Burgum: MBS Hits Profit Sooner Than Expected

The group posted a $10 million profit on sales of $242 million for the second fiscal 2006 quarter ending December 31. For the year-ago period it lost $17 million on sales of $207 million.

While the unit constitutes a small portion of Microsoft's overall business, it is closely scrutinized by those who want to know if Microsoft can expand beyond Office to more specialized business and financial applications.

"When we talked about hitting profitability in 2007, I think most people expected we'd have a profitable Q4…so we're slightly ahead of that," Doug Burgum, Senior Vice President, Microsoft Business Solutions Group told CRN on Friday.

The group, which comprises the Axapta, Navision, Great Plains, Solomon accounting lines (now renamed under the Dynamics branding rubric) as well as Microsoft CRM. Both Dynamics CRM 3.0 and Great Plains 9.0 and Dynamics SL 6.5 shipped in the quarter. The company reported 14 percent license revenue growth.

MBS comprises both Microsoft's home grown CRM as well as the code bases acquired with Great Plains and Navision over the past five years. Since the 2001 buyout of Great Plains, the group has been in investment mode, and that's taken its toll on profits.

It has recently launched a new Small Business Accounting product.

"If you take the core business, plus all the new geos, new categories, there's been a lot of investment and from a GAAP standpoint—which is all we report—our division does carry the amortization of Great Plains and Navision and we carry non-cash charges for stock option expenses for SMS&P and MBS," Burgum said. SMS&P is Microsoft&'s Small and Midmarket Solutions and Partner (SMS&P) group which was pulled into MBS last year.

MBS and its offerings face fierce competition from Sage Software, NetSuite, SAP and others both for partners and customers. NetSuite last week issued a press release listing several MBS partners it won over.

NetSuite, San Mateo, Calif., says partners can make higher margins on its on-demand ERP service than they can get selling Microsoft's on-premises offerings. NetSuite listed Nolan Computers of the U.K., Premier Computing Technologies of Salt Lake City, Roux Business Systems of Baton Rouge, La., and VAR2 LLC of Beaverton, Ore. as MBS-to-NetSuite converts.

For its part, Microsoft this week announced incentives for customers to move from Sage Peachtree or MAS90, MAS200 or MAS5000 packages Dynamics . For ezample a Peachtree user can move to Dynamics GP, NAV or SL and get a $200 per seat discount up to $1,000. MAS90, MAS200, MAS500 users moving over to a Dynamics Professional version can get $500 per seat off, up to a maximum of $10,000.

Some MBS partners, particularly in the Solomon camp—appear to be somewhat disaffected by what they see as Microsoft's lack of support for the venerable Solomon lineup. Great Plains had bought Solomon before it itself was bought by Microsoft.

One Midwestern partner said Microsoft does not give Solomon its due.

Burgum denied that contention, saying Microsoft invests more on its R&D across the board than any ERP competitor and has pledged to continue to update and support all its ERP lines as it moves towards a convergence of the products over time.

He also said it is natural for Microsoft, with its army of partners, to be the target of partner raids. "If you go back to Great Plains and Navision , they had the biggest and broadest channel so we were on the receiving end of poaching. Three years ago SAP was very aggressive with BusinessOne. Some of our partners signed up and came back. Everyone makes a run at you but in the end it's very difficult to move people from product lines."

Microsoft is seen as behind the curve in offering true host able solutions. Many partners expect the company to start talking up a true multi-tenancy-supportive CRM either at the MBS Convergence Conference in March or at the Worldwide Partner Conference in July.

The current Microsoft CRM 3.0 eases some hosting problems but does not support multi-tenancy, meaning a hosting partner has to field a server for every customer. A multi-tenant solution lets the hoster run several customers' applications on a server securely and independently.

Given the success and noise around Salesforce.com, NetSuite, Salesnet, and other software-as-a-service providers, no one expects Microsoft to sit on the sidelines long.