Microsoft Is All Business

The company is "moving up the stack" to provide enterprise apps for SMEs. Enterprises can't be far behind

With large corporations tightening their belts, small and medium enterprises (SMEs; with $50 million to $1 billion in revenue) are attracting the attention of an array of software vendors looking to broaden their own revenue streams. Over the last year and a half, Microsoft has aggressively entered the SME enterprise applications market with its acquisitions of Great Plains and Navision (now part of Microsoft's Business Solutions division). The company has announced plans to release five new sets of business applications targeting SMEs over the next year, including ones for customer relationship management, inventory management, and B2B commerce.

Joshua Greenbaum, principal of Enterprise Applications Consulting (and an Intelligent Enterprise contributing editor), sees Microsoft's aggressive move into enterprise applications as a continuation of its strategy to "move up the stack." He also cites Microsoft's goal as becoming the end-to-end business technology provider to SMEs; the Great Plains and Navision acquisitions gave Microsoft the back-office technology these customers require, and the newly announced applications fill out its product strategy with front-office services.

The company is already facing pushback from ERP vendors moving downstream into its sweet spot. SAP recently announced a new line of e-business solutions aimed at the midmarket, mySAP All-in-One, as well as new resellers and channel partners for SMEs. "Microsoft really wants to head off competitors [such as SAP, PeopleSoft, and Oracle] dipping into its traditional markets," says Greenbaum.

Despite its current SME orientation, most observers predict that Microsoft will eventually target large enterprises for its business applications. Although Greenbaum concurs with this analysis, he sees several challenges. First, Microsoft must overcome real scalability challenges: The biggest question, he says, is how quickly Microsoft can add a Web-based user interface to its enterprise app architecture.

In addition, Microsoft is infamous for misunderstanding the needs of large corporations. Targeting large corporations, which are notoriously needy, will also require Microsoft to adopt a more direct sales model. (Conversely, the ERP vendors, which for the most part lack contacts with reseller networks, will have a hard time entering the channel-oriented SME market.)

However, one potential challenge has been overblown, says Greenbaum. Despite widespread speculation about fallout from Microsoft going into direct competition with its partners, Greenbaum characterizes this arrangement as standard operating procedure in business software: "In enterprise applications, vendors partner with everybody. [Coopetition] goes on all the time."

— Michelle M. Young

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