Microsoft is in an enviable position as the owner of two of the world’s strongest mid-market ERP solutions – Dynamics NAV and Dynamics GP. With the launch of Dynamics 365, Microsoft is set to dominate for the next 20 years in this market. While I am bullish about the success Microsoft will continue to have in this space, I think success is further out than some may predict.

Right now, Microsoft seems lost in a large bout of navel-gazing. They are wrapped up in their own technology and self-cross promotion that they have never taken the time to stop and smell the customers. 


Development cycles should always begin with the question “what do our customers need?” In this case, Microsoft skipped over this crucial step and went straight into development. It’s an easy trap to fall into and every software company, including mine, is guilty to some extent. In a development meeting, someone says “wouldn’t it be cool if we could do X.” The team agrees it would be awesome and X becomes a new focus for the developers. Perhaps in a sales meeting, someone says, “what can we do with product X that will help us- sell more of product Y?” The conclusion is that if you add a new feature, customers will be pushed in the direction you want and spend money on X.

Microsoft has declared they are “all in” on the cloud, which for them means selling consumption of their Azure platform. A few years back, some Microsoft execs were sitting in a fancy boardroom, pondering why their Dynamics ERP business was not supporting the push into Azure consumption. The group decided this was intolerable and the Dynamics team must engineer their products to support the cloud strategy: ERP in the Cloud (aka having all those ERP customers help increase Azure consumption). So, the dev team was sent off to make some of that ERP stuff work in the cloud. This would be successful because NetSuite, Xero and QuickBooks were having good success in the cloud. There was absolutely nothing wrong with this plan.

It turned out this cloud ERP effort was tricky and spawned quite a few side projects to support what they were doing. Power BI was created to help solve the need for BI and pretty dashboards. Flow was dreamed up to help with workflow. PowerApps were tinkered with to let people build their own mobile apps. AI was topical and so Cortana was added to the mix. Someone remembered that most ERP sites have customizations, so AppSource was dreamed up. Microsoft was left with a complex set of moving parts that would need to fit together to give the mid-market an amazing ERP experience. Microsoft was lost in their own navel-gazing.

In the rush to support cloud consumption, this solution was launched prematurely. In fact, three solutions were launched to serve different markets – AX for enterprise ERP companies, NAV financials for the small end of town and CRM for everyone. The NAV component was a long way from complete so it was pitched as targeting the customer too big for QuickBooks but not ready for full NAV or GP. This was a cool solution called Dynamics 365 Business Edition – Financials, that Microsoft dreamed would be a perfect upsell for those small businesses that owned Office 365.


So, what happened? Well, nothing. Sales were flatter than an IHOP pancake. I am guessing in the first year Microsoft missed their budget by at least 90%. There was another meeting in Redmond to determine what went wrong. Why were customers not snapping up the new, super cool, cloud-based, tech wizardry that was 365 Financials? The first answer was to chop some heads, but the real conclusion was that there must clearly be a functionality gap, because NAV had been selling well, and this 365 Financials was almost the same. The dev team was sent off to add all the missing functionality and make 365 Financials just like NAV. This would be the fix.

Meanwhile, Microsoft went through another annual re-organization and brought in some new blood to take control of the Dynamics division. Unfortunately, the new team were not experienced in ERP (a bit like selecting a great basketball coach to head up your football team). As the new leaders explored Dynamics, the first question they asked was “why do we have so many ERP’s?” This was a good question as Microsoft supported four on-premise ERP solutions and now two cloud ERP solutions together with a Cloud CRM solution. The first answer to this was simple – “Move all those on-premise customers to the cloud ERP’s, then we will be done with those pesky four on-premise solutions.” At the executive level and in a boardroom in Redmond, this seems like a totally logical conclusion.

The next topic was how hard it was to make all these side projects work with both the AX and NAV cloud offering. This raised the question as to “why are we building 2 cloud ERP solutions”? The easy solution would be to kill off the little one and concentrate on the big one. No one has really bought the small one yet so that should be easy and Microsoft predicted they could move all our developers onto making the big one great. This idea did not sit well with the Microsoft ERP partner community who understood the size and scale of the ERP market, and that the AX-based offering would never scale down to the SMB market.

Microsoft has the potential to start dominating the ERP market again – when they start listening to their customers and partners. For Microsoft to fulfill its destiny, it needs to know: 

  1. High end ERP does not scale down: A giant ERP (AX) cannot scale down to a small business. It never will. Talk to your ERP expert partners here, Microsoft. Every single one will tell you the same thing: the core structure, design and complexity of AX precludes it from fitting into the mid-market and most definitely the small market. Microsoft: Maintain two offerings.


  1. ERP is the heart of a business, change will be very slow: A decision to move ERPs is a huge one for a business. I have seen businesses fail and close because of bad ERP implementations. Microsoft, look at your SL business where there are still 15,000 companies using SL and a really strong user group community, despite Microsoft sun setting it some years ago. Microsoft: Adjust your budgets as any migration from GP, NAV, SL will take at least a decade.   


  1. Loyalty takes time: Your mid-market, on-premise, customer base is loyal to their ERP brand – not necessarily to Microsoft yet. Loyalty takes time and can only be earned. When they do decide to move ERPs they will shop for what’s best for their business. Even if you gave the new 365 financials solution away for free, those customers will still shop ERP’s and you risk losing them to competitors. Do not force change on your ERP customer base. Microsoft: Loyalty is gained by supporting your customers passionately where they are today.


  1. The cloud is not for everyone: GP and NAV have sold strongly against NetSuite for a long time. Why? Because not everyone is as enamored with the cloud as Microsoft. Weird I know. Government clients do not like cloud. Many medical and health companies are not cloud ready. Manufacturers may not be ideal candidates. Many small businesses will be wary for the next decade. I get asked every day to help companies replicate their cloud data locally so they can report on it how they really want. Do not burn your base just because they are not yet supporting your vision. Microsoft: I agree the cloud is the future, but give people time.


  1. Companies buy software differently in 2017: In the mid-market, it is not the IT department making software purchase decisions. Companies are not looking for a one-stop shop for business software. While Microsoft might have a great stack – companies will pick and choose their favorites and many of those choices will not be Microsoft. Selling a solution that helps to integrate all those choices together is vital. Microsoft: Look outside your own stack and integrate those solutions.


  1. Buy don’t build: The idea of AppSource is great, but not new – there have been multiple attempts at building marketplaces for Microsoft add-on’s. Buying prebuilt add-on solutions for niche markets and verticals is a great model and much better than complex customizations. The NAV on-premise customer base is still suffering from “over customization” and many customers are lagging on old versions as they are unable to upgrade to current releases, due to complex customizations.

Every business is unique and that is what makes them successful. There needs to be some way to configure and customize your ERP to match specific business processes. The proposed extensions model for 365 provides just that. Better still in the world of cloud there are so many software options for business productivity that there is less reason to build solutions. Microsoft: Take what has been built and integrate it.

It has been a long road for Microsoft in the ERP space since 2001. The road will continue to twist and turn and surprise partners, customers and reporters. I am confident that, at the end of the day, Microsoft will have a strong on-premise offering for the mid-market, an advanced and high-tech ERP cloud-based offering for the mid-market together with an enterprise solution for those large companies.