Microsoft’s committed to the cloud, but what about Dynamics?

Over the past couple years, Microsoft has made a dramatic – and welcome – about face on cloud computing. Steve Ballmer says, “We’re all in!” Meanwhile, the Office 365 announcement demonstrates Microsoft’s commitment to the cloud, even at the risk of cannibalizing the company’s on-premise alternatives.

We continue to wonder, however, what this all means for the Microsoft Dynamics product line. Migrating desktop apps to the cloud is one thing – no customization or integration. It’s quite another challenge to move four enterprise resource planning (ERP) systems to the cloud and migrate hundreds of thousands of customers.

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Here are some of the challenges I see:

Architecture – The current Microsoft Dynamics ERP products are built on a single-tenant, hybrid client/server and web-enabled architecture. This architecture works just fine, but it’s not cloud-ready. Sure, these solutions can be hosted to offload IT burdens. But they don’t have the pure web, multi-tenant architecture required to take full advantage of the cloud’s economies of scale. Getting there will require a major re-write of the Dynamics architecture.

Multiple products – Cloud migration is daunting enough, but the challenge is further complicated by the existence of four different architectures – AX, GP, NAV and SL. While they’re all built on Microsoft platform technologies, their data models and application logic are each unique. Microsoft faces the challenge of converging all four products onto a single cloud architecture. The company has already abandoned Project Green, the prior plan to converge the Dynamics products.

Partner channel – Microsoft’s channel partners will need to change their business strategies for the cloud. For years, channel partners have made their money from reselling Dynamics, implementation services, hardware sales and upgrade cycles. There will certainly be a need for customization and integration of cloud-based Dynamics products, but major resale opportunities will fade. Microsoft risks upsetting its tried and true VAR channel as it moves to the cloud.

Market readiness – Most importantly, if Microsoft did commit to moving Dynamics to the cloud, would the market be ready? Sure, there’s plenty of hype over the cloud – and we think the benefits of cloud computing are very real. But is Microsoft’s market – the early and late majorities – really demanding a cloud solution? Not yet. So Microsoft would ideally want to time such a major product cycle with its customer base’s appetite. It will happen; we’re just not sure when.

So what might Microsoft do in this situation? I see a few alternatives.

  • Build a new solution similar to Dynamics CRM, which offers a hybrid of cloud and on-premise. Their best bet is probably to leverage the Dynamics CRM platform.
  • Acquire an ERP cloud computing player like Intacct or NetSuite. We see this as less likely since there’s no single player with meaningful market share and .Net technology.
  • Move all four Dynamics products to a cloud computing architecture, essentially replicating four products’ functionality on four evolving platforms.
  • Market around the issue, offering hosted options through partners, but never fully embracing true cloud-based ERP. Risk missing the transition to cloud computing.

What’s your prediction for the Dynamics ERP cloud strategy?

Hunter Richards is an Accounting Market Analyst for Software Advice. He specialises in accounting software, but often writes on cloud computing and green issues. Hunter graduated in 2010 from Washington University in St. Louis with degrees in economics and film studies. Before working at Software Advice, he conducted legislative research for offices of the U.S. Congress.