Microsoft Hopes Great Plains Can Validate .Net

With its planned $1.1 billion buyout of Great Plains Software Inc., Microsoft Corp. will get one great big reference account for its much-hyped .Net initiative, observers said. In the past year, Microsoft has labored mightily to sell customers and partners on its .Net view, which promises to somehow translate capabilities now delivered on disks or CDs into a slew of services available from the Web.

That game plan, which is long on complexity and jargon but still short on actual deliverables of its own, has caused some corporate users and analysts to shake their heads in bewilderment.

".Net has been little more than a vision to this point and remains one," said Dwight Davis, vice president of Summit Strategies, a Boston research firm.

Even Microsoft partners agree that .Net is a tough sell because it is so hard to explain. The company has to prove that it will actually do something.

"To make .Net fly, it'll be important to have business value," said Tom Brennan, vice president of marketing for Managed Ops, a Bedford, N.H., company that supplies hosted accounting and financial applications. "As an architecture it's hard to sell and make happen. They do need to kick-start it with business applications that do something."

Managed Ops already partners with both Microsoft and Great Plains and is bullish on the news that they will merge.

"Obviously it's great to have our two main technology partners together," Brennan said. "They were close anyway, but this reduces the risk of them taking separate paths."

It's not the first time Microsoft has relied on Great Plains (stock: GPSI) to validate its technology plans.

Six years ago, Microsoft contracted with Great Plains to develop Microsoft Profit, a software offering to compete with Intuit's QuickBooks low-end accounting package.

Microsoft insisted that Great Plains use its nascent Visual Basic language to develop Profit.

Insiders at Great Plains at the time felt that decision hobbled the resulting application, degrading its performance. In the face of under-whelming sales, Microsoft turned the code back over to Great Plains.

Microsoft needed a reference account for Visual Basic, said Jeff Tarter, editor of SoftLetter, a Watertown, Mass. newsletter.

The latest deal makes better sense, Tarter said.

Microsoft is trying to diversify the way it delivers software functionality by adding hosted applications and services to the mix of shrink-wrap boxes and CDs on which its software was traditionally delivered.

"You've got to have someone to sell services," Tarter said. "Services do not sell themselves."

Great Plains could help fill that void.

The Fargo, N.D., company develops Windows-based accounting software and brings vast experience in both the applications and the nascent application hosting market.

Great Plains was aggressive in chasing the hosting model to which it has 40 ASPs signed.

The deal will also likely upset the delicate balance Microsoft has struck with ISVs.

Companies like Sage Software and PeachTree, which compete in accounting with Great Plains while also partnering with Microsoft, are most immediately impacted.

"This changes the ground rules for the industry of where Microsoft played and where it kept its hands off," Summit's Davis said. "That rule book is out the window now. I believe the industry is waiting for the other shoe to drop."

In a conference call Thursday, Microsoft executives said the company will be fair to its other partners.

"For years we've been a platform business, but also in businesses where we build atop the platform," said Jeff Raikes, group vice president for Microsoft's Productivity and Business services group. "We make it a strong point to support other companies on our platform, even when they compete with us in applications."

Lotus Development Corp's Notes/Domino competes with Microsoft Exchange, but works to assure those applications run well on Windows NT/2000.

The same is true with Oracle Corp. (stock: ORCL), which competes with Microsoft in databases, but also offers a version of its database for Windows NT/2000.

Still, the fact that Great Plains is in the Microsoft stable will put the huge software company in more markets than before, and thus give it more rivals, all of whom are significantly smaller and sensitive to its entrance.

Great Plains could help Microsoft beef up its bCentral hosted offering for very small businesses. Users pay $30- $50 a month and can host their own Websites and have e-mail.

"Today [bCentral] has no business applications, but down the road we could potentially provide some business functionality on it," said Charles Stevens, vice president of Microsoft's Enterprise and Partner Group.

Microsoft did not position the Great Plains deal that way, but others said such moves will again put it in direct competition with Intuit Inc. (stock: INTU), the home-finance market leader it competed with, then attempted to buy before scuttling the deal.

In addition, Great Plains partners are seeing more of Oracle competing in their accounts.

Predictably, Microsoft executives said the acquisition is not a move against Oracle, which is more powerful in the enterprise.

"Microsoft denied that Oracle is a factor here, but Oracle, like all enterprise players, is trying to move down-market via the ASP channel," Davis said.

At the same time, Microsoft, which has tried for years to boost its credibility in the enterprise, is also trying to shore up its position in small and medium markets.

Basically, Microsoft has made every tier of business, from one and two-person shops to the largest enterprise, its priority--a huge task even for a company of its size.

Asked how the company can possibly say all business tiers are its top priority, Stevens said, "The real answer is we're going all-out for both. We're going after Sun and Oracle, but that's a different play there."

The proposed stock deal is expected to close this spring.

Great Plains will become a division of Microsoft and will be headed by current CEO Doug Burgum, who will be the senior vice president of the division.

Burgum will report to Raikes and David Vaskevitch, senior vice president of the Business Application Division.

The organizational structure is similar to what Microsoft put in place when it took over business-diagramming software maker Visio in a $1.5 billion acquisition last year.

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