Covering Microsoft's enterprise software group -- aka Dynamics -- at times looks futile, or at least silly, relative to the rest of the company's lines of business. That's because Dynamics is still the second smallest product group at Microsoft, besting only Mobile at the bottom of the food chain. Which explains why every time you see a report about Microsoft's earning, Dynamics is hardly mentioned at all. Who cares about a business unit that's only making $800 million per year in a company that's knocking back $39 billion or so every 12 months?
But with an almost 20 percent year to year growth rate, Dynamics is actually the second fastest growing unit at Microsoft (bested by, guess who: Mobile at 29 percent.) And, in an enterprise software industry that has favored few and punished many, 20 percent growth looks very good indeed. In case it's not obvious, those once-beleaguered proponents of one of Microsoft's most controversial, and expensive, market plays are feeling rather vindicated these days.
As well as a little confused by what 's happening in the rest of Microsoft-land. Next Tuesday Microsoft and SAP will announce the latest developments in their Mendocino joint relationship, which is putting an Office face onto SAP's ERP software. Mendocino, which will be getting a new name and some new functionality, is very much NOT a Dynamics effort, and in fact undercuts one of the main reasons Dynamics is doing so well: Microsoft is putting an Office face on its Dynamics products as well.
In fact, rumor has it that Mendocino is a four-letter word up in Redmond these days. At least the part that's trying to keep the Dynamics momemtum going. Unfortunately for the Dynamics gang, $800 million is still significantly less than the overall value of the SAP/Microsoft relationship, and in the grand tradition of buttering both sides of the same piece of bread, Microsoft is hedging its SAP-based revenues with Mendocino at the same time it's pushing a product line that competes with SAP, at least at the mid-market if not higher up the food chain.
So the fact that Mendocino may one day become a major competitor to Dynamics is a serious irony, not to mention something I'd just love to see a Dept. of Justice or European Union regulator try to figure out. That ought to keep their heads spinning for a while. Hopefully customers will be able to sort it all out. We'll see.