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Microsoft's cloud conundrum

News that Microsoft plans to move three (count ’em 3!) of its legacy ERP products to its cloud is both stunning and unsurprising. And it illustrates the company’s cloud problem.

MIcrosoft already offers hosted CRM to customers as a Software-as-a-Service (SaaS). But Microsoft Dynamics CRM Online is not yet hosted on Azure, the company’s much-touted cloud platform which has been available, at least in part, since early last year.

This week at Convergence 2011 in Atlanta, Microsoft is expected to talk about how and when it will deliver ERP via a subscription from its own servers.  Ideally, the company would like to offer versions of Dynamics NAV, GP, AX (that would be Navision, Great Plains, and Axapta to English speakers) from Azure, and is working to do so but it’s unclear whether that will be the case or whether they will run on some non-Azure environment. [UPDATE 4/13/2011: The cloud-enabled ERP products will run on Azure, Microsoft said this week.]

ERP would be a great opportunity for Microsoft to pick a code base (probably Axapta) and go with it while continuing to support legacy customers on the other lines. That way the company could resurrect its late, lamented “Project Green” plan that promised a unified ERP product.  The Project Green idea was similar to Oracle’s Fusion applications plan announced years later. Oracle Fusion apps (still underway) would take the best features from multiple business applications and knit them altogether in a “greatest hits” of application code.

Instead, Microsoft is lugging three out of four somewhat elderly client-server code bases into the cloud era. Hardly the most efficient model and that news stunned onlookers and that really spells  the end of the Project Green promise.  

Microsoft is expected to soften the blow to its channel (100% of Microsoft ERP sales now go via authorized Dynamics partners) by mandating that initial sales of Microsoft-hosted ERP be sold by Dynamics partners.

This is a huge commitment by Microsoft to its installed base but also represents a huge hindrance.

Moving three ERP lines instead of one to Microsoft’s cloud is “like racing in the Americas Cup while dragging a parachute,” said Paul DeGroot, founder of Pica Communications, via email. “For everything that the competition comes up with, Microsoft gets to triplicate the effort.”

Others say Microsoft is a victim of its own success and must tread carefully so as not to leave its installed base behind and/or lose them to younger more cloud-oriented players like or NetSuite. Microsoft has to hope that most of its Dynamics customers are really not ready for the cloud yet and that by the time they are, Azure and Microsoft-hosted ERP will be waiting for them. Analyst Ray Wang of Constellation Research said Microsoft might get lucky on that front. Research he did last year showed that the bulk of the Dynamics installed base was not eager to make the cloud leap.

Still, Microsoft has signaled that it is “all in” for the cloud trip and now has to match up overlapping and confusing product and service time tables to make good on that promise.

“The tools required to run Dynamics [applications] on Azure are not ready. Azure is still a work in progress but the future and direction has been set by Microsoft so partners have to straddle the reality of Azure not being ready,” said Wang.

The constituency most at risk here are the Microsoft hosting partners that already offer Dynamics ERP. “The problem for them is that Microsoft has such huge scale in its cloud facilities that very few hosting partners will be able to compete,” Wang said.

That’s very bad news for Microsoft hosting partners. But the bad news for Microsoft is that its already confusing and redundant multiple-ERP effort will continue from today’s client-server realm right into the cloud.

Let us know what you think about the story; email Barbara Darrow, Senior News Director at

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