The Dynamics product range

This post is a bit of a provocation and at the same time a reflection upon the current situation, the past and potentially the future.

How did the Dynamics product range as it stands today come about ?

Microsoft announced the purchase of Great Plains in December 2000, just one month after Damgaard and Navision merged in November 2000, Great plains had itself in it's efforts at seeking inorganic growth purchased Solomon previously. This was after a protracted period of not so stellar growth from all 4 companies, as the "year 2000 readiness" storm in a tea cup had swallowed a large part of the global IT budget for at least 3 years leading up to mid 99, which combined with the internet bonanza had driven everyone to overspend on IT and IT systems in almost all industries.

As a result 2000 was much calmer, the growth figures were good, still in the 10-20% range but one no longer talked of growing 50% per year, and also the challenges facing the companies became clearer.

SAP had just stated "We want to go for the SME market" and in the ERP market they are the big boys so they scared everyone. And of course where SAP goes Oracle, People soft, and others obviously intended to go as well, so all the mid tier players suddenly saw a monstruous challenge, how will we quickly become big enough to face this challenge. We need to be global players quickly in order to avoid being gobled up.

The same challenge faced all the players at the time, Scala, Exact, Navision, Damgaard, Addonix, Multi System, Jeeves, Baan, Intentia, Lawson, Great Plains, Solomon, etc etc the list is endless.

A large number of the then quite prominent players in their home markets no longer exist, some others have been bought once even several times. The reason behind this is quite clear and evident, it is a simple reflection of the general consolidation of information systems necessary even in smaller SME like organisation.

Today few ERP projects are carried out that do not include at least a passing reference to improved intercompany / multi site / multi warehouse stock flow. As we are generally getting better at using IT for what it is best used for we are obviously pushing the envelope to achieve ever higher returns, economies of scale, improved visibility and reduced costs across the board.

This means companies want and require intercommunicating systems at multiple levels, and as there are few if any standards that are well defined, as an IT purchase manager this tended to be expressed as "We need to ensure that we buy the same software in each of our companies through the region, that way we know we can get them to talk together".

Unfortunately the above is not necessarily the case, as those who have "heterogenous" deployment scenarios can testify.
The devil as always is in the detail, when you are deploying obviously you do not do it all at once as that would be too risky, as a consequence by the time you are ready for deployment 2 or 3 the vendor has brought a new "all singing all dancing" version and of course you wish to take advantage of this as there are a number of new features that are nice but as a consequence you no longer have one global software but several, to say nothing of the localization issue which even without the new version syndrome introduces differences within the same version.

What does all of the above have to do with my post title well, to me at least it seems important to reflect upon the background and context when analysing the past or the future.

So what was Microsoft doing before in this arena, well remember MS money and the battle against Intuit, Quicken and Peachtree. Basically they had decided to go for the lowest part of the ERP market, and of course the latest version of office includes Office Accounting http://blogs.msdn.com/satyanadella/archive/2006/10/29/microsoft-office-accounting-2007-new-wave-of-business-software-for-small-business.aspx that you can read about here in Satya's blog, which is a descendent of this strategy.

At the time Microsoft were looking a little further up-market at core SME and wanted to have a portion of this market as well and therefore acquired GP and Solomon in 2000. The problem with the SME/ERP market is that it was and still is heavily fragmented by country, each country typically had 2-3 or more products that were purely / mostly local to the country and that had acheived dominant positions in their marketplace. GP and Solomon were basically very hard to sell in Europe, through being designed for the north american market.

One of the exceptions to this rule was Navision, which as well as having almost 40% of it's own home market had through it's early decision (international expansion started in the early 90's) to expand taken a not invisible market share in almost all western european markets.

This decision to penetrate multi nationally taken by the Navision triumvirate was a key factor in convincing the Damgaard brothers to merge / join up with what at the time was their mortal enemy in their home market.
They had just started their own international market penetration efforts up quite recently after first relying on IBM (who had a 50% share of the company from 93 to 98) to sell internationally, and thereafter when this did not have the desired effect buying back the shares from IBM and doing an IPO to raise funds to do it on their own.
I believe, pending confirmation by the board members at the time ;-), that the cost figures / projections were not good, and that merging with Navision offered a means of quickly doubling channel access and ensuring that a viable business could be built in many countries at once.

The combined entity first called NavisionDamgaard and then finally less painfully, simply Navision now had 5 products in it's arsenal, of which two were internationally marketed through all of their markets. The company continued to have through the following 2 years good if not spectacular growth, which given the market context was quite good as it meant that globally the company was taking market share from the other players.

Microsoft of course cash rich as it is and was, was looking for investment opportunities, that enabled it to do what it does best ensure that Microsoft platforms are at the core of any system that is installed. This strategy also called "Sell the App secure the Stack" is at the center of many of Microsoft's actions, just as Google today are using their leverage in search engines to sell / push you many other services, and as Apple are using their IPod dominance to push other things. Basic economics 101 as they say in the US.

The great plains purchase provided revenue in the US but most other markets were not hospitable for the products from GP and Sol with some exceptions. Therefore a new acquisition in this domain seemed likely / possible. One strategy would be to buy SAP, the mastodont, however there were / are issues with this as the combined entity would be truely dominant and huge, and as there were already plenty of competitors crying wolf at Microsoft's every action, this would raise hell if it ever came about.

Instead they bought a small player with according to Gartner a 2+% market share in the global market place, which taken together with the 2+% GP and Sol had added up to a 5% global market share. The numbers off course mean little as a real measure of the number of clients served. SAP had in total some 12,000 companies as clients (2003). Damgaard alone had about 150,000 companies as clients at the time of the merger with Navision in 2000, through all their products, Navision had another 50,000+ so the combined entity had over 18 times the number of clients SAP had however the licence and maintenance spend of each SAP client dwarfs the licence and maintenance spend of each Navision client. So much so that SAP's turnover in 2003 was 7 Billion and Navision's in 2000 about 250 Million, a factor of 28 in the other direction.

And again if one steps further down to the smallest (by company and installation size) ERP markets one gets to Sage that have succesfully executed an acquistion strategy to create a global entity distributing a plethora of different accounting solutions throughout the world.

Enough rambling about the market ;-), so we have brought together GP, Solomon, Navision and Axapta (forgetting the others) under one roof. Now Microsoft has to decide how to create something uniform from these 4 competing product lines, and oh just to complicate matters we of course have the internal project Microsoft CRM on the go which also needs to be included in this mix.

An interesting challenge, which other players (Oracle / Lawson) are facing as we speak.

The solution was:

First reassure the market, this was done by declaring / giving a guarantee of support and evolution for all products through 2013, remember this was in 2002 ! Giving a 10+ year service guarantee was unheard of at the time. Funnily enough just after the acquisition of People soft and JD Edwards, Oracle issued what to me read as an exact verbatim copy of this except (same 2013 end date) theirs had a lot less years to run as it was not in 2002 ;-).

Second formulate a policy stating that customers would be able to migrate at no cost... the so called transformational guarantee. Of course given that IT projects generally have an implementation cost to licence cost ratio of between 2-5 to 1, whilst nice such a guarantee does not guarantee that a client is not out of pocket when the time comes to use the transformational guarantee ;-).

Third add new products that surround the existing ones and that are common and therefore push the whole. Examples of this are the demand planner, RCM (only us), MS CRM, and others.

And internally move in the quickest possible manner to a new .NET based product the fabled and much discussed "Green". As we speak (or you read) V2 of this product should have been on the shelves in your local software store, what happened ?

Well we will never really know I believe unless someone in the know has already or will someday tell us what happened.

Nevertheless the result is that we have, Navision and Axapta battling it out in all markets, and in the US them both playing back fiddle to GP and SOL who are the dominant players in that market. Basically an unchanged situation from 2002.

This post has become rather long so it is to be continued later.

/Sven