Dynamics 365 in 2025 and Beyond: Microsoft’s plan to collapse apps into AI agents

Quarter after quarter, Microsoft has delivered steady revenue growth for the Dynamics product suite. As a line of business now doing more than $5 billion in revenue annually, it still remains smaller than other segments of Microsoft’s commercial cloud and smaller than some of its biggest CRM and ERP competitors. 

Moving into 2025, Microsoft is preparing the world for a new outlook on business applications: AI agents as the future of business applications. Those agents will serve the same purpose as today’s applications, but differently, Microsoft executives say. While there may not yet be a complete plan on executing this vision, updates and statements made in 2024 by Microsoft representatives have made it clear that the Dynamics 365 applications customers know today are on a path toward being phased out and replaced by AI agents.

To better understand what this journey could look like, let's look back at some of the opinions, actions, and future-looking statements that Microsoft offered to the market this year.

The collapsing of apps

“Think of agents as the apps of the AI era,” Charles Lamanna, CVP of business and industry Copilot, said in a recent Microsoft publication, 6 AI trends you’ll see more of in 2025. “Just as we use different apps for various tasks, agents will begin to transform every business process, revolutionizing the way we work and manage our organizations.”

Businesses will implement a collection of agents to take on the duties that systems like ERP and CRM fulfill today, Microsoft believes. The data will remain, but the activities and processes atop that data will be radically different in the future. The better agents become, the more they can replace the transactional systems that work atop business data today. 

Microsoft CEO Satya Nadella explained this outlook in a recent appearance on the BG² podcast. Within a longer discussion about Microsoft’s AI performance, plans, and partnerships, Nadella explained the outlook for Dynamics applications, stating:

The approach at least we're taking is, I think, the notion that business applications exist, that's probably where they'll all collapse, right? In the agent era. Because if you think about it, right, they are essentially CRUD databases with a bunch of business logic. The business logic is all going to these agents and these agents are going to be multi-repo CRUD, right? So they're not going to discriminate between what the back end is. They're going to update multiple databases and all the logic will be in the AI tier, so to speak. And once the AI tier becomes the place where all the logic is, then people will start replacing the back ends, right?

While this sounds disruptive, real world evidence does not indicate a disinvestment in business applications at Microsoft. D365 product teams have been adding dozens of AI features (and non-AI) in 2024, some of which could be called agents. And the next release wave of D365 apps has dozens more planned for either preview or production. 

Nadella added: 

As we speak, I think we are seeing pretty high rates of wins on Dynamics backends, and the agent use, and we are going to go pretty aggressively and try and collapse it all.

But Nadella’s statements may point to a guiding principle: When an agent can do a better job fulfilling a requirement, then Microsoft could plan to retire the traditional feature or module and offer an agent-focused solution instead. 

Copilot Studio has been on a path to provide a SaaS implementation of Nadella’s AI vision more broadly. While public demos thus far have been shaky, they have showcased the concept of automated scenarios that allow an AI agent to connect to multiple enterprise systems and carry out activities that require it to figure out how to access, act-on, and modify the underlying datastores.

Nadella positioned this approach as meeting a market demand:

People want more AI native biz apps, right? That means the biz app, the logic tier, can be orchestrated by AI and AI agents. So in other words, Copilot to agent to my business application should be very seamless.

The path here seems to focus on the concept that agents can eventually reach functional parity with the capabilities of today’s business apps, albeit with a different implementation, customer experience, ROI calculation, sense of ownership, and (probably) cost structure. 

Buying the new value proposition

The history of SaaS stems from an industry-wide push to transition from upfront perpetual license sales into long-term subscription revenue models. Customers made the switch partly because they felt they had no choice, but also because they saw value in following the vendors toward a future that would give them a new level of stability and predictability for the future.

But searching for new ROI in a world of agents will present a new challenge for Microsoft’s customers.