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Marking a major change in the way Microsoft sells Dynamics ERP, future versions will be on Azure
By Chris Kanaracus
IDG News Service (Boston Bureau)

ATLANTA (04/11/2011) â€" Microsoft is moving its Dynamics ERP (enterprise resource planning) applications to its Azure cloud platform, the company announced Monday at the Convergence conference in Atlanta. The belated move represents a major change for the way Microsoft sells Dynamics, which has traditionally been sold through partners in on-premises and hosted form.

The next major releases of Dynamics will run on Azure, and customers “will be able to move to the cloud on their own terms,” Microsoft said in a statement.

Industry observers have been wondering for years whether Microsoft would make such a move, and Kirill Tatarinov, corporate vice president of Microsoft Business Solutions, alluded to the speculation during a keynote speech Monday morning.

He sought to calm any partners and customers in attendance who might have fears about what the cloud option will mean for their businesses. “Whatever we do, we bring the ecosystem with us,” Tatarinov said. “It is hugely important for us to take the entire ERP ecosystem into the cloud. All those people who make those changes and bring Dynamics to you today will be there in the cloud.”

Microsoft is also planning this week to discuss how partners can profit from the Azure deployment model. 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 for partners.

That said, Microsoft has no real choice but to embrace partners for cloud-based ERP, given the software’s added complexity and the general need to fine-tune it for each customer. It would also be unwise for Microsoft to simply shunt partners aside, because of the vast, in-place sales channel they provide.

The eventual addition of an Azure deployment model will heighten Microsoft’s competition with companies like NetSuite, which sells a cloud-based ERP system, as well as SAP, which has introduced Business ByDesign, an on-demand software suite.

The first Dynamics ERP application to get the Azure treatment will be NAV, with a major release currently scheduled for 2012, Tatarinov told press and analysts after the keynote.

Azure Dynamics deployments will incorporate multitenancy, an architecture that differs from traditional hosting in that it allows many customers to share the same instance of an application, with their data kept private. This allows vendors to deliver upgrades frequently and more easily to customers, and provides economies of scale that can potentially bring down costs.

Salesforce.com CEO Marc Benioff, one of the industry’s most vocal proponents of the cloud computing model, has compared the architecture to an office building, where many different companies have private, confined offices, but share electric lines, plumbing, structural supports and other infrastructure components.

While multitenancy remains an important technology for cloud computing, its relevance is waning as the industry, including Microsoft, makes advances in virtual machine management, Tatarinov contended.

Microsoft’s experience gained by delivering CRM Online at scale, along with those technical advancements, will help drive down the cost of ERP in the cloud, he said.

But little information about pricing for the cloud versions of Dynamics ERP was disclosed Monday. “The types of things we do may be different for different products,” Tatarinov said. However, many customers are already paying for the software as a subscription through partners, he noted. The Azure Dynamics products will also be available via subscription, he said.

Microsoft is not expecting a wholesale migration of customers to the cloud, Tatarinov said. “In ERP, you will see mostly mixed workload deployments.”

For example, a customer may want to deliver ERP to its field services representatives via Azure but keep the core back-end ERP system in house.

The process of customizing Dynamics ERP for Azure should also be smooth for partners currently building extensions and vertical applications for other deployment models, Tatarinov said. A new configurator tool for the upcoming Dynamics AX 2012, which will also run on Azure, provides “enormous power” for tweaking the software without writing code, he said. Developers can continue using C# or other .NET languages to tweak the software as well, he said.

Microsoft is planning to give partners and customers guides and methodologies for writing code that will run either on-premises or in the cloud, he said. But it’s always possible that an existing customization won’t be perfectly compatible with cloud deployment, depending on how it is written.

Overall, having the cloud deployment option makes a difference on net new sales, or when existing customers are looking to do something new, said Frank Scavo, managing partner of the IT advisory firm Strativa.

But current Dynamics users might be comfortable with their implementations and “don’t have a driving need to move those systems to the cloud.”

Still, NetSuite and others are applying pressure that Microsoft must combat, Scavo said.

Also Monday, Microsoft gave showgoers a look at Dynamics AX 2012. The beta version of the ERP application will be available this month, with a general release expected in August, Microsoft said.

Features in AX 2012 include a series of “Unified Natural Models,” described by Microsoft as “a library of business processes that reflect real-world situations.”

AX 2012 also features the “role-tailored” user experience Microsoft has been building into its business software. The approach configures the application’s look and feel depending on the particular user’s job.

In addition, Microsoft announced that Dynamics SL 2011 and the on-premises version of Dynamics CRM 2011 are both generally available, and that Dynamics GP 2010 R2 will be generally available on May 1.

Although Microsoft has big plans, ERP and CRM software currently represents a small fraction of its overall revenues, much of which comes from the Windows OS and Office productivity software.

But the company is hoping to use Dynamics’ position amid a slew of other Microsoft technologies as a positive.

“Dynamics might be seen as a stand-alone business unit, but really benefits from Microsoft’s other areas. And it’s a key integration point,” CEO Steve Ballmer said during the morning keynote.

The software will benefit from products like Microsoft’s Bing search engine, Lync unified communications technology and even the Kinect motion controller for the Xbox gaming system, Ballmer said, although he didn’t provide specifics of when or how that would be.

Convergence continues through Wednesday in Atlanta.

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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