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The future of Dynamics in a Nadella-led Microsoft

By Chris Kanaracus
February 6, 2014 01:50 PM ET

"Customers at the larger end of the spectrum want some direct Microsoft involvement," Scavo said. But on the product front, Microsoft will have to fill out Dynamics' functionality for HCM (human capital management), SCM (supply chain management) and other areas, he added. The faster they do so, the more easily they can beat out the likes of Oracle and SAP in enterprise deals.

Shopping trips: Nadella's arrival could see Microsoft make additional acquisitions for Dynamics, said China Martens, an independent analyst covering the enterprise applications market.

Dynamics CRM has benefited from the purchases of MarketingPilot, NetBreeze and Parature, but it's an open question whether Microsoft will make more deals, both for CRM and ERP.

Multibillion dollar acquisitions to build out Dynamics ERP seem less likely given Microsoft's propensity to pick up functionality built by partners that is already integrated with a Dynamics application. One example of this came last year, when Microsoft bought some supply-chain modules from Blue Horseshoe.

But a "more substantial investment," particularly in HCM, may not be off the table, according to Martens. Available vendors in this area include Ultimate Software and Cornerstone on Demand.

Getting crowded in the cloud: Microsoft has made some steps to put the Dynamics ERP products on Azure, but it's not clear when all four applications will be available for deployments there. It needs to move faster, because cloud-based competing offerings such as Plex Systems and NetSuite won't wait, according to Scavo. "Eventually these cloud players are going to have more fully functional manufacturing which right now is Dynamics' bread and butter," he said. "They have a little bit of time but that window is closing."

Microsoft could make other moves as well, such as a tightly integrated suite composed of Dynamics AX and Dynamics CRM Online, Martens said. This could give it an additional edge over Salesforce.com, since the latter relies on partners for ERP applications.

"Another issue is how to deal with ERP rivals' focus on further verticalizing their apps," Martens added. "It's a tricky path for Microsoft as it aims to offer customers some of its own industry specificity in financial services, manufacturing, professional services, public sector, and retail while not venturing too deep into its Dynamics partners' vertical turf."

One Microsoft: Nadella has inherited former CEO Steve Ballmer's "One Microsoft" strategy, which was rolled out last year. The plan's goal is to get Microsoft's many disparate divisions and products working together as a more cohesive whole, down to the engineering level.

There was already a stated intent from Microsoft to integrate Dynamics with products such as Yammer and Skype, but much more could be possible if the One Microsoft plan comes to fruition.

With Nadella on board, hopefully Dynamics will have more consideration during the planning process for new products that could be beneficial to it, "versus later on when the product's fully baked," Vukovits said.

Chris Kanaracus covers enterprise software and general technology breaking news for The IDG News Service. Chris' email address is Chris_Kanaracus@idg.com

Reprinted with permission from IDG.net. Story copyright 2014 International Data Group. All rights reserved.
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