How far away is the Microsoft Dynamics 365 for Financials train?

January 12 2017

Train at a station

I listened to Paul White at Directions 2016 last year and his assurances that the Microsoft Dynamics NAV market as we knew it was not going away. Dynamics 365 for Financials was a different and new market segment that, while growing rapidly, would grow alongside the traditional NAV market. Paul had figures from IDC to show that the business we had now would grow 1% in 2019. This was all about owning both, was his message.

At that time I believed him, but as 2017 begins I'm starting to have my doubts. I'm wondering if the subscription loco is about to run us down much quicker and, by the end of 2017, be the dominant force in our market.

Lots of you will laugh and say I've been drinking too much over Christmas. After all, Microsoft has been telling us that online and subscription models are about to take over for at least five years now, and it's just not happened other than a very small percentage, has it? What makes this year any different?

So my hunch is based on what the customer will perceive about Microsoft's offerings. As the ones who ultimately spend the money, they want the maximum for the minimum, always have and always will. And looking from their perspective, I think that Dynamics 365 for Financials (D365F) is starting to transform into a proposition that's going to take a very significant share of their money, instead of Dynamics NAV, very soon.

Functionality   

No longer will NAV have the edge by having more functionality that D365F. Sure D365F is down on features right now, but Microsoft is working hard at closing that gap as rapidly as possible. It's in the public domain that one day soon everything that NAV does will be available on Financials.

Even when you get to the ISV verticals, the introduction of Solution Sets later this year means that almost any vertical out there will be deployable on D365F. No massive rewrites to wait for now.

Customisation

The preview of the new development environment released just before Christmas chips away at the ‘but my users insist on something unique' argument of many NAV customers. Just go into the screen customisation and drag and drop the fields around. Create a new field and drag it onto the page.  New table extension and page extension objects are going to make creating ‘zero impact to standard' changes easy.

I'm waiting for Microsoft to tell us how you can upload ‘private' rather than appsource extensions to D365F and I am starting to believe that D365F will have the preferable customisation story. Yes, it needs the new development story to mature, but will you bet that it won't at least be useable by the time 2018 is released in October? Remember, Microsoft released the Madeira preview to the public in April last year. What are the odds we will get an ‘update' to D365F this year with the new customisation tools available?

Scalability

So Microsoft's target market for Financials is currently stated as 10 to 100 users. From talking to several US partners I understand that the D365F user counts are usually in single figures, but then this is month three of a new platform. Any company that has 10+ people who need to access the finance system is probably a $1m plus turnover business and why would they risk that by rushing onto a new platform.

My point is that having stated 10 to 100 as the target, Microsoft are going to have to make it work. Issues around performance killed Dynamics CRM in the early days, so there is no excuse for that mistake being repeated. And 95% of the NAV systems I deal with are in that 10-100 user count bracket. The average user count at the partner I work at is in fact 37. That suggests most of them could theoretically go to D365F now if they wanted to - if it was available in the UK, and if it were to do what they wanted now.

Cost

If there is one thing that tips the balance faster than anything else, it's cost. The small and medium market is extremely cost sensitive, and any increase over spending the minimum has to be justified.

I'm not sure if it's by design or coincidence, but the annual cost of Financials is exactly the same as the mandatory first-year enhancement fee on a traditional perpetual licence purchase. You have to pay the licence fee itself on top, and while I don't want to quote figures, it is typically in the range of thousands of dollars. As a buyer, you have to have some real benefits in today's market to cover the penalty of upfront payment for the complete licence fee and first year's enhancement rather than a monthly subscription.

So maybe the newer subscription or older SPLA licence for NAV makes more sense? That's a few, and I mean a few dollars less each month for the licence now if I don't need the extended pack with manufacturing, warehousing, etc. So I've got a whole, say, $5 to spend on finding a platform to run that licence on - wow. Once D365F has the full functionality of NAV, the subscription for the additive user with the extended pack will leave me out of pocket anyway.            

You haven't factored in the Starter Pack or Extended Pack? OK well taking a 10 user NAV system with the extended pack plus annual enhancement plan and comparing it against D365F, you are almost a thousand dollars worse off just against the cost of the enhancement plan!

Don't forget that with the perpetual or subscription licence, you have to pay for the servers and SQL licences or a hosted platform like Azure to run it on top. On D365F you get it all.  

Yes, I know that D365F requires named users and the perpetual on premise licence are still concurrent. Yes, that might save you a user or two but in my experience, not much more than that.

And yes, I know that I've used Microsoft official pricing and there are sometimes discounts be had on licences where for subscriptions you don't. They won't be anything like enough to change the maths. 

There are changes ahead

We have to get ready for the possibility that D365F will steal the market in the next eighteen months to two years. Customers will want the much lower cost, and they will settle for any technical or even functional compromises there might be between the two because of the size of the cost saving.

I remember the almost overnight change from packaged Office & Exchange licences to Office 365 subscriptions. It took Microsoft a while during the BPOS era to get it right, but once they did, I'm glad my salary didn't rely on the sale of Office licences.  

And when this happens to us in the NAV space, it means a massive change to the whole Dynamics ERP industry. How do you afford the typically days of expensive presales discovery and presentations if the return on investment that the margin on the licence currently gives isn't there? 

Will prospects settle for few remote webinar presentations with no preparation? Or will they pay the costs associated with what we do now? Can we pass the cost of sale on to the consulting days? Well, day rate will need to go up by a third if they do, and that will leave partners vulnerable to competitors or independent contractors.

Dynamics has been a rewarding skill to have over the last couple of decades with repeated skill shortages forcing up employment packages. While the consulting and development demand will continue because clients will still need help whatever the platform, how will partners fund the decades of payback that $40/month give to pay for sales and presales?

2017 is going to be a ‘fun' year for end users, but you might need a tin hat at a lot of partners. They better have started thinking about their transition by now because by 2018 it is going to be too late.     

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Photo Copyright: meinzahn / 123RF Stock Photo

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About James Crowter

I'm passionate about how businesses can improve their efficiency by getting process optimal more of the time. For the last twenty five years I've worked to help organisations of all sizes and types implement the ERP & CRM software that typically they decide they need when things are going wrong. I've seen that work unbelievably well and enabled those organisations to rapidly grow but I've also had some hard projects over that time where it's felt more like warfare at times.

Since 1996 (and version 1.01) I've been working with a small Danish product called Navision that's now become Microsoft's Dynamics NAV and I've also been using and consulting around Microsoft CRM since 2005. As managing Director of one of the longest established first Navision and now Microsoft Dynamics partners I've been involved in the complete history including numerous product councils and system design reviews. It's my privilege to know many of the key Microsoft executives and product designers and have insight into both where the products are now and their future direction.

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Comments

Adair's picture

First, great article. My quick comments: * The confusion around D365F is hurting NAV sales right now, resulting in Microsoft and the NAV channel bleeding money, as the market does not see that Microsoft has a practical SMB solution * Due to the current lack of functionality in D365F, it would be unusual for any 5+ user companies to use D365F. Yet due to the significant marketing of D365 and the lack of marketing for NAV, the market does not perceive that Microsoft has a practical SMB solution. * When D365F is of similar capability to NAV, the NAV Partner channel will move to D365F. No issues. I am waiting with anticipation!!!

james.crowter's picture

Here in the UK Adair, we are not seeing NAV slowdown because of D365F, in fact the partner I work for has just had two record months after twenty odd years. We are starting to get the odd question about D365F, I think the massive press coverage is bringing it to people’s attention. Once we explain there is no current timetable for release yet, they are buying or subscribing to NAV. If your in the US or CA I can understand it might be different. Microsoft could do with committing to at least an outline roadmap; clients need that to be able to plan decisions. My suggestion would be to put them on a NAV subscription platformed on Azure and tell them they can move to D365F when it ready for them. After all its not the first Microsoft product release that’s take a couple of releases to make maturity is it?