Microsoft's Cloud ERP Plans Present Opportunities, Challenges For Partners


Microsoft's recently unveiled plans to develop cloud versions of its four ERP application suites promises new opportunities for partners, but resellers will have to give up their reliance on software license sales and evolve into ISVs and service providers with vertical industry expertise.

And if Microsoft's experience with the channel and its CRM Online on-demand application is any indication, not all solution providers are going to successfully make the transition.

Interviews with Microsoft executives and channel partners during and after the company's recent Convergence conference paint a picture of a changing landscape for solution providers who work with the Microsoft Dynamics AX, GP, NAV and SL application suites.

"The ones we're most worried about are the ones that live off the big-bang license fees," said Doug Kennedy, vice president of Microsoft Dynamics partners, in an interview, referring to partners who depend on margins from reselling applications with little in the way of added intellectual property or services. "They're going to lose that up-front, big-bang license with the cloud."

Under Microsoft's cloud computing plans the next major releases of each of the four ERP application suites will be developed to run on the Microsoft Azure cloud platform, beginning with Dynamics NAV in 2012. Given that Microsoft releases a major update of each suite every 24 to 36 months, the cloud version of Dynamics GP would be ready in late 2012 or early 2013, while cloud editions of Dynamics SL and AX would debut in 2013 or 2014.

Microsoft anticipates that customers will adopt cloud-based ERP applications, which manage a business' core financial processes, at a slower rate than they have other on-demand applications such as CRM. "For now we thought that it was appropriate for use to articulate the vision and the roadmap, the directional statement," said Kirill Tatarinov, corporate vice president for Microsoft Business Solutions, in a press conference at the Convergence conference.

That means solution providers will have time to develop new business models as they contemplate adding on-demand Dynamics ERP software to their product offerings.

NEXT: Adding Intellectual Property, Services To Partner Offerings

But the transition won't be easy. After Microsoft debuted Dynamics CRM Online three years ago a number of Microsoft VARs tried to carry the new cloud service. But, according to Kennedy, most of those failed because they couldn't make the transition to the new way of doing business.

"They really need to be providing intellectual property on top of [the cloud Dynamics ERP applications] and be able to service them as well," Kennedy said. "They should be looking at Dynamics as a platform on which to develop and not just as something to sell." Channel partners, in fact, will essentially evolve into ISVs who build add-on vertical industry or line-of-business applications (case management for the legal market, for example) that extend the cloud Dynamics ERP software.

That's the approach Irving, Tex.-based NextCorp is taking with its SMB Suite, a collection of integrated accounting, productivity, collaboration and e-commerce applications built on top of Dynamics GP and provided to customers as a subscription-based service. "It's very, very unique and quite a market differentiator," said Matt Woodward, SMB Suite president who previously worked at Microsoft as director of the Dynamics channel partner organization before joining NextCorp.

NextCorp, a Microsoft Dynamics gold certified partner, is currently working with the on-premise version of Dynamics GP. But Woodward said moving the SMB Suite to the cloud version of GP when it's ready will be relatively easy, as will be developing versions of SMB Suite for the cloud versions of Dynamics AX and NAV.

Woodward applauded Microsoft's cloud ERP plans saying they validate NextCorp's approach and will help drive down costs for partners by letting them focus on developing value-added applications for cloud platforms. "It allows us to be more creative in our go-to-market strategy," he said.

Partners also have to develop more services around cloud ERP applications, everything from integrating on-premise and on-demand applications to helping customers boost IT production efficiency.

"Ultimately, I think this is where [the market] is heading," said Robert Cini, business technology director at CBIZ Connexia Consulting, a Microsoft Dynamics gold certified partner in Boca Raton, Fla. But he said the challenge facing Microsoft is developing the infrastructure needed to handle the integration complexities cloud computing creates. "A lot of stuff will need to be re-written by the third-party ISVs and that's going to take some time," he said.

NEXT: The New Business Model

But the transition won't be easy. After Microsoft debuted Dynamics CRM Online three years ago a number of Microsoft VARs tried to carry the new cloud service. But, according to Kennedy, most of those failed because they couldn't make the transition to the new way of doing business.

"They really need to be providing intellectual property on top of [the cloud Dynamics ERP applications] and be able to service them as well," Kennedy said. "They should be looking at Dynamics as a platform on which to develop and not just as something to sell." Channel partners, in fact, will essentially evolve into ISVs who build add-on vertical industry or line-of-business applications [case management for the legal market, for example] that extend the cloud Dynamics ERP software.

That's the approach Irving, Tex.-based NextCorp is taking with its SMB Suite, a collection of integrated accounting, productivity, collaboration and e-commerce applications built on top of Dynamics GP and provided to customers as a subscription-based service. "It's very, very unique and quite a market differentiator," said Matt Woodward, SMB Suite president who previously worked at Microsoft as director of the Dynamics channel partner organization before joining NextCorp.

NextCorp, a Microsoft Dynamics gold certified partner, is currently working with the on-premise version of Dynamics GP. But Woodward said moving the SMB Suite to the cloud version of GP when it's ready will be relatively easy, as will be developing versions of SMB Suite for the cloud versions of Dynamics AX and NAV.

Woodward applauded Microsoft's cloud ERP plans saying they validate NextCorp's approach and will help drive down costs for partners by letting them focus on developing value-added applications for cloud platforms. "It allows us to be more creative in our go-to-market strategy," he said.

Partners also have to develop more services around cloud ERP applications, everything from integrating on-premise and on-demand applications to helping customers boost IT production efficiency.

"Ultimately, I think this is where [the market] is heading," said Robert Cini, business technology director at CBIZ Connexia Consulting, a Microsoft Dynamics gold certified partner in Boca Raton, Fla. But he said the challenge facing Microsoft is developing the infrastructure needed to handle the integration complexities cloud computing creates. "A lot of stuff will need to be re-written by the third-party ISVs and that's going to take some time," he said.