Our Microsoft Dynamics predictions for 2018

December 21 2017

2017 comes to an end with a Microsoft Dynamics partner channel in flux and a customer base now keenly aware that their ERP and/or CRM vendor has shifted its cloud strategy into a higher gear.

Microsoft just identified its own business application highlights of 2017, ranging from the launch of Talent (and its new modular approach) to a productive Adobe partnership to LinkedIn integration progress to customer wins.

And the company recently extended a surprise olive branch to its existing Dynamics user base, those organizations not yet ready to able to take advantage of the latest and shiniest new products and features, when Commercial and Enterprise CFO and CVP Dave O'Hara acknowledged that, given the overall speed of public cloud adoption, "it's just going to be a hybrid environment for years to come."

And it is also worth noting Mark Polino's Dynamics GP predictions for 2018, which dovetail into our own in a few places.

Microsoft's next big biz apps acquisition? Don't hold your breath.

Acquisition talk around Microsoft business applications in 2017 were dominated by the massive 2016 LinkedIn deal. The company made progress in introducing two new products that utilize both Dynamics and LinkedIn - Relationship Sales and Talent.

Other efforts to significantly enhance or extend Dynamics 365 in 2017 were all about partnerships and OEM deals. Adobe was the biggest, with signs that the relationship now has real roots from which to grow. The latest Dun and Bradstreet arrangement also appears to be a serious bet on the future of cloud integration to Dynamics 365 via the Common Data Service (CDS). On the CRM side, Microsoft looked beyond Adobe to other new partners to advance its stories on bots for sales and service (CafeX) and sales intelligence (Versium).

2017 also served as a time to start sunsetting a previous generation of unsuccessful acquisitions, namely Dynamics Marketing and Parature.

Looking forward, there are some possible but highly uncertain acquisition targets that have been floated by other Microsoft watchers: ServiceNow for service management and Workday for Human Capital Management (HCM). Both companies have SaaS offerings that would immediately boost Microsoft's market share and functional footprint, but neither has a notable connection to Dynamics. Microsoft has made its own investments in HR management via the Dynamics 365 Talent app, but that is still unproven and built to be modular. So, if Microsoft feels a shift in sentiment, shopping for a deep HCM solution would not appear to be off the table.

The wildcard in acquisition bets is the business solutions team's commitment to CDS. LinkedIn, Adobe, and D&B's latest offerings will all utilize CDS to some degree, and Microsoft seems keen to make CDS the answer to any question around integrating business systems and developing hybrid applications over the long term. As early adopters have noted, CDS is still green and will only improve with continued R&D investment. So, the question of acquiring SaaS businesses may take on a different calculus in 2018 than it has before. Is a strong CDS integration to an Azure-attached SaaS vendor nearly as good as owning the other vendor?

On the other end of the acquisition spectrum, there is a range of more focused applications that play well with Dynamics 365 products, some of which have been obvious pickup opportunities for years in areas like CPQ, document management, e-signatures, sales productivity, mobility, integration, and more. It's not clear that Microsoft will be any more interested in them in 2018 than in years past.

So, whom might Microsoft buy? Vendors with truly impressive AI or analytics applications that offer Dynamics something powerful, net new, and Azure-based could just wow the right Microsoft executive into a deal.

Partner consolidation

Significant P2P activity means partners are dating more and will find true love more often. The pressure's on now for growth along all three axes: vertical, geographic, and technical.

Microsoft will demand more from partners in 2018, as is to be expected. There is palpable concern, especially in SMB-focused VARs, about where profit will come from when software subscriptions don't budge from a low annual price per user. If VARs feel pressure early in 2018, they may act out of a fear of being paralyzed under a cash crunch, limiting the ability to adapt. Some may simply embrace the indirect CSP model as affiliates, and others could choose to fight on as merged organizations. 

An improving licensing story

When we talk to Microsoft partner executives via our Executive Q&A series, some consistent themes we hear (e.g., when we ask "What would you tell Satya Nadella?") are 1) far too many SKUs, 2) you should have had your marketing message sorted out two years ago, and 3) enough big announcements; it makes this stuff hard to sell.

As fast as Microsoft is moving with business apps in the cloud, the CSP and One Commercial Partner models, AppSource, and the rest, 2018 may still be the year in which the company sheds some growing pains and catches up with some of its hype. Dynamics 365 as a brand will start to mean something more cohesive thanks to the launch of SMB solutions and the end of the NAV brand. And ancillaries like Power BI, Flow, PowerApps, and Azure services will become more accessible. If all goes well, planning, selling, and implementing a Dynamics 365 solution will feel more like an ice cream sundae bar with lots flavors and toppings and less like an aisle of boxes in a food services warehouse.

"The Year of AppSource"

Partners we've talked to in 2017 say they still win new business largely by reputation; still, they all have AppSource strategies.

AppSource will impact partners and become more visible to Dynamics customers in 2018, but will it be for better or worse? Microsoft will remain committed to using AppSource to help define solutions and services for Dynamics 365 and to demonstrate that the future of Microsoft business solutions is streamlined and cloud-based. Several functional capabilities for the platform are likely to arrive in the new year like e-commerce, more prominent ratings, and, possibly, an in-app advertising mechanism to "helpfully" suggest add-ons as you work within Dynamics 365 or other Microsoft product.

So yes, AppSource will try to be everywhere in 2018. The question is whether partners and customers will welcome it or wish it would get out of the way.

AI will gain ground, but at customers' pace

The AI capabilities that the Dynamics 365 teams have demonstrated at conferences and in webcasts in 2017 have been impressive. But ask most partners how their customers are investing in AI and machine learning capabilities for Dynamics 365 sales, service, or Finance & Operations Enterprise today, and they will have few cases to hold up yet. Customers seem to be waiting for AI and analytics services and features that are both useful and relatively easy to deploy to meet their own needs. The first few rounds of Microsoft-built KPIs, reports, and guidance driven by Azure ML and cognitive services have been interesting but have had limitations in flexibility, field experts tell us. They will get more powerful and adaptable, but it will take time.

There likely will be no "Year of AI," but its importance will grow, and the tools will prove themselves with early adopters in the form of increasingly intelligent reporting, smarter apps, better bots, and uses cases that can demonstrate value.

Legacy Dynamics customers pushed toward Azure consumption

As Mark Polino suggested in his predictions, GP customers are likely to become prime leads for Dynamics 365 in 2018 and beyond. Even if they stay with GP, they will also be prime Azure IaaS leads. Tens of thousands of legacy Microsoft ERP customers with IT hardware investments to think about in 2018, 2019, and beyond will be on the receiving end of offers to lift-and-shift their business apps to Azure.

Is it time to send GP off to join SL?

Partner consolidation will continue in the GP and SL space, and at the same time Microsoft will further scale down its GP roadmap ambitions. With less investment in product management and marketing, it seems only natural that the company also makes structural changes to its R&D and support teams to minimize costs while upholding its customer obligations. Once customers and partners are comfortable with the GP development cadence of GP 2018 and beyond, such a transition would presumably be modeled on Dynamics SL, which maintains a smaller but still vibrant community and customer base while diverting most of the work to third parties.

The Dynamics AX customer base will begin heading toward D365FOE

For all the momentum the D365FOE team has shown so far, word from partners is that they are only just starting most upgrade conversations with existing customers. Many D365FOE go-lives so far have been new customers and new sites at existing customers. D365FOE will pass the two-year mark in 2018, and that will provide customers with the much anticipated on-prem and hybrid architectures.

Trust in those offerings won't be immediate, nor will it lead many AX customers upgrading or migrating any earlier than they need to. But the D365FOE team, led by Muhammad Alam, seems to be keenly aware that they must continue to build a collection of un-exciting, high quality go-lives in order to grow trust and lay the groundwork for what should be an accelerating stream of upgrades and migrations in 2019 and beyond.

Partners wrestle with second-tier Dynamics 365 apps for sales & marketing

Some partners, especially those in markets more geared toward SMB opportunities, say they are desperate to start selling the new SMB or "lower-tier" Dynamics 365 sales and marketing apps alongside Dynamics 365 Tenerife in 2018. But other Dynamics partners are uncertain about how these offerings will become a healthy part of their overall business mix.

Lots of head scratching over Dynamics 365 for Talent

Microsoft loves Dynamics 365 Talent. Its product management diagram, shown at every 2017 conference with the triumvirate of core HR tools, optional modules, and analytics via an Insights offering, is seen as a model for how James Phillips' business applications R&D organization wants to attack all Dynamics business applications in the long term.

So far, Talent has not generated much interest in the Dynamics user or partner community. Yes, Dynamics AX has long lacked a rich HCM module, but few expected Microsoft to build an HCM from scratch. But dollar for dollar, Talent could prove to be a sound R&D investment compared to laying out billions for a Workday or other serious HCM player. And the Core+Modules+Insights model could lay the groundwork for acquisitions in the future.

Blockchain: Cool...but let's give it another year

As 2017 comes to a close, Bitcoin is hitting new highs (with some major dives along the way) and dragging a lot more people into touch with blockchain technology.

2018 will be a year of learning when the vast possibilities of blockchain technology start to infuse into the thinking of B2B decision makers. While many multi-nationals (including Microsoft) and startups are investing in blockchain services and applications, the vast center of the business community seems content to watch and learn. Early adopters will continue to make bets in 2018 via initial coin offerings and R&D budgets to keep their fingers on the pulse of the technology, but many others will just keep checking the latest bitcoin exchange rates.


Image copyright: olivier26 / 123RF Stock Photo

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About Jason Gumpert

As the editor of MSDynamicsWorld.com, Jason oversees all editorial content on the site and at our events, as well as providing site management and strategy. He can be reached at jgumpert@msdynamicsworld.com.

Prior to co-founding MSDynamicsWorld.com, Jason was a Principal Software Consultant at Parametric Technology Corporation (PTC), where he implemented solutions, trained customers, managed software development, and spent some time in the pre-sales engineering organization. He has also held consulting positions at CSC Consulting and Monitor Group.

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Joe Decker's picture

It would be extremely helpful if at least once in an article that a meaning for the acronym being used would be spelled out as trying to keep up with all the new ones is impossible. Thank You, Joseph P Decker

jgumpert's picture

We aim to identify all acronyms before using them, but some slip through. Which did you spot?

Joe Decker's picture

Hello Jason, I figured it out SMB small medium business. Thank you for your work in AX I have attended some of your seminars and have always enjoyed and learned from them. Please keep up the help you give to the AX Community. Sincerely, Joe Decker 314-422-5523