Microsoft Seeks To Infiltrate SAP as Sapphire Begins

Microsoft makes mistakes with Dynamics -- yes, we're complaining about the four suites again -- but its strategy for siphoning off market share from other vendors is dead on. We saw another example of that this week.

As SAP opened its huge Sapphire conference (now apparently called "Sapphire Now" in all capital letters, although we just don't feel like writing it that way) this week, Microsoft distributed a sneaky little press release about a connector between Microsoft Dynamics AX and SAP Business Suite.

The new offering sounds innocuous, but it could actually be a powerful weapon for Microsoft in market share battles with SAP. The idea behind it is to let companies that have SAP installed at their headquarters-run AX at their branches, divisions and satellite offices; the new connector ties SAP and AX together, thereby (ideally) integrating the two ERP systems into one smooth-running operation.

Why is this move so shrewd on Redmond's part? For a couple of reasons: First, companies that have spent enormous sums of money to implement SAP as their corporate backbones aren't going to rip it out and replace it with Dynamics AX. They just can't. AX really isn't built for that kind of heavy-duty use, anyway.

But now, those firms can implement the cheaper, simpler AX at satellite locations and let workers get used to it. And when it comes time for an SAP customer to reevaluate ERP, maybe Dynamics makes its way into the picture based on the performance and simplicity of AX in the sticks.

Beyond that, Microsoft has always considered branch offices of big corporations -- along with SMBs, of course -- as a perfect target for Dynamics. Smaller operations with smaller budgets, even if they're part of a larger organization, will likely have a much easier time implementing AX and hooking it to the SAP implementation at the mother ship than they would trying to extend corporate's SAP system out to their locations. (Yes, SAP really is that complicated to deal with.)

So, not only does Microsoft infiltrate SAP's customer base, it also cuts off a flow of revenue to the German vendor. SAP has long made money (lots of it, actually) by feeding off of its own fat and selling back into its existing customer base. Microsoft can now siphon off some of that revenue and put the hurt on the ERP market leader. Smart thinking, indeed.

Meanwhile, SAP is making announcements about Business ByDesign as if nothing ever happened to the forlorn hosted offering. We have it on pretty good authority here from a solid source that SAP axed most of its Business ByDesign team and pretty much started over last year with the service, which had never really caught on with customers. (Actually, that little bit of info is probably public knowledge in ERP circles now.)

Now, for Sapphire, Business ByDesign is back, and SAP is treating it as if it had been around the whole time (which, technically, it has…but in reality it pretty much went away and came back). The "new release" of the service improves on…well, pretty much everything, because Business ByDesign had almost ceased to exist, anyway. It's essentially a reintroduction of the service itself.

To its credit, SAP is courting partners for Business ByDesign, something the hybrid-sales company hasn't always done. Perhaps it is trying to take advantage of some of the partner squeamishness over Microsoft's hosted enterprise offerings. SAP had better watch out, though, because Microsoft and Dynamics AX are slowly closing in on the German vendor's bread and butter. And Microsoft is ready to take a bite out of the ERP market.

What do you make of Microsoft's Dynamics strategy? Have you suffered an ERP implementation nightmare that would make you think about never using a vendor again? Send your thoughts to [email protected].

Posted by Lee Pender on May 17, 2010