Microsoft’s Swiss Army Knife

Posted: September 8, 2005 in CRM

Microsoft shot itself in the foot yesterday when it announced a plan that will converge some of its business applications in an attempt to court medium sized companies. In a series of announcements by Bill Gates and Steve Ballmer, the company set its sights on integrating its flagship Microsoft Office products, back office accounting and front office CRM and other products. The company also announced an initiative to compete in the on demand CRM domain with Salesforce.com while continuing in its core business of providing traditional software licenses.

Where to begin? I can see at least three reasons for concern: in no particular order, they are: convergence, divergence, and pre-announcement. Lets take them one at a time.

Convergence
Absent any real new, new thing on the technology horizon, vendors are turning to convergence the bringing together of separate technologies into a single uber product as a means of bringing new products to the consumer. Ironically, an opinion piece in the September 1, issue of The Economist took aim at digital convergence in the home but many of its observations fit equally well in the software business.

Enumerating converged devices of the past, The Economist went to the venerable Sears catalogue of the early 20th century, to find converged devices: among others, …A vacuum cleaner that also dried hair, heated rooms and spray-painted walls… and summarized its objections as, A converged device is invariably complex, and people like simplicity. A converged device represents a single point of failure, and people like to know that they can still look at baby photos even if the TV breaks down.

Theres also the eminent marketing guru, Al Reis, who discusses convergence in terms of the Swiss Army knife. Lots of people have them, but who uses them? Each element in this converged device is a compromise the fork is not as convenient as a real fork though better than nothing. OK, but how do you cut a steak if the knife and fork are on the same handle?

No doubt, Microsoft will defend its decision and product direction as a way to bring greater customer value by simplifying the buying and implementation decision for companies of up to 1,000 people. That part of the market really doesn’t have time or resources to do it themselves. And theres the rub. Convergence at the application level is appealing because no one has yet brought to market a good, cheap and easy way to make disparate applications work together,but that is changing.

Major business software providers like SAP AG, Oracle, Siebel, Salesforce.com and others have each made strides at enabling convergence of diverse applications. The need to buy it all from one vendor is waning, as it must because no vendor can support the increasingly complex matrix of applications. It is impossible to know which attempt will become a standard and at this stage all could, but the betting has to be that the tide is turning against converged business software of the type Microsoft envisions.

Divergence
This might be less of a problem for Microsoft but mostly because the company has not diverged very far. The divergence in question is the idea of supporting both a traditional Microsoft CRM product and an on demand product which Microsoft president Steve Ballmer said would give Salesforce.com a very effective run for its money. The easy problem with this divergence is keeping the products synchronized and different sales channels motivated and out of each others way you’d expect they would go after the same customers after all. Those problems are easy both relatively and because Microsoft has so many resources.

The harder problem for Microsoft is its business model. The company has grown big and profitable selling licenses to personal software products, networking and database products according to a story in the Seattle Post Intelligencer, the company’s business unit Microsoft Business Solutions lost more than $200 million last year.

The point is that the market is taking dead aim at the on demand software delivery model which has very different financial underpinnings can Microsoft go against this tide? Alternatively, can Microsoft skillfully re-architect itself to become an on demand software provider? If so, can it re-educate Wall Street about earnings expectations? At some point in the not-too-far-off future, it needs to make these decisions.

Pre-announcement
Lastly, the announcement I read said that aside from some re-branding to a new Microsoft Dynamic badge much, if not most, of the deliverables are scheduled for 2007. That’s fifteen months into the nebulous future and practically a whole software generation away. Customers are expected to buy the new Microsoft Dynamic products and wait for the cavalry to come and link it all together. The problem, as I see it, is that no one else is standing still. For example, in the intervening fifteen months SAP will, no doubt, have an improved NetWeaver and Salesforce will have gone through 4 or 5 new generations of its products. Meanwhile, no one expects Oracle, Siebel and all the others to take a semi-permanent vacation.

All together, it looks like the people in Redmond are trying to play catch up in a big way. It would be a mistake to discount Microsoft’s ability to catch up. After all they have a lot of cash and a lot of talent to take on the job. Still you have to wonder about a lot of things.

When Apple Computer saw itself marginalized from mainstream personal computing the company went on an innovation binge. The personal digital assistant — remember the Newton? — was the first new product to come out of that spree and desktop movie editing for personal use was innovated at Apple as well. And the latest big hit for Apple has been the iPod and iTunes. Faced with maturing markets and no new software niche on the horizon Microsoft has stepped away from innovation and settled on a safe strategy of convergence. But given the meager success of converged products from the multi-function vacuum to the home media-center PC it will be surprising if they succeed.

So, what did you think?

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