Microsoft's cloud ERP plans get mixed reactions

Customers and partners aren't sure what to think just yet about Microsoft's intentions for Azure-based ERP deployments

Microsoft's announcement this week that it would begin offering its Dynamics ERP (enterprise resource planning) software via the Azure cloud platform drew significant interest from attendees of the Convergence conference in Atlanta, but some users and partners have questions Microsoft has yet to answer about its plans.

With Azure, Microsoft said it can deliver ERP at scale for lower cost, through means such as multi-tenancy, an architecture that differs from traditional hosting by allowing many companies to share the same instance of an application, while keeping their data private. This approach enables vendors to apply upgrades frequently and more easily to customers, and is more economical.

Microsoft is not expecting all customers to adopt the Azure model, and anticipates many hybrid deployments.

That outlook is reflected in the attitude of users like Lee Weiner, chief financial officer of printer parts supplier Bradshaw Group in Richardson, Texas. The company currently runs Dynamics NAV on-premises.

"I have one IT guy, so it's not like I'm going to save a lot of money by outsourcing that," said Weiner, who also chairs the Dynamics NAV User Group's advisory board. However, he added, "I'm interested in following the technology."

"The other question is how much flexibility do you lose?" Weiner said. "The loss of flexibility, does it outweigh the cost that you save? Every company's going to see that a little bit differently."

Weiner also doesn't see a burning need to mess with success.

The NAV system replaced one from Sage that had been problematic. Thanks to the added efficiencies in NAV, Bradshaw has seen a significant return on investment. "We're doing more with less. There are less bodies to do the same amount of work. I can have one person in purchasing instead of three," he said.

He is concerned about potential downtime due to a system failure in the cloud. "I live and breathe on the fact that I have my systems up." Right now, Bradshaw is achieving nearly 100 percent uptime with the in-house deployment, he said.

Ryan Connolly, director of enterprise solutions at the American National Standards Institute in New York, said he is interested in cloud deployments, but it likely won't happen. ANSI uses Dynamics GP and CRM, among other Microsoft products.

"My boss isn't into the cloud thing. He likes having everything on-site, on-premise," Connolly said. The company's higher-ups are particularly afraid of customers' information being exposed, he said.

Connolly can see pushing ANSI's SharePoint and Exchange implementations to a cloud service. ERP would also be possible because ANSI's system has a small footprint, focusing on basic accounting functions and not more complex areas like manufacturing, he said.

Microsoft may have some success convincing customers with smaller IT shops to move to Azure, said Frank Vukovits, director of programming for the Dynamics AX User Group.

A single IT staffer may be pulling double, triple, even quadruple duties as a database administrator, network technician and Exchange server supporter, he said. If the ERP system was moved to Azure, that could free up time for projects that create new benefits, instead of keeping the lights on.

But for companies with larger IT staffs, such a move may be less attractive. "It's a little tougher to say we'll move ERP but keep everything else in-house," he said.

However, Dynamics customers who are already using a hosting service would do well to give Azure some consideration, according to Vukovits. "Most people don't know Microsoft has been in the hosting business for a long, long time," he said. "If I was a CIO I would probably be comfortable hooking up with Microsoft."

Argo Turboserve Corp., a user of both Dynamics AX and CRM, has some interest in moving to the cloud but will likely do a phased approach, said CIO Art Johnston, who is also chairman of the Dynamics CRM User Group's advisory board.

But Johnston is not satisfied with the level of detail Microsoft has provided so far about its plans, particularly about how such a deployment will integrate and co-exist with other systems at Argo, a supply chain management and nuclear engineering services company based in Edison, New Jersey.

Microsoft will tackle cloud integration with technologies like Azure Service Bus, according to Kirill Tatarinov, corporate vice president and head of Microsoft Business Solutions. "Interoperability has been a huge priority for Microsoft as a whole and Dynamics," he said.

Johnston also has mixed emotions about subscription pricing, which helps customers avoid large up-front costs, but in the long run may end up costing more.

Meanwhile, Dynamics ERP has historically been sold and delivered strictly through Microsoft's vast partner channel, whether in on-premises or hosted form. Partners have therefore been the primary "face" for Dynamics customers, not Microsoft itself. They also depend on ongoing revenue from services engagements.

"We expected it," said one employee with a hosting company based in California, who requested anonymity. "Their message for the last year or so has been all in [for the cloud]. You can't have 'all in' without ERP," he said.

Microsoft hasn't given partners like his company much information so far, he said. "They said they were going to bring the partners into the cloud. We're not sure how."

However, he added, "there's been room for us with [Dynamics] CRM Online, so we're thinking there's going to be some aspects where we fit in."

Microsoft is certainly trying to hammer that message home. "Whatever we do, we bring the ecosystem with us," Tatarinov said during a keynote address Monday. "It is hugely important for us to take the entire ERP ecosystem into the cloud."

It is not as if Microsoft would attempt to cut partners out of the loop, given their important role both as ISVs (independent software vendors) and systems integrators and as the vendor's sales channel.

For one, partners will be able to sell "cloud-enabled" vertical applications, services and add-ons through the Dynamics marketplace. Microsoft has also released a Cloud Partner Profitability Guide that is supposed to help partners mull over the financial implications of the cloud deployment model.

Partners "will still be very, very involved with the process," as Dynamics software moves to Azure and Microsoft's own data centers, said Guy Weismantel, director of ERP marketing. "Partners are still going to own the primary [customer] relationship in most cases. In today's environment, the partner's generally in the lead. We don't anticipate much changing as we move into the cloud."

However, it may be different for AX customers with multinational accounts, according to Weismantel. AX is aimed at larger companies, particularly manufacturers. "With those types of companies, they may want a direct relationship with Microsoft," he said.

Microsoft is still working on how to handle billing for Azure ERP so customers are presented with a single invoice, he said. It has had some practice, however, thanks to CRM Online, he added.

Partners will still have great flexibility to customize Dynamics software even when it is residing in a multi-tenant environment, although the process may need to be more regulated, according to Tatarinov.

That said, Microsoft has of late introduced much more regimentation and methodologies for development than in the past, he said. Now it will be about "taking it to the next level in the cloud."

"We have a broad partner ecosystem," Tatarinov added. "Some will make the transition, some will continue to sell on-premises."

In any event, members of the Dynamics ecosystem have plenty of time to figure out their positions. The first Dynamics application to hit Azure will be NAV 7, scheduled to be released next year.

That means it could be several years before the entire Dynamics lineup is ported to Azure.

Despite that timeline, Microsoft does not consider itself late to the cloud ERP game compared to competitors like NetSuite or SAP, and its approach is deliberately designed to ensure customer success, Tatarinov said.

"Nobody's doing it in the cloud at scale today. Everyone who's doing it today has massive issues. They're largely figuring it out," he said. Those challenges include privacy, partner models and ISV ecosystems, according to Tatarinov.

"We don't want customers to figure it out, we want to figure it out and bring it to our customers," he said.

Chris Kanaracus covers enterprise software and general technology breaking news for The IDG News Service. Chris's e-mail address is Chris_Kanaracus@idg.com

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