Partners Plan for Microsoft Dynamics ERP Cloud Vision, Part 1: Changing Business Models and Market Perception

Microsoft's announcement at Convergence 2011 that it plans to start supporting and, to some extent, deploying cloud versions of its Dynamics ERP solutions starting with NAV "7" had conference attendees buzzing. But some partners are still wondering exactly what this means for them. 

With many of Microsoft's own plans still uncertain or at least under wraps, partners - especially those whose business model is entirely based on license and maintenance sales - are starting to look at ways to adjust and thrive even as the landscape continues to shift.

Re-examining the partner business model

One partner, who asked not to be named, expressed a bleak view of the business prospects for many of the partners selling their own hosted Dynamics ERP solutions.  "Dynamics ERP in the cloud is a different sales model and it's going to take a lot of revenue out of people's pockets because when Microsoft ends up hosting it, it's going to be dirt cheap just like Dynamics CRM. You can't compete with CRM Online," the partner said. "But there will still be customers that want on-premise ERP. Maybe 10 years from now, customers will say the cloud is the perfect place for everything to be. But I don't think customers, particularly in the middle segment of the [US], are ready to go there yet."

But Andrew Fass, President, AVF Consulting Inc., said partners can still make money on the services side.

"When it's all up and running and the price is reasonable, there certainly is money to be made from the services component," he said.

Fass said the smaller partners will love it because the infrastructure is always the thing that holds up everything and makes it so complicated. All the smaller partners want to do is put their software in and begin the implementation but the infrastructure is such a pain, he said.

"The hosting side is the infrastructure and the capital just keeps going and going because you have to put multiple sets of clustered SQL Servers in and they're really expensive," Fass said. "And there's a very thin mark up on the infrastructure."

For smaller partners this is a very good thing because it allows them to speed up the sales cycle, he said.

"The infrastructure is a turn-on concept not a build concept so they can get customers up and running faster," Fass said. "That will help partners close more business. So why wouldn't partners be interested in that?"

Validation for Partners Already Hosting Dynamics

For Microsoft partner Tensoft, Microsoft's official announcement is a very positive thing. While the more general statements about being "all in" sounded nice enough, the official announcement that the Dynamics products are going to support cloud deployments will improve the products' images. However, Tensoft president Bob Scarborough admits his company is different than some other partners.

"We might be a little unique because we do vertical ERP not broad market cloud," he said. "We do technology- and industry-specific cloud. A lot of our value proposition is in the industry-specific stuff and the cloud is a different way to deliver it. I don't think it will affect us economically."

"It's about who has the best application platform," Scarborough said. "A significant part of the value of Salesforce.com is in its application platform and the ability for people to build products or to build integrations to the Salesforce platform for other extended platforms. But traditionally for Microsoft it has been who has the best ISV industry around its platform."

Niels Skjoldager, partner at ProISV, a small Danish software company, said he is very excited by Microsoft's announcement. ProISV has developed AX Cloud, a hosting solution that allows Microsoft partners to manage their customers' Microsoft Dynamics AX systems on Amazon's EC2 cloud platform. ProISV says its partners can offer their clients a more flexible and less expensive alternative to self-hosting or traditional partner hosting of Microsoft Dynamics AX.

"It's the best news I've heard for a long time for a couple reasons," he said. "Microsoft now openly agrees it needs to have strategy for ERP in the cloud, which is something new. Until recently the word was ERP needed to be self hosted or partner hosted and it would be a long time before there was going to be a demand for ERP in the cloud. Now that has changed to ‘yes there is a need for ERP in the cloud' but unfortunately Microsoft is not yet capable of delivering it."

Skjoldager said now his company doesn't have to convince customers that it's the right strategy to offer Dynamics AX as a cloud service. The announcement was creating confidence in the market because this is the direction that Microsoft is going.

"They say they're all in when it comes to cloud and they truly mean it," he said." It's not for everybody yet but there's a market and that market is going to take off like a rocket."

In part two of this series, we will look at the key details that Dynamics partners are still missing from Microsoft. And we will examine partners' perception of how their organizations will change in the future.