|January 1, 2001|
Microsoft Gets Into Enterprise Apps
Great Plains acquisition highlights need for growth areas
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Four days before Christmas, Microsoft revealed plans to spend $1.1 billion to acquire Great Plains Software Inc., a developer of enterprise resource planning applications for the small and midsize market. It's a major step for Microsoft, and one that underscores the company's need to develop new channels of growth.
Microsoft, which has built its business selling operating systems and PC apps, expects the acquisition to lead to new revenue streams, not only from licensing and servicing Great Plains' ERP and E-business applications, but also by pulling along sales of Microsoft's database, application server, and Web infrastructure software. Microsoft says it will target small and mid-size businesses with the products.
Jeff Raikes, VP of Microsoft's productivity and business services group, says Great Plains' software will be integrated into bCentral.com, Microsoft's hosted Internet software and services for business, and become part of its wide-ranging .Net strategy. The software will also continue to be sold as a package.
Microsoft envisions making hosted software and services act seamlessly with software deployed by its customers "as if they were a single application," says Raikes, much like what the company is already doing with its Office desktop applications.
AMR Research analyst John Hagerty says Microsoft is finally getting a key message about the way small and midsize companies buy business software. "These companies buy applications first, and then think of operating systems and other technology," he says. "Microsoft can't afford to be a pure play around technology any more."
Tom Cook, an E-business strategies analyst at AMR Research, says Microsoft's plans to target the midmarket should keep it "out of the hair" of SAP and other leading ERP vendors. But Microsoft's reputation for smothering the competition when it enters a new software market is sure to raise eyebrows.
Gartner analyst David Smith says competitors will worry that Microsoft's move will give it too much power and influence. "Microsoft will have to answer a lot of questions about whether this makes it too powerful," Smith says. Microsoft continues to be locked in an antitrust suit pressed by the Department of Justice.
SAP America president Chris Larsen says his company's relationship with Microsoft isn't threatened by the Great Plains deal. SAP targets companies with $200 million in revenue or more, and its customers buy a full suite of ERP, supply-chain management, customer-relationship management, and E-business functionality. "In no way, shape, or form do I see Microsoft as a competitive threat to us," Larsen says.
The deal will undergo regulatory scrutiny, but Microsoft expects it to be approved. Company spokesmen say the deal, in which Microsoft will exchange 1.1 of its shares for each share of Great Plains, is expected to close in the spring.
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