Microsoft’s on-again, off-again flirtation with the high-end of the enterprise software market is off – again. The current thinking, the product of the latest massive shift in the leadership team of Dynamics, is that the lower to mid-market is the place to be, and Microsoft plans to be there to the exclusion of the massive, global enterprises that represent the tip of the customer icebergs – and an enormous revenue stream – for both SAP and Oracle.
This shift was somewhat predictable, though what it really means is less clear than it may seem. Surely, Microsoft’s insistence on an indirect sales model as the only way to sell enterprise software precludes selling to large enterprise accounts. It was also predictable that very large enterprises would be hard to service insofar as Microsoft has been hampered by a partner model that does a decent job of providing vertical solutions but is a little challenged when it comes to supporting global customers: Too many vertical solutions come from local partners that simply lack the girth to meet global customer needs.
But the change at Dynamics still represents a disruption in the marketplace that takes a major player out of a key competitive arena, at a time when the SAP-Oracle duopoly could use the pressure from a smaller, lower-cost competitor. SAP and Oracle have been looking over their shoulder at Microsoft for some time, and Microsoft’s moves out of the very large enterprise gives the duopolists one less massive competitor to worry about. Sort of.
Because how this will really impact the competitive landscape remains to be seen. For one, the definition of what is now off-limits to Microsoft’s channel is a little vague. Clearly, the very largest global accounts are now verboten, but their actual number is relatively small. SAP has about 200 of these very large accounts, accounts that have licenses worth more than $60 million. Oracle’s very large accounts are little harder to figure, as Oracle has a much broader portfolio to sell to its large accounts. But I would imagine it has no more than 200 comparable accounts, and probably fewer.
So, taking a few hundred accounts out of play leaves tens of thousands of SAP and Oracle accounts as potential targets for Microsoft. SAP counts some 34,000 mid-market customers today, all of which could probably fit into Microsoft’s new definition of Dynamics’ sweet spot. Take away the very largest of the SAP mid-market customer base and you still have 24,000 customers whom Microsoft would love to convert to Dynamics.
And, in a coincidence that’s almost weird, guess how many mid-market customers Oracle now counts: 24,000. In Oracle’s case, none of these companies are smaller than $15 million in revenues, whereas SAP’s count includes BusinessOne customers that are better characterized as small businesses than mid-sized. Regardless, those 24,000 Oracle customers represent a decent playing field for some heavy-weight competition.
And that’s just the existing accounts that the Big Three would love to poach from each other. Remember, this is the mid-market, where “other” still remains the dominant vendor. Indeed, when it comes to winning deals, the Big Three’s biggest problem is getting in the running at all: the deal flow is so large and so predominantly local in the mid-market that SAP, Oracle, and Microsoft often struggle more to find the deals than to win them in a competitive bake-off.
Which is where Microsoft’s massive channel comes in. Having literally thousands of resellers and partners around the world makes it much easier for Microsoft to find and compete in these deals. Of course, there really aren’t thousands of truly great partners – to 80/20 rule works in the partner world too: in a very rough estimate, 80 percent of the deal flow comes through 20 percent of the partners. Regardless of how you count the channel, Microsoft has a massive lead that will be hard to beat.
And that’s without counting the global systems integrators, traditionally the handmaidens of SAP and Oracle, and now more and more attracted to growing complexity of Dynamics. To the chagrin of the traditional partners, Microsoft is going to push its growing global SI partners towards the mid-market – in direct competition with the traditional partners – and away from the very large accounts where global SIs have the most traction.
So, Microsoft exiting the very large enterprise market doesn’t take a lot of pressure off of SAP and Oracle after all. In fact, it probably increases the pressure more than a little by allowing Microsoft to focus more strategically on accounts that it’s frankly more likely to win anyway.
A final note: I have a feeling that Microsoft CRM either missed the memo or is ignoring it. Or maybe their recent string of successes are another indication of what exiting the top end of the market really means. Microsoft CRM has won some pretty big deals this year, numbering in the thousands of seats, from some pretty large companies. These are deals that SAP’s and Oracle’s direct sales force would have given a body part or two to win, and their value to Microsoft is only beginning to be realized, assuming these new CRM customers might, just might, be interested in some other Dynamics functionality down the road.
In the end, the admission the Microsoft should try to stay out of the top end of the market is neither shocking nor does it give SAP and Oracle a free pass. What it does is actually sharpen the competition for the majority of the customers in the market, which in volume represent a majority of the market’s revenues as well. Indeed, all Microsoft is saying by exiting the top end of the market is that it would rather have thousands of mid-market customers than a few hundred very large customers.
Sounds like a good plan to me.