Ray" Wang, founder and principle analyst at Constellation Research.

"They are fully vested on the CRM angle and HR as they roll out new products, but they aren't as vested on ERP," he said. "They are trying to bring in new blood to the team, and the platform vision makes sense, but it will need another version for the partners to get on board."

Nevertheless, Wang believes the D365 product set is solid, even if the ERP side is somewhat neglected.

"On the ERP side, [Dynamics] AX has progressed the most and is the go-to for most midmarket to even large enterprises," he said. "On one hand, they were better off independent, but today, as part of a larger team, they are often the stepchild. But on the other hand, they now have good access to all the technology tools at Microsoft, which is a big plus."

Transitional period

Chris de Visser, general manager for North America at Sana Commerce, a certified Microsoft partner that makes e-commerce software for Dynamics and SAP ERP systems, agrees that Microsoft is in a transitional period with Microsoft Dynamics ERP moving to the D365 platform.

Microsoft is trying to clarify its strategy for the various ERPs that make up the Dynamics family and put development efforts into a few, but not all of them, de Visser said. But he added that Microsoft also recognizes that a huge legacy of customers came with the ERPs when they were acquired.

"I would see that as their biggest challenge, as they're in a bit of a transition, but they're definitely going to stay, as it's a huge driver for their cloud business," he said. "All their ERPs very quickly made a transition to [a] subscription cloud-based model, so it's kind of like Microsoft Office -- a tool that drives customers and money to the cloud, but they are unique in that they are one of the few that have the ERP and the CRM both in house."

The transition is causing some partners to grumble, Greenbaum said, and some believe that a lack of support may be costing them business.

"[A number of partners I heard from] definitely feel like they are not getting enough air cover and they're not getting the right support from Microsoft, and that's clearly one of the problems with this lack of strategy," he said. "I've certainly seen deals where I think Dynamics should be on the table and they're not, and this is reflective of what some of the partners have said, which is they think that Microsoft could be doing a better job of driving deals toward them, and the fact that they're not feels like they're operating in a vacuum.”

Ultimately, however, Microsoft appears to be forging a new path in the enterprise space by comingling Microsoft Dynamics ERP with the likes of LinkedIn and Office365, and the simple fact that they are Microsoft may be enough to be successful.

"The strategy is a particularly unique go to market, and no one else can do that or is doing that, but it means that they're not in the mix of what would be the traditional competitors in either CRM or ERP," Greenbaum said. "So they're trying to cut a new path through to the market, which they can do at Microsoft as opposed to someone else, but it's still a complicated story to tell in a market that still likes very nice, neat three-letter acronyms like ERP and CRM."

Next Steps

Read how Microsoft Dynamics tools drive the Lotus F1 team's data analytics

Find out more about Microsoft Dynamics AX

Listen to what Microsoft said about Dynamics at Ignite 2017

This was last published in October 2017

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What do you think the future holds for Microsoft Dynamics ERP?
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In my opinion (and not my employer's), I believe they'll position "Tenerife" (which appears to be the merged Dynamics 365 Business Edition and NAV available available in Spring 2018) as their primary SMB (emphasizing the S to lower-end M) solution as primarily a partner-driven, on premise (or partner hosted) solution. (GP will continue to receive minimal investment in an attempt protect the client base.) New AX sales will be predominantly Cloud (i.e. hosted in a MSFT data center), but they're many years away from delivering the majority of SaaS benefits to its customers (one line of code, en masse upgrades, community extensions over customization etc.) "Private cloud" Azure deployments offer the hope of a single code line for both SaaS and on prem, but it's largely theoretical at this point and with an installed based on 20,000 on prem sites, this "hybrid" deployment option almost guarantees the continuation of the permutation effect that created the market for SaaS in the first place.
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