MBS' Burgum Sounds Off On 'Green' Game Plan, Partner Opportunities

Doug Burgum, senior vice president at Microsoft, explained the partner opportunities for Microsoft Business Solutions and the group's multiwave Project Green applications push in an interview with Industry Editor Barbara Darrow. Burgum presided over MBS' Convergence 2005 conference this week in San Diego.

CRN: The top-of-mind issue with partners now is profitability. You often talk about leaving white space atop the Microsoft software stack for ISV partners, but I also wanted to talk about VARs that are having problems with margins and just scratching by. There's a lot of consolidation as people are trying to get scale. Is that because they can't compete as they are now?

BURGUM: It's hard to generalize. I do think among some of the larger partners there is a pursuit of open space below the global [system integrators] and above the traditional MBS partners, who can serve the upper midmarket or corporate account customers [CAS] and do it in multiple countries. There's venture capital flowing into that space, so outside investors have looked at these things. These are astute VC firms, not angel money. These are guys who have lots of options and see a lot of deal flow and an opportunity to build out these large organizations--upper midmarket, CAS or whatever you want to call it. That's driving some of the consolidation in our market, and I think that rubs off a little on other people who say, 'Gee, do I really need to grow to get scale? Do I need to be in multiple locations to be able to exist?' Some of the consolidation is maybe because people are saying, 'I want liquidity. I've been doing this for 20 years.'

I understand the build-out, global SI thing. I'm completely agnostic about if you go to multilocation, single practice [business], you get a lot of great economic advantage. Maybe it's like school consolidation when I was a kid: You get rid of the superintendent if you merge two towns, but does it add more teachers? I don't know. What's the real cost savings? I try to be very neutral. So we design our partner programs in such a way that we're not causing a single-location partner to say, 'Gee, I have to be multilocation to survive.'

What we are saying is all partners need to get vertical to survive. Vertical is the first order--not geographic coverage--and then there's maybe a different answer about how to deploy your people and cost structure. We have partners who have gone more vertical and are finding greater competitive differentiation and perhaps lower selling costs to close business, and they don't have to do as much discounting because they're not in that horizontal battle. The key to profitability is the same as it has always has been: You've got to be an expert at something. We're calling it 'vertical.'

CRN: It's more about services vs. license sales.

BURGUM: Potentially, but it's also being knowledgeable about that [vertical]. Between not having to discount our stuff and selling their own vertical IP [intellectual property] or somebody else's vertical IP, the license revenue portion can still be a very attractive part of their business.

CRN: Speaking of which, are you changing the CRM margins for MBS?

BURGUM: No.

CRN: When I talk to both Classic Microsoft and MBS VARs, Small Business Server (SBS) is a huge deal. They see a lot of opportunity to penetrate smaller companies. You've done CRM/SBS promotions. Are you going to do SBS promotions with the other ERP products or even a hard bundle?

BURGUM: We haven't announced anything, but I'm excited about the success of SBS. It's great that they're getting stand-alone success. And we look at small and medium-[size] business segments, with Steve Guggenheimer [vice president of small business for Microsoft Small and Midsize Solutions and Partners] and John Lauer [vice president for worldwide midmarket SMS&P], who also works in the midmarket for Orlando [Ayala, MBS COO]. We're trying to address at Microsoft how to provide business relevance across individual products and business groups to a single customer. And that will surface through some of the go-to-markets that segment leaders like Steve and John will come out with. I expect over the next two to three years you'll see more of us focusing on business decision-makers the midmarket and offers that can deliver that.

CRN: Could that be in the form of promotional or hard bundles?

BURGUM: Whatever form. You'll see us taking elements from Office, business apps, servers and bringing them together in a way to create value for customers and selling opportunities for partners. That's a trend.

CRN: There is a lot of consolidation among retailers, so the size of the retail market may be shrinking. But some of your retail partners are seeing a lot of business in small, storefront shops. Do you see that? What's the opportunity for small partners attacking that market

BURGUM: I think it's a big opportunity. [That's] one reason we're making our move with Magellan, or Small Business Accounting. We look at that, and it may not be just the size of the company. The way [Microsoft CEO] Steve [Ballmer], Orlando and I talk about it is, how many servers will a company have? Steve visited an association in Washington that had 14 people. It was supposed to be a small-business visit, but they had six servers and a quarter-million-dollar IT budget. They were serving thousands of people [through their] Web site. They had an accounting server, database membership server, e-mail server. This isn't a small business; this is a midmarket customer. How can we create business opportunities to serve smaller organizations with a high appetite for IT? The only way to do that is through partners. You know Microsoft--we are not going to have our own consulting organization.

CRN: Microsoft isn't going to buy Avanade? Are you sure?

BURGUM: No, I'm sure. Avanade just bought en'tegrate, so we're happy they're going to keep ramping up their MBS business. We're always happy anytime a consulting firm increases its MBS capability. We're not going to try to do that ourselves. We have to create offers, research and help generate leads to find these types of businesses.

CRN: Orlando Ayala last year talked about how to attack nonprofits. Do you have special channel programs for them?

BURGUM: Yes, we did that. I don't know details, but I was at a not-for-profit reception the other night and couldn't get across the room. There were 10 or 12 ISVs around the room--some municipal, some federal, some service management. The sense is that even the fledgling stuff we've done so far for not-for-profits has gone well. We acquired some functionality that we put into Great Plains for not-for-profits, from one of our ISVs. Again, we heard about how we were going vertical and taking away white space, but we're trying to add functionality to help ISVs go after these markets. Our ISVs got it, but maybe we didn't get message right for some of the press. Everyone's thrilled we added that. They say it makes it easier to sell if they don't have to sell their own [general ledger]. We're adding fund accounting and some tracking in the GL that all not-for-profits need, but we still don't know anything about municipal water billing or procurement on army bases. We want to do enabling industry layer, but not the vertical piece.

CRN: Have you followed IBM's ISV push? Are you worried about them positioning themselves as friend of ISVs and MBS being the enemy?

BURGUM: I haven't felt that. Again, maybe we're traveling in different circles, but we don't feel a lot of competitive pressure from IBM ISV recruiting. Maybe we're just in different segments. They attract ISVs that tend to be heterogeneous in nature and want to sell cross-platform. We tend to get ISVs focused on the Microsoft platform.

CRN: Regarding Magellan, or Small Business Accounting, one reason many people like Intuit's low-end product is that it lets them go back and change things, which a real accounting package would not allow. Will your product be a real accounting product? Will it allow such alterations?

BURGUM: Yes. People who want to be able to be audited might like ours. Who knows? Theirs could be a bigger piece of the market.

CRN: Let's talk about the Project Green wave. There seems to be a .Net-enabling wave one, but in wave two you talked more about Visual Studio integration. Does that mean that underlying languages of the ERP products [Axapta X++ and Navision C-side] will run under the Microsoft Common Runtime Language in wave two?

BURGUM: The answer is sort of yes and no. In wave two, there will still be Dexterity code in Great Pains and still MorphX in Axapta [MorphX is the Axapta development environment]. The older logic design in those products won't go away. We did talk about the model-driven approach and, to the degree that the model-driven tools are done and available, more and more stuff will start being developed in the common model-driven approach using that. And Visual Studio will include all of the Microsoft Business Framework stuff. We don't expect that to emerge as a brand but as functionality within Microsoft Visual Studio .Net--maybe Visual Studio .Net Pro--with the business framework. And what I'm seeing in wave two, in vs. .Net, maybe other capability from the Longhorn wave, including things like WinFS, a more elegant way to handle structured and unstructured data, a way to capture all the e-mails around a disputed invoice attached and be part of the invoice file. That kind of capability may surface in wave two.

CRN: This sounds like an open-ended, iterative process. It's not necessarily true that wave three will be merged code?

BURGUM: Wave three will be more converged than wave two, but always moving toward increasing amounts of shared design and shared code and then giving people a chance to move toward that common point.

CRN: Oracle's Project Fusion superset of the Oracle and PeopleSoft apps sounds similar. When we talked to PeopleSoft partners, they were relieved to hear [Oracle CEO] Larry Ellison talk about that. What do you see competitively from Oracle in your space? They say they're coming down to the midmarket.

BURGUM: We don't see them that often. Maybe they're in a phase to focus internally vs. externally, and I think it's shown in the numbers. The real beneficiary [of the PeopleSoft-Oracle saga] the last couple of years has been SAP.

CRN: MBS didn't benefit?

BURGUM: To some degree, but the majority of PeopleSoft-Oracle revenue was in a piece of the market that we weren't competing for. It was natural that business fell over to SAP, and SAP U.S. has had really strong numbers the last couple of years--made at the expense of the Oracle-PeopleSoft confusion

CRN: What do you see of SAP BusinessOne in your market?

BURGUM: That's interesting. It's a completely separate code base, with far less functionality than either Navision or Great Plains. We see BusinessOne more than we see anything from Oracle or PeopleSoft, but we see more of Sage than BusinessOne.

CRN: You hired the guy from Sage who was marketing against you.

BURGUM: Craig McCollum [MBS vice president of sales strategy], yes. Craig's very good. If you worked for Sage, you know how to manage a channel that has multiple code bases. He had a lot. He has great, pragmatic experience about that. He knows how to get value out of the partners. He's a partner-focused guy [and knows how to] get the value out of the current product lines.

CRN: There's been a lot of talk about the potential of MBS being spun off. Can you address that?

BURGUM: The short answer is, it's ludicrous that people would even conceive it. I get to sit in Steve Ballmer staff meetings with the other six business heads about how to allocate spending. The group thinks business apps is the place we need to invest more. I'm going to get a target next year, again, to spend more than I make. It helps servers and tools, and it helps Office. If Microsoft is a software company and there's a $60 billion business apps market and we get a single-digit share, hey, there's a business opportunity. It's kind of simple.

The other thing is that coming on the heels of the disclosure that [Microsoft Chairman] Bill [Gates] and Steve were ready to spend $50 billion on business apps--which would never have been made if not for Oracle-PeopleSoft--six months later would they decide they're not interested? I don't think so. If we can't get that, we'll invest more in building our own. That's been their response.

CRN: You're not going to revisit SAP?

BURGUM: No.

CRN: Is there one group working on common back-end code, sort of a Project Green kernel team?

BURGUM: Not in the way you're thinking about it. The place people are working in common is what we talked about--the user interface, business intelligence, Web services and the Sharepoint Portal. Another area we're working on in common is all the guys working for [Microsoft Senior Vice President, Servers and Tools] Eric Rudder on tools. The Microsoft Business Framework [MBF] stuff is a common tool set. The rest of development is focused right now on wave one, improving functionality, quality and scalability of the current product lines. We'll make one level of common code and move on. Of course, we do have a team of core Green architects guiding the work of the four [other] teams, but you shouldn't think of it as ...

CRN: Kind of a Linus Torvalds-type kernel team?

BURGUM: Well, yes and no. We have smart architects working on a certain unifying vision, but this vision is not like we're trying to create a fifth thing, where they're working on a separate thing.

CRN: Is Darren Laybourn, who had led the Great Plains Dexterity development project, still driving MBF?

BURGUM: [Laughs] Absolutely, day and night. The thing with Darren is, the guy is influencing so many different projects across the servers, tools and Longhorn teams. A bunch of people were working on things who hadn't considered what they had to do for the business apps scenario. He's educating them. The poor guy has been working hard. I think MBF probably touched on a dozen different development projects in servers and tools, so he has to go to each team to educate them. He's working super, super hard.

CRN: When I talk to both 'classic' Microsoft and MBS VARs, Small Business Server [SBS] is a huge deal. They see a lot of opportunity to penetrate smaller companies. You've done CRM/SBS promotions. Are you going to do SBS promotions with the other ERP products or even a hard bundle?

BURGUM: We haven't announced anything, but I'm excited about the success of SBS. It's great that they're getting stand-alone success. And we look at small- and medium-business segments, with Steve Guggenheimer [vice president of small business for Microsoft Small and Midsize Solutions and Partners] and John Lauer [vice president for worldwide midmarket SMS&P], who also works in the midmarket for Orlando [Ayala, MBS COO]. We're trying to address at Microsoft how to provide business relevance across individual products and business groups to a single customer. And that will surface through some of the go-to-markets that segment leaders like Steve and John will come out with. I expect over the next two to three years you'll see more of us focusing on business decision-makers the midmarket and offers that can deliver that.

CRN: Could that be in the form of promotional or hard bundles?

BURGUM: Whatever form. You'll see us taking elements from Office, business apps, servers and bringing them together in a way to create value for customers and selling opportunities for partners. That's a trend.

CRN: There is a lot of consolidation among retailers, so the size of the retail market may be shrinking. But some of your retail partners are seeing a lot of business in small, storefront shops. Do you see that? What's the opportunity for small partners attacking that market?

BURGUM: I think it's a big opportunity. [That's] one reason we're making our move with Magellan, or Small Business Accounting. We look at that, and it may not be just the size of the company. The way [Microsoft CEO] Steve [Ballmer], Orlando and I talk about it is, how many servers will a company have? Steve visited an association in Washington that had 14 people. It was supposed to be a small-business visit, but they had six servers and a quarter-million-dollar IT budget. They were serving thousands of people [through their] Web site. They had an accounting server, database membership server, e-mail server. This isn't a small business; this is a midmarket customer. How can we create business opportunities to serve smaller organizations with a high appetite for IT? The only way to do that is through partners. You know Microsoft--we are not going to have our own consulting organization.

CRN: Microsoft isn't going to buy Avanade? Are you sure?

BURGUM: No, I'm sure. Avanade just bought Ent'egrate, so we're happy they're going to keep ramping up their MBS business. We're always happy anytime a consulting firm increases its MBS capability. We're not going to try to do that ourselves. We have to create offers, research and help generate leads to find these types of businesses.

CRN: Orlando Ayala last year talked about how to attack nonprofits. Do you have special channel programs for them?

BURGUM: Yes, we did that. I don't know details, but I was at a not-for-profit reception the other night and couldn't get across the room. There were 10 or 12 ISVs around the room--some municipal, some federal, some service management. The sense is that even the fledgling stuff we've done so far for not-for-profits has gone well. We acquired some functionality that we put into Great Plains for not-for-profits, from one of our ISVs. Again, we heard about how we were going vertical and taking away white space, but we're trying to add functionality to help ISVs go after these markets. Our ISVs got it, but maybe we didn't get message right for some of the press. Everyone's thrilled we added that. They say it makes it easier to sell if they don't have to sell their own [general ledger]. We're adding fund accounting and some tracking in the GL that all not-for-profits need, but we still don't know anything about municipal water billing or procurement on army bases. We want to do enabling industry layer, but not the vertical piece.

CRN: Have you followed IBM's ISV push? Are you worried about them positioning themselves as friend of ISVs and MBS being the enemy?

BURGUM: I haven't felt that. Again, maybe we're traveling in different circles, but we don't feel a lot of competitive pressure from IBM ISV recruiting. Maybe we're just in different segments. They attract ISVs that tend to be heterogeneous in nature and want to sell cross-platform. We tend to get ISVs focused on the Microsoft platform.

CRN: Regarding Magellan, or Small Business Accounting, one reason many people like Intuit's low-end product is that it lets them go back and change things, which a real accounting package would not allow. Will your product be a real accounting product? Will it allow such alterations?

BURGUM: No. People who want to be able to be audited might like ours. [Laughs] Who knows? Theirs could be a bigger piece of the market.

CRN: Let's talk about the Project Green waves. There seems to be a .Net-enabling wave one, but in wave two you talked more about Visual Studio integration. Does that mean that underlying languages of the ERP products [Axapta X++ and Navision C-side] will run under the Microsoft Common Runtime Language in wave two?

BURGUM: The answer is sort of yes and no. In wave two, there will still be Dexterity code in Great Plains and still MorphX in Axapta [MorphX is the Axapta development environment]. The older logic design in those products won't go away. We did talk about the model-driven approach and, to the degree that the model-driven tools are done and available, more and more stuff will start being developed in the common model-driven approach using that. And Visual Studio will include all of the Microsoft Business Framework stuff. We don't expect that to emerge as a brand but as functionality within Microsoft Visual Studio.Net--maybe Visual Studio.Net Pro--with the business framework. And what I'm seeing in wave two, in vs. Net, maybe other capability from the Longhorn wave, including things like WinFS, a more elegant way to handle structured and unstructured data, a way to capture all the e-mails around a disputed invoice attached and be part of the invoice file. That kind of capability may surface in wave two.

CRN: This sounds like an open-ended, iterative process. It's not necessarily true that wave three will be merged code?

BURGUM: Wave three will be more converged than wave two, but always moving toward increasing amounts of shared design and shared code and then giving people a chance to move toward that common point.

CRN: Oracle's Project Fusion superset of the Oracle and PeopleSoft apps sounds similar. When we talked to PeopleSoft partners, they were relieved to hear [Oracle CEO] Larry Ellison talk about that. What do you see competitively from Oracle in your space? They say they're coming down to the midmarket.

BURGUM: We don't see them that often. Maybe they're in a phase to focus internally vs. externally, and I think it's shown in the numbers. The real beneficiary [of the PeopleSoft-Oracle saga] the last couple of years has been SAP.

CRN: MBS didn't benefit?

BURGUM: To some degree, but the majority of PeopleSoft-Oracle revenue was in a piece of the market that we weren't competing for. It was natural that business fell over to SAP, and SAP U.S. has had really strong numbers the last couple of years--made at the expense of the Oracle-PeopleSoft confusion

CRN: What do you see of SAP BusinessOne in your market?

BURGUM: That's interesting. It's a completely separate code base, with far less functionality than either Navision or Great Plains. We see BusinessOne more than we see anything from Oracle or PeopleSoft, but we see more of Sage than BusinessOne.

CRN: You hired the guy from Sage who was marketing against you.

BURGUM: Craig McCollum [MBS vice president of sales strategy], yes. Craig's very good. If you worked for Sage, you know how to manage a channel that has multiple code bases. He had a lot. He has great, pragmatic experience about that. He knows how to get value out of the partners. He's a partner-focused guy [and knows how to] get the value out of the current product lines.

CRN: There's been a lot of talk about the potential of MBS being spun off. Can you address that?

BURGUM: The short answer is, it's ludicrous that people would even conceive it. I get to sit in Steve Ballmer staff meetings with the other six business heads about how to allocate spending. The group thinks business apps is the place we need to invest more. I'm going to get a target next year, again, to spend more than I make. It helps servers and tools, and it helps Office. If Microsoft is a software company and there's a $60 billion business apps market and we get a single-digit share, hey, there's a business opportunity. It's kind of simple.

The other thing is that coming on the heels of the disclosure that [Microsoft Chairman] Bill [Gates] and Steve were ready to spend $50 billion on business apps--which would never have been made if not for Oracle-PeopleSoft--six months later would they decide they're not interested? I don't think so. If we can't get that, we'll invest more in building our own. That's been their response.

CRN: You're not going to revisit SAP?

BURGUM: No.

CRN: Is there one group working on common back-end code, sort of a Project Green kernel team?

BURGUM: Not in the way you're thinking about it. The place people are working in common is what we talked about--the user interface, business intelligence, Web services and the Sharepoint Portal. Another area we're working on in common is all the guys working for [Microsoft Senior Vice President, Servers and Tools] Eric Rudder on tools. The Microsoft Business Framework [MBF] stuff is a common tool set. The rest of development is focused right now on wave one, improving functionality, quality and scalability of the current product lines. We'll make one level of common code and move on. Of course, we do have a team of core Green architects guiding the work of the four [other] teams, but you shouldn't think of it as . . .

CRN: Kind of Linus Torvalds-type kernel team?

BURGUM: Well, yes and no. We have smart architects working on a certain unifying vision, but this vision is not like we're trying to create a fifth thing, where they're working on a separate thing.

CRN: Is Darren Laybourn, who had led the Great Plains Dexterity development project, still driving MBF?

BURGUM: [Laughs] Absolutely, day and night. The thing with Darren is, the guy is influencing so many different projects across the servers, tools and Longhorn teams. A bunch of people were working on things who hadn't considered what they had to do for the business apps scenario. He's educating them. The poor guy has been working hard. I think MBF probably touched on a dozen different development projects in servers and tools, so he has to go to each team to educate them. He's working super, super hard.