Burgum: Microsoft Business Solutions Building Momentum

The Redmond, Wash., software giant expects its closely watched business solutions arm to grow 11 percent to 13 percent next quarter and for the entire 2006 fiscal year, company executives said last week. For the fiscal first quarter ended Sept. 30, MBS posted revenue of $181 million, up 16 percent from $156 million a year earlier. During that period, the unit also cut its losses to $12 million from $31 million.

Microsoft executives cited strong ERP and CRM revenue growth in the first quarter, partly offset by expected declines in service revenue. Overall license growth came in at more than 21 percent year over year. The services declines spell good news to partners assuming that workload, said Burgum.

In an interview on Friday, Burgum declined to break out which of MBS&' five offerings--CRM plus four ERP lines--did best. But slides accompanying Microsoft&'s first-quarter earnings call on Thursday spotlighted strong Axapta and Navision sales. All of those products--including Great Plains, Solomon and Microsoft CRM--will be carry the Dynamics label going forward.

Burgum said MBS&' 16 percent sales growth and 21 percent license growth outstripped business software growth rates overall. He declined to comment on plans for Microsoft-hosted CRM or ERP, deferring questions until Tuesday's event in San Francisco, where Microsoft Chairman Bill Gates and CTO Ray Ozzie are slated to talk about the company's plans for more Internet-savvy software, including hosted offerings.

In general, Burgum said, customers are more likely to accept hosted services in some segments than others. "The way the market's split, for something like payroll services, many people are comfortable with hosted. They know ADP. Sometimes hosting is accepted or not based on business and sociological reasons more than technological reasons," he said.

Keeping that in mind, he added that more people are likely to host CRM over ERP in the near term. Earlier this month, CRN reported that Microsoft plans a version of its CRM product that it will host itself or via partners, depending on customer demand.

Burgum said the next version of Microsoft CRM, or Dynamics CRM, will be better-suited for hosting multiple customers on shared resources than the current release is. According to hosting partners, Dynamics CRM is still not a "full multitenancy" platform, but it's getting better. Earlier this year, a hosting partner said the latest edition will enable hosters to install all the various Microsoft components on a single server, which would save hardware costs. Microsoft's CRM assumes the use of a wide array of other Microsoft software.

Burgum recalled that back in 1999, the then-independent Great Plains Software had "31 different companies hosting Great Plains with SPLA-like agreements. The perception was that the technology did not match customer choice, [and] 27 went out of business." SPLAs are service provider license agreements that make software more easily available to third parties that host and support it.

He also stressed, however, that Microsoft delivers its software and services "across the spectrum" and that there will always be partner involvement. "It's not like on-premise software is going away. We see ourselves participating in both sides of those markets. The theme going forward is a combination of having on-premise software that's enhanced by online experiences. That's the best way to drive value," he said.

MBS, which remains its own profit-and-loss center but has been merged with Microsoft's Information Worker product group to form the Microsoft Business Division organizationally, is starting to reap the rewards of an earlier sales and channel reorganization, Burgum said. Though Microsoft sales and field resources were being shifted, there were short-term hits to MBS growth, Microsoft executives have said in the past.

Burgum downplayed a recent Forrester Research report that said it would have made sense for Microsoft to pre-empt Oracle and buy Siebel Systems. He said that such a move would not make sense, given Microsoft's business model. He also noted that any board member worth his salt would approach Microsoft and others before selling the company to anyone.

"We had an opportunity with Siebel before Oracle did and did nothing. Nothing has changed since then. This is not a slam against Siebel," Burgum said. A big reason, he noted, was "we're not trying to sell software where the services businesses dwarves the software side."

Oracle and Siebel are a good fit because the two companies derive most of their revenue "selling to relatively few customers at high prices direct,” Burgum said. "As for [the report by] Forrester, some could make a case why this makes sense. I'm sure IBM got the call as well," he added.