Microsoft launches new assault on business apps

By Bill Rigby

SEATTLE (Reuters) - Microsoft Corp is making its strongest push yet into the steadily growing business software market in the hope that it can create another multibillion-dollar business.

The world's biggest software company, which still gets the majority of its sales from its Windows and Office franchises, is hoping it can wrestle market share from heavyweights SAP AG and Oracle Corp, and upstart online vendor Inc.

"The opportunities to make a good business economically are wonderful," said Microsoft Chief Executive Steve Ballmer in a telephone interview on Monday. "We're pretty pumped up."

Research firm IDC predicts that companies will spend $118 billion a year worldwide on "enterprise applications" by 2014, referring to the software they use to automate accounting, human resources, sales, supply chains and other operations.

Ballmer declined to target a percentage figure his company hopes to win, but thinks it can outpace the leaders.

"If we don't dramatically outgrow Oracle and SAP I'd be disappointed," Ballmer said.

Earlier in the day, Ballmer unveiled the company's latest plans at Microsoft's business software conference in Atlanta, attended by about 9,000 users.

He gave a preview of the company's new enterprise resource planning (ERP) software -- the flagship of its business applications efforts -- which will soon be accessible online or "in the cloud" for the first time.


Worldwide businesses spent about $21 billion on ERP software last year, according to tech research firm Gartner, and that figure is set to grow about 5 percent a year over the next few years.

Microsoft is currently a distant fifth in the market, behind SAP, Oracle, Sage Group Plc and Infor Global Solutions.

The other main business segment is customer relationship management (CRM), or programs for organizing a company's contacts with customers and sales activities, which is worth about $10 billion a year and set to grow at around 7 percent a year, according to Gartner.

Microsoft is fourth in that market, behind SAP, Oracle and, which pioneered the "cloud" approach, where users access programs over the web rather than use ones installed on their own computers.

That presented a direct challenge to Microsoft, whose dominance in operating systems is based on installed software, but the company is fighting back and embracing the cloud.

It moved a version of its CRM product online, and said on Monday that its Microsoft Dynamics ERP application will run on its Azure platform, which Microsoft created as the basis for its cloud-based offerings.


Microsoft has been in the ERP business for 10 years, after buying accounting software company Great Plains in 2001. It added Danish firm Navision a year later to expand its range and extend its customer base in Europe.

Over those 10 years, Microsoft has grown steadily but has not managed to seriously challenge the market leaders. It does not break out revenue from its business software products, but Gartner puts Microsoft's combined ERP and CRM software revenue at about $1.7 billion last year.

That's a fraction of Microsoft's overall $62 billion revenue last fiscal year, and only a small part of the almost $19 billion in sales from its Business Division, which is dominated by the Office suite of programs.

"We see this opportunity as very significant," said Kirill Tatarinov, who runs Microsoft Business Solutions, in an interview last week. "It is certainly a growing profit engine inside Microsoft that is really now bringing a very positive impact on the corporation. Over time we expect that impact to grow."

Microsoft executives say its products work out cheaper than its rivals, factoring in the whole cost of ownership over time, and have a huge advantage by working seamlessly with its Outlook email and SharePoint web applications, which are standard issue in most offices worldwide.

"Microsoft is exceptionally interesting right now," said Sharon Mertz, an analyst at Gartner specializing in CRM. "They've been pushing online like crazy, and they've been getting traction. I think they are making inroads."

Microsoft says it has 27,000 customers and 1.7 million users of its Microsoft Dynamics CRM application worldwide. In comparison, says it has more than 90,000 customers, and more than 3 million subscribers.

Some doubt that Microsoft can compete with SAP and Oracle, especially in the large company market for ERP and CRM.

"Frankly, I don't give them much chance. Oracle right now is a juggernaut, especially after they bought Sun Microsystems," said Michael Yoshikami, CEO of investment firm YCMNET Advisors.

"They can carve out a percentage of the market, but not be a dominant player. I don't see anything they have that's unique enough to make them anything more than number three or four."

(Reporting by Bill Rigby; Editing by Phil Berlowitz)