Foley on Microsoft

Microsoft's Grand Plans with Sharpened Focus on Dynamics 365

Microsoft is hoping to give it's CRM and ERP line-of-business software offerings a shot in the arm with an Office 365-like makeover and focusing on unifying all aspects under one banner.

• By Mary Jo Foley
• 11/30/2016

Let's be candid. Until this year, Microsoft's Dynamics business was a sleepy backwater barely on the radar of most company watchers, partners and customers, where Salesforce and Oracle reigned supreme. Then suddenly, Dynamics -- CRM and ERP line-of-business software lines -- became dynamic.

Microsoft's interest in jumping into the business apps space surfaced last May when Salesforce.com CEO Marc Benioff reportedly spurned an acquisi­tion offer of approximately $55 billion, apparently holding out for a substantially greater bid. A month after the talks fizzled marked the beginning of the meltdown of love between the two companies when, as part of one of the company's many reorgs, Microsoft brass brought Dynamics more into the fold, with engineering moving to the Cloud and Enterprise unit. Once that happened, it appears Microsoft woke up to the reality that the company was just going through the motions regarding CRM and ERP. Sure, the company was making a bunch of acquisitions in those spaces but some, including Netbreeze and Parature, seemed to go nowhere and contribute little to the company's competitive lineup.

Then out of the blue earlier this year, Microsoft announced a brand-new emphasis on Dynamics. Instead of keeping CRM and ERP in separate silos, Microsoft said it will combine the products in those buckets into a unified service called Dynamics 365, consisting of discrete modules that customers can mix and match in various ways.

The announcement of Dynamics 365 caught a bunch of longtime Microsoft partners and customers by surprise. Bits of leaked information about the coming licensing and pricing plans had many nervous because of their complexity and seeming expense. Microsoft's decision to try and up-level the conversation to focus more on "business transformation" and less on tangibles like migration strategies and features made room for conjecture and rumors.

When Dynamics 365 became available for purchase for the first time last month, more than a few existing Dynamics CRM users contacted me, worried because their Dynamics CRM tile on their dashboards had disappeared but, as it turns out, they were actually there under the new name. Speaking of renaming, in some ways Dynamics 365 is largely a relabeling of pieces of Microsoft's existing CRM and ERP lineup, instead focusing on "financials," "sales" and "operations."

But there's more going on. As part of Microsoft's Office 365 productivity focus, CEO Satya Nadella and Co. are very focused on overhauling and improving business processes. Dynamics 365 is key to that mission. And mobile-first, cloud-first? Dynamics 365 -- even though it still encompasses on-premises versions of Microsoft's CRM and ERP products -- is a key part of Microsoft's strategy on those fronts. Until now, Microsoft wasn't pushing the Azure-hosted versions of its existing ERP wares very hard, even though it was encouraging (but not forcing) users to go to Dynamics CRM Online rather than Dynamics CRM on-premises as much as possible.

The Dynamics 365 service, along with Office 365, Intune, Power BI and a number of other evolving Microsoft cloud services, are part of the "commer­cial cloud" metric that Microsoft and Wall Street love to celebrate these days. Microsoft officials say they're on track to hit their self-imposed 2018 deadline to reach a $20 billion annual commercial cloud run rate. Currently, Microsoft officials say they're at the $13 billion annual run-rate mark. (Microsoft isn't breaking out how much of that $13 billion is from Azure versus Office 365 and other services, but my bet is the bulk is Office 365.) The only way Microsoft's going to hit $20 billion in a year-plus is to really grow all the parts of its cloud services business.

Though Microsoft officials bristle (at least publicly) when any of us Microsoft historians mention the company's ill-fated attempt to unify its various ERP product lines via an effort known as "Project Green," Dynamics 365 (with its Common Data Model shared-entity database) is, in reality, Microsoft's latest run at that 2007-era goal. This time around, the cloud is at the center of Microsoft's Dynamics plans.