Microsoft sees Great Plains as the new frontier

The great software octopus that is Microsoft just got bigger.

With the acquisition of Great Plains Software Inc. in a $1.1 billion stock swap, announced yesterday, the Redmond giant is spreading its tentacles into a new market, reaching for a whole new set of customers (see story).

With this deal, Microsoft is moving to create and market a suite of applications to help companies run their businesses that may eventually rival its Office suite of applications for end users.

"This is the first fundamentally new business we've entered since 1995," says David Vaskevitch, Microsoft's senior vice president for business applications. "A year ago, it became clear that we needed another new growth business. I proposed that we get into the business applications space," he said. "This is a huge new market."

In the business market, until now, Microsoft has sold only applications for end users (pre-eminently the Office suite of what is termed productivity applications) and infrastructure software (the Windows platform, including enterprise servers). It hasn't sold the sort of applications that run a business in the background, so-called business processes applications: typically software packages that automate accounting, customer relationship management, e-commerce, financial management, human resources, inventory, report writing, supply chain, travel expenses and so on.

But now, Microsoft says it plans to sell these types of applications with its acquisition of Fargo, N.D.-based Great Plains, which specializes in accounting, financial management and other software for the medium-size business market. This will move Microsoft from creating applications for personal financial services for individuals, such as its Microsoft Money software and its Microsoft Network MoneyCentral Web site, to developing software packages that can easily run a 300-person company's accounting department. In a conference call, Jeff Raikes, a Microsoft group vice president, emphasized that financial software is only the beginning for Microsoft.

Great Plains has recently expanded its product line to include human resources and customer management software. Raikes compared the mission of the new Great Plains division of Microsoft to the integration of word processing, spreadsheet and other separate applications into the massively successful Office suite, a product Raikes helped drive to market in the late 1980s.

"[Great Plains CEO] Doug [Burgum] and his team and Microsoft understand the importance of making individual business processes applications into more than a suite, more a seamless application," Raikes says.

"We're committed to building a suite [of business processes applications]," Vaskevitch says. "There's even more potential for integration than in [Office]. Customers want an integrated software package that does it all."

In that statement, many will hear an echo of Larry Ellison, CEO of rival Oracle Corp. Ellison has been promoting Oracle's suite of business services with precisely that line, in opposition to Microsoft's strategy, which was to sell business customers a platform and let them choose best-of-breed solutions from among the many applications available. We may now hear that argument less from Microsoft.

Burgum's role and title underscore Great Plains' significance to Microsoft: He'll immediately join Microsoft's elite Business Leadership Team with the title of senior vice president. With Burgum still at the helm, Great Plains becomes a new division of Microsoft, operating out of North Dakota.

Great Plains has been in business for 19 years. With recent acquisitions of its own, it's grown to some 2,000 employees. It reports revenue of $300 million a year, and with its extensive web of local channel partners -- some 10,000 people - it generates perhaps $1 billion worth of activity in the medium-size business market.

Both Vaskevitch and Raikes separately spoke about how Microsoft will integrate Great Plains' software with its bCentral division, which caters to smaller businesses. The plan also will allow the extension of the bCentral application service provider or "software as a service" model to include the Great Plains software.

Vaskevitch foresees a time when businesses will have a mix of Microsoft software automating their operations, some of it hosted by an application service provider, including Microsoft, and some of it loaded on premises. He says Microsoft will retain Great Plains' channel partners and that they will have increased opportunities to offer add-on services.

Dwight Davis, an analyst at Summit Strategies, doesn't entirely agree with this vision.

"This is a real sea change for Microsoft," says Davis, who sees the move as Redmond reneging on promises to keep its hands off certain industry segments. Davis believes that the news will discomfit not only competitors of Great Plains, but also many Microsoft partners.

Davis says he expects Microsoft to make more acquisitions to meet its goal to build a full suite of business process applications. He also says Microsoft may gradually shift into supplying applications for the large enterprise space, perhaps eventually competing directly with Oracle in this market as well as in the database market.

As for Great Plains, it used to be a big fish in this market; now it's a tentacle of the giant octopus.

The two companies have been close for years. In 1997, in a prologue to the federal antitrust case, Burgum testified on Microsoft's behalf before Sen. Orrin Hatch's Senate Judiciary Committee. Burgum spoke about how the software industry worked and of the importance of independent providers like Great Plains.

Independent no more, late last night Burgum's board unanimously approved the takeover. The board chose, he says, to structure the deal on a stock basis, rather than cash basis, to indicate that he and his company "are buying in, not selling out."

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