CRN Interview: Doug Burgum, Microsoft Business Solutions

CRN: What's the story with the rebranding of bCentral, which now carries a Small Business Center moniker?

BURGUM: We want to simplify the approach for delivering online small-business services. We have a couple of Web assets, such as MSN and Microsoft.com. So this is simply driving the traffic. We have some profitable and successful services on bCentral, but combining that asset with MSN and Microsoft.com as a brand will [make it stronger]. We will maintain the [bCentral] address for a while but not advertise it. In terms of how we want to create a name for the public, the MSN and Microsoft.com/smallbusiness name will be it. We are still thinking of premium services for small businesses.

CRN: There was disruption in the Microsoft CRM channel starting in January, when the product entered broad distribution. Are there plans for Navision and Axapta products to follow suit?

BURGUM: No. Let me be very clear: With the midmarket ERP products--Solomon, Great Plains, Axapta--there are no plans whatsoever to put them into volume licensing.

CRN: Several Microsoft partners say that because margins are higher on Great Plains than Microsoft CRM, they've stopped selling the CRM product. That couldn't have been Microsoft's intent. Will you adjust their compensation?

BURGUM: It's so early into it. We want to make sure we've got enough of a run rate to understand what the actual margins are. The intent was to be margin-neutral. The points they receive are from the distributor, from the Certified Software Advisor fee [for business referrals] and additional points atop that based on volume. The goal was 30 points for lots of folks and 40 points for [those with] higher volumes. If it turns out that's not the case, we have the ability to go back and adjust the economics to make sure we're correctly compensating people. With the CSA fee, MBS is setting those margins by trying to utilize the infrastructure that exists in volume licensing. But we have the ability to change. The intent was never to alter that. We want to watch that very closely. Again, we want to support a profitable business opportunity to sell CRM. If we aren't there, we'll change.

CRN: What's the penetration rate of Microsoft CRM into existing Great Plains and Navision accounts? Many partners say they are selling it mostly into net new accounts.

BURGUM: There's a lot of that happening. There's a lot of opportunity. The installed bases of Great Plains, Navision and Solomon are very large. After 12 months, we've added about 1,400 [CRM] customers, not all of those in the installed base. There's huge upside in being able to deliver value to existing ERP customers with the delivery and integration of CRM. But it's not surprising some of those customers have come from outside. We thought we'd attract a new set of customers who were not thinking of switching their ERP. Lots of companies could benefit from CRM who don't have it. Also, in our channel, lots of people use Great Plains, Axapta and Navision-type products, and some of them sold the Great Plains-Siebel midmarket product and, so, had experience in CRM and Saleslogix. We also signed up a bunch of Microsoft infrastructure partners. If you're a partner with experience selling Exchange and implementing Active Directory, you should be selling CRM absolutely. Their learning curve is much shorter.

The business opportunity is huge. A great implementation of CRM takes advantage of the Microsoft infrastructure stack. There's a big opportunity for us to recruit Microsoft infrastructure partners and have them bridge into this business app space. Also, this release of CRM 1.2 is in nine languages and 40 countries. We're building out the channel globally. We've got a line showing that we're gaining a lot of momentum. I feel good about where we're at after year one and feel the market has expanded with 1.2.

CRN: Is your goal still to go downmarket against Saleslogix?

BURGUM: Yes.

CRN: Do you have a percentage of customers in departments at big enterprises?

BURGUM: I know we have that, but I don't know if we're releasing that [information].

CRN: People still think Microsoft is going to go upmarket and knock on Siebel's door.

BURGUM: No. That's not where we're headed. The center of gravity at Microsoft is high-volume, lower price point. That's where we want to drive.

CRN: Microsoft has four ERP products, one CRM product and a couple of portals within the ERP products. Will the convergence of portals be a Project Green thing, or will it come before that?

BURGUM: It will happen before that. The Microsoft Business Portal we have today, if you think of it as the next-gen capability, will be delivered as Great Plains/Solomon and move across Axapta and Navision. Same with CRM. If you're an existing customer staying on Great Plains, you'll find a whole lot that you can do with this portal and CRM and do new stuff without switching your ERP system.

CRN: So if I have Great Plains here and Navision running in Denmark, at some point before Project Green I will have one portal to tap into all of those data sources?

BURGUM: Yes. The way to conceptualize this is as "surround" applications. Microsoft Business Network, the portal and CRM are examples of ways we add value [to existing ERP products]. And throw FrX in there, too. It's another capability that stretches across them.

CRN: Is Saleslogix still Microsoft's most direct competitor in CRM?

BURGUM: Absolutely.

CRN: What about hosted CRM?

BURGUM: We have a strong partnership with Surebridge to deliver CRM online for midmarket customers interested in having an online experience vs. an on-premises experience.

CRN: Partners say Microsoft CRM isn't ready as a platform for hosted use. What needs to happen there?

BURGUM: From a technical standpoint, there's capability called multitenant hosting that lets you have multiple instances on a single server, which reduces costs in the data center. But data center availability is not the constraint today. The constraint today is customer demand. More customers today are choosing on-premises [CRM] than online. I think the online segment of CRM, even more so than ERP, is going to be an important segment. So that's why we're committed to having strong offerings. It's a small but growing segment of the market that we're committed to play in. I think we'll have the right kind of architecture to be very competitive in that space if and when online represents a significant portion of the market.

CRN: Will Microsoft host the software itself?

BURGUM: We have no plans to do hosting ourselves, other than bCentral and MSN. We sort of are a host, we do run large operations centers and we do know how to host large volumes of customers. I'm not sure we break out the number of bCentral customers, but it's a big number, in the tens of thousands.

CRN: But you don't see hosted CRM as a profit-and-loss center for Microsoft?

BURGUM: It's not really material if we host or not, at least the way it is today. Customers are still looking for value-added partner services, like Surebridge provides. We were getting questions on hosting back in 1999. From an ERP standpoint, it's a lot easier to host CRM, where you have future data prospects as opposed to accounting data. You have prospects, opportunities and pipelines, whereas the accounting stuff is very centralized. So I think we'll see different penetration rates in ERP vs. CRM in what's hosted and what's not. Hosted ERP is an idea well ahead of its time.

CRN: What do you see from SAP in the midmarket?

BURGUM: I think it relates to saturation in the enterprise market. I would broaden it to say that all of the enterprise players--of which there is a shrinking number--have expressed renewed interest in the midmarket. Some of that goes back to 1997 on our IPO roadshow, [where] the No. 1 question was, "Are the enterprise players coming downmarket?" They've been coming for seven years. You have to go fishing where the fishing is good, and right now the fishing is good in the small and midsize market. So we're seeing increased presence from those players attempting to come down.

CRN: What's Microsoft's channel priority now, increasing the number of partners or boosting existing partners? Do you see the company drastically increasing its number of partners?

BURGUM: It's a mix of that, and the best investment for us is enabling our existing partners. It's the highest ROI. Taking the existing partners and getting a higher level of productivity is less cost [compared with recruiting and training new partners]. There's a cost in training and certification. Our preference is enabling existing partners. If we don't have the right kind of geographical coverage, verticals or CRM partners, there will still be a need to add. But we'd need to add in an intelligent way.

The question you haven't asked is how I feel about all this investment capital flowing into [MBS partners]. It depends on how that investment capital is spent. If it's spent doing roll-ups [of companies], there's no net gain for us. If they invest in training and creating a new wave of Axapta consultants and specialists, that's expanding the channel. If it's spent in roll-ups for the purpose of cutting overhead, then it's no gain. At least for this decade, there's been an unprecedented amount of new capital flowing into the MBS channel. Someone out there in the venture-capital community has determined that this is where to invest, building a profitable business model around products in the small- and midsize-business market. I view it as a very strong endorsement for our strategy, and I think it's just beginning.

CRN: Would MBS rather have a small number of very broad and deep partners vs. thousands of so-so partners?

BURGUM: At some point, I might agree with that equation. But the fact is, our model is not to be with a few large partners. Those large partners tend to concentrate in large metropolitan areas, and then we'd miss on geographical coverage. Our most successful partner model in terms of market share is Navision in Denmark. They've got a very dense number of partners for Navision and Axapta, more partners per 6 million people than anywhere. And they're all making money and all serving customers. They have a very deep vertical focus. We're looking at what we call the Danish economic engine, a way to increase opportunities for partners. That didn't happen in Denmark with three partners but with 50 or 60 partners. In the [enterprise] space, there will be a smaller number of global partners with multicity geographies and depth of consulting, but we still need the Navision, Great Plains and Solomon single-location VARs [for SMB coverage.].

CRN: Partners want to know if you'll be around for the Project Green time frame. You never made the move to Redmond, Wash.

BURGUM: I never made the move to Redmond, but MBS is headquartered in Fargo, N.D. We have a CFO, a head of HR and a thousand people in Fargo. I've also got 400 to 500 people in Redmond and 400 to 500 in Denmark. I don't see my job as a Fargo job. I split my time across customers, partners and geographies. Part of the Redmond piece is a corporate element to the job in terms of [MBS being] one of seven business units. I've been there three years and feel like we're on a journey. We're still in the early stages. That journey is about a transformation, not about Microsoft making acquisitions but transforming itself into a really solid small- and midmarket-applications provider. That transformation has to occur on many levels, certainly in integration and in the field-sales organization that Orlando [Ayala] and I are responsible for starting July 1. That's a transformation. We're in the early stages, not even nine months into it yet. I have a lot of optimism in the traction we're gaining. I don't want to make this too much about me, but I still have a lot of passion for the mission and what we're doing. I'm deeply engaged in what I'm doing. I'm a big believer that everyone should do something as long as they love it. There's as strong a leadership team as we've ever had. With the talent we've retained from Great Plains, Navision and Microsoft plus the talent we've obtained from the outside, [the leadership] is just getting stronger and stronger. It's not just about me.