Microsoft to SAP: My dog food is better than yours

SAP customers can expect to see more and more sales calls from Dynamics about which brand of dog food they should be feeding their subsidiaries.


Microsoft has always said that its strategy regarding SAP is to leave the top tier of the market to its erstwhile partner-competitor, at least when it comes to the large, back office systems that run the global 1000. Instead, Microsoft has said it prefers to sell into the subsidiary or regional operations of big SAP customers: let the head office chew on SAP software, while the regions dine on Microsoft's Dynamics AX, NAV, or GP products, with Microsoft providing the glue that sticks it all together.

Expect the two competitors to continue to circle each other warily, looking for in-roads that will annoy the other without destroying the cooperative side of the business between SAP and Microsoft.
Joshua Greenbaum,
principal consultantEnterprise Applications Consulting

What Microsoft has often been loathe to say is that Redmond is one of those big SAP head offices, and that for the most part what Microsoft calls its "hub" (SAP in the head office) and "spoke" (Dynamics in the subsidiaries) strategy for its customers hasn't actually been part of Microsoft's own IT strategy. Until now.

As part of a recent announcement of a new version of Dynamics AX, Microsoft also revealed that the manufacturing arm of its Home and Entertainment division -- the group that makes the Xbox -- had switched over from SAP to Dynamics AX. (Just to make sure everyone knows this isn't personal, Microsoft is also switching out its Siebel CRM systems and replacing them with MS CRM 3.0.)

There are two issues that make this significant. The first is that Xbox didn't waste their time with NAV or GP, but went for the gusto with what is arguably the most robust of the Dynamics products by far. The second is that Microsoft is claiming (though not necessarily stating out loud) some very aggressive cost savings: According to a presentation on the deployment, "competing systems" (i.e. SAP) were two to four times as expensive to purchase and more expensive to implement as well.

Related information:

Microsoft partner aims Dynamics at SAP, Oracle

Microsoft sees merging roles of Windows admins, developers

Microsoft, SAP to release Mendocino as Duet, unveil Web site

Stopping for a moment the temptation to speculate what the licensing negotiation process looked like between Xbox and AX (visions of Steve Ballmer clunking heads come to mind), SAP customers can expect to see more and more sales calls from Dynamics about which brand of dog food they should be feeding their subsidiaries. This direct cannibalization of the SAP customer base is surely not destined to bring smiles to the gang in Newtown Square and Walldorf, but it should make for some very interesting competitive pricing that will surely benefit end-users.

Expect the two competitors to continue to circle each other warily, looking for in-roads that will annoy the other without destroying the cooperative side of the business between SAP and Microsoft, which significantly out-powers the entire Dynamics revenue stream. For now.


Joshua Greenbaum is a market research analyst and consultant at Enterprise Applications Consulting. He has more than 15 years of experience in the industry as a computer programmer, systems analyst, author, and consultant. Prior to starting his own firm, Enterprise Applications Consulting, he was the founding director of the Packaged Software Strategies Service for Hurwitz Group, which focused on technology, infrastructure and business issues in the enterprise applications market.
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