Microsoft's Sudden Move on the Mid-Market

A version of this article first appeared in eB-21, published 10 times a year in Europe by TBC Research www.tbcresearch.com. Based in London and San Francisco, TBC Research helps senior business professionals make more informed technology decisions through its magazine, research, and events portfolio

Microsoft's surprise move into application software last month with the billion dollar purchase of Great Plains Software (GPS) bears all the hallmarks of a snap decision. But the rippling effects created by the dominant platform provider buying one of the most promising mid-market application software vendors will be felt for some time to come.

Microsoft had repeatedly reassured its application partners, which have now entered double figures in the mid-market ERP sector, it would not buy into ERP. As recently as 1998, Steve Ballmer, now Microsoft's head honcho, stood up at GPS' own Fargo conference and said as much.

The all stock deal, announced on December 21, came as a surprise to everybody, not least Neil Robertson, until recently UK managing director of Great Plains: "There had been rumors GPS would be acquired by somebody, but I'd never considered that Microsoft would make that level of change from supporting applications vendors to being a mainstream applications provider."

Microsoft is always talking to other software providers, and in such a fast-moving market acquisitions are always on the cards. But, even for a market used to change the GPS deal happened very quickly, according to sources. Paul Tollet, director of small business at Microsoft, said the level of co-operation between the two--GPS had previously developed a product for Microsoft, and its CEO Doug Burgum had come to the software giant's defense at its trial--was a key factor. "We'd worked with GPS in the past, we respect it and know it, and the price was right. There were other ISVs we may have been interested in, but they might have had a prohibitive value on them."

Dave Coulombe, VP of strategy at GPS and privy to the takeover talks, said it had been talking to Microsoft since the autumn, but admitted things had been put on the fast track. He added, however, that GPS had not been actively looking to be acquired, and a string of its own recent acquisitions, including HR provider PWA in the UK and Solomon Software and fRX in the U.S., certainly back this up. "We had a great future as a standalone company if that was a strategy we had chosen to pursue."

The deal not only gives GPS market credibility and access to expansion funds, but the two have announced their intention to develop for Microsoft's next generation .net platform and its bCentral ASP service. The deal will also take GPS deeper into the lower end of the mid-market, prompting rival vendors to suggest a flight to the top-end, where, they claim, Microsoft will not play.

Yash Nagpal, UK managing director of Navision, itself recently merged with Danish rival Damgaard, said: "It's a surprise but I'm not concerned." He added as the bulk of GPS' revenues come from the U.S. and the focus of the deal was around ASP, "it won't make a great difference out there."

For Microsoft, the move represents an opportunity to back up the introduction of its .net initiative with the applications that run on it, in the same way that Word 2 and Excel 3 are thought to have driven sales of Windows 3. But the contradiction inherent in its positioning was inadvertently summed up by Tollet when he said: ".net is application independent and others ISVs can embrace it and all it offers. At the same time Microsoft is going to be in the applications business more."
For partners, the tie-up may also threaten GPS' existing integration and closeness to front office vendor Siebel, as Microsoft began cosying up to rival CRM player Pivotal just before it announced the buy. Robertson, now head of a CRM consultancy, 30/30 Vision, said: "In terms of the front-office, resellers need to do their homework and ask some pointed questions about where GPS is going."

Others are rubbing their hands with glee at the prospect of having Microsoft's might behind them and being able to sell additional Microsoft-based products to existing customers. Faisal Khan, marketing director of GPS reseller Tate Bramald, which recently released a SQL Server-based business intelligence product said: "The secret of GPS' success has been to focus exclusively on the Microsoft platform. This gives us an additional market to go for and will reinforce our message."

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