Microsoft Strengths, Domain Expertise, and Key Differentiators
Microsoft started rebranding its CRM and ERP products as Dynamics 365 in a move that followed the tradition of its Office productivity products – the whole is always bigger than the sum of its parts. The software, part of the Dynamics 365 product line, was first on general release in November 2016, initially branded as Dynamics 365 for Operations.
In July, 2017, it was rebranded to Dynamics 365 for Finance and Operations. At the same time, Microsoft rebranded their business software suite for small businesses (Business Edition, Financials) to Finance and Operations, Business Edition, however, the two applications are based on completely different platforms.
The name change has been set in motion since Dynamics CRM and AX products have been gaining momentum, while NAV, SL and GP have a long history of winning in specific markets. NAV performed well in Scandinavian countries, SL was strong among project-based organizations, and GP held up in North America, especially in distribution vertical.
The emergence of Dynamics 365 crystalizes Microsoft’s vision of delivering an assortment of Cloud services designed for different roles – customer engagement, operations and team member. The first is the familiar territories of its Dynamics CRM products for sales, marketing and customer service, coupled with newer apps for social listening, analytics and insights.
The operations part of Dynamics 365 is geared toward finance, manufacturing, operations, retail, distribution, procurement, and project management functions. The team member portion handles such tasks as time and expense, employee self-service as well as talent management.
Dynamics 365 covers Business Edition($40 per user per month) and Enterprise Edition($210 per user per month) with the former focusing on companies with fewer than 250 employees and the latter for larger organizations.
The price points of both editions, which cover all-you-can-eat applications, are competitive when alternatives from other vendors fall short since they typically gravitate toward CRM or ERP, but not both. According to Microsoft, most users have Plan 1, which starts at $115/user/month before waterfall pricing and other discounts, or they purchase the individual apps, most of which are $95/user/month.
Only a small subset of an organization requires full licenses for Unified Operations, and customers can mix and match subscriptions vs. needing to purchase the same thing organization-wide.
Since the announcement of Dynamics 365 in July 2016, Microsoft Dynamics revenues grew 9% driven by Dynamics 365 revenues, which jumped 78% in its fiscal 2017. With growing sales of Dynamics 365, Microsoft’s cash cow remains its Office franchise with 1.2 billion users around the world.
The on-premise revenues of Office including both Commercial and Consumer releases are at least four times the size of their Cloud counterparts based on our estimates. Office’s on-premise revenues are expected to remain the biggest line item within the Productivity and Business Process group at least through 2020.
With a $26-billion price tag, the December 2016 purchase of LinkedIn, its biggest acquisition ever, could tip the makeup of its enterprise applications revenues in favor of Cloud services.
Regardless of the delivery model, Office and Office 365, which now share a common data model with Dynamics 365, continue to loom large in the future of Microsoft.
The issue remains how Microsoft plans to extend its applications portfolio to the more than 500 million members of LinkedIn, some of whom may find new reasons for subscribing to Office 365 and Dynamics 365 as they move more of their sales, marketing, HR and other corporate functions like sourcing online.
For one thing, LinkedIn, unlike other social networks, has already established a healthy recurring revenue stream from millions of paid members. When these individuals are seeking out each other for professional and personal growth, LinkedIn becomes more like an idea marketplace than a social network.
The 2015 purchase of Lynda.com for its learning content has propelled LinkedIn to the leadership position in the eLearning content segment, underscoring the fact that individuals and companies are willing to pay up for valuable content.
The upshot is to continue to monetize those connections through not just membership fees, but also Microsoft apps and tools that it can sell to enrich those interactions. That in itself should reinforce the notion that Microsoft is all about the whole, not just the sum of its parts.
Microsoft Recent Developments
In December 2016, Microsoft completed the acquisition of LinkedIn Corporation for $27.0 billion, its largest acquisition in history, as it aims to strengthen its position in the Cloud applications market.
Microsoft Mergers and Acquisitions (M&A) Activities
In June 2018, Microsoft acquired GitHub, the world’s leading software development platform where more than 28 million developers learn, share and collaborate to create the future. Together, the two companies will empower developers to achieve more at every stage of the development lifecycle, accelerate enterprise use of GitHub, and bring Microsoft’s developer tools and services to new audiences.
Microsoft Customers in ARTW Customer Database
Leveraging a rigorous data-centric research methodology, APPS RUN THE WORLD asks the simple question: Who’s buying Microsoft applications and why? And we provide the answers – supported by decades of research – to our clients around the world. Our Customer database has over 100 data fields that detail company usage of Microsoft and other enterprise apps by function, customer size, industry, location, implementation status, partner involvement, Line of Business Key Stakeholders and IT decision makers contact details. List of Verified Microsoft Dynamics AX, Microsoft Dynamics CRM Online, Microsoft Dynamics NAV, Microsoft Dynamics SL, Office 365, customers.
Ownership: - NasdaqGS : MSFT
Number of Employees: 144106
Functional Markets: Analytics and BI, Collaboration, Content Management, Customer Relationship Management, Enterprise Performance Management, ERP Financial Management, ERP Services and Operations Management, Human Capital Management, IT Service Management, Product LifeCycle Management and Engineering, Project Portfolio Management, Procurement, Sales Performance Management, Supply Chain Management,
Key Verticals: Aerospace and Defense, Automotive, Banking and Financial Services, Communication, Construction and Real Estate, Consumer Packaged Goods, Distribution, Education, Government, Healthcare, Insurance, Leisure and Hospitality, Life Sciences, Manufacturing, Media, Non Profit, Oil and Gas, Professional Services, Retail, Transportation, Utility,
Microsoft Key Enterprise and Cloud Applications
Microsoft Dynamics AX, Microsoft Dynamics CRM Online, Microsoft Dynamics NAV, Microsoft Dynamics SL, Office 365,
Microsoft Revenues, $M:
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|Enterprise Applications Revenues, $M||Subscribe||Subscribe||Subscribe|
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* Enterprise Applications Revenues = License + Support & Maintenance + SaaS
** All revenue figures are estimates based on public records, Cloud and Non-Cloud business models in Apps Run The World's vendor database, and annual survey results including vendor feedback.
Microsoft Revenue Breakdown By Type, $M:
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Microsoft Enterprise Applications Revenues By Functional Markets, $M:
Microsoft Enterprise Applications Revenues By Verticals, $M:
Microsoft Revenues By Region, $M
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Microsoft Direct vs Indirect sales
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Microsoft Customers - Breakdown by Geo, Size, Vertical and Product
No. of Microsoft Customers: 250000
No. of Microsoft Enterprise Applications Customers: 250000
No. of Microsoft Cloud Customers: 100000
No. of Microsoft Cloud Subscribers: 120 million
Office 365 Commercial revenues continued to post high double-digit growth, with Office 365 consumer subscribers increasing to 34.8 million, up from 31.4 million a year ago. In addition, more than 90 million monthly actively devices are running Office, suggesting that the productivity suite is making significant inroads into the mobile world.
A growing number of large organizations such as City of Chicago, San Diego County Regional Airport Authority and Toyota have adopted Office 365. Microsoft also said more than one million workers were running Office 365 in federal, state and local government agencies. Microsoft Teams service has more than 13 million daily active users, and 19 million active users on weekly basis.
Several years ago, Microsoft reported CRM and ERP figures separately, but that is no longer the case.
Microsoft Market Opportunities, M&A and Geo Expansions
As Microsoft has set its goal of reaching $20 billion in Cloud recurring revenues by end of its fiscal 2018, a combination of organic growth and the acquisition of LinkedIn could give the vendor a leg up its competitors. The robust performance of Azure, with sales growth topping 97% in the fourth quarter of fiscal 2017, has already given the infrastructure as a service offering from Microsoft enough fuel to top $10 billion in Cloud recurring revenues by the end of calendar 2017. The acquisition of LinkedIn brought in an additional $2.3 billion in Cloud revenues in the end of fiscal 2017, potentially expanding to as much as $4 billion with the current run rate for the full calendar year.
The same applies to its SaaS revenues from Office 365 and Dynamics 365, which should add at least $5 billion for the calendar year 2017. That means Microsoft should have no trouble reaching $20 billion in Cloud recurring revenues in the trailing four quarters ended March 31, 2018, and quite decisively exceeding that by a billion or two by June 30, 2018.
The question is whether its biggest Cloud rival Amazon could match that as it ramps up in the second quarter of 2017. Amazon Web Services should be able to easily cross the $15-billion mark by the end of calendar year 2017.
The question is whether AWS can muster enough tailwind by adding another three to four billion dollars in the first quarter of 2018 to close in on Microsoft’s stated goal. It may not mean much to customers on which vendor becomes the first Cloud Computing vendor to reach the $20-billion milestone. For Microsoft, it would be a major vindication of its Cloud-first strategy.
Microsoft’s coming back from behind after trailing AWS for much of the past decade suggests that the Azure surge, coupled with increased adoptions of Office 365 and Dynamics 365 as well as the big bet on LinkedIn, could be putting the vendor in the driver’s seat once again when so much has been written about its misadventures in the smartphone market by buying and eventually selling off the phone business of Nokia in its failed attempts to challenge Apple and Google.
The fiscal year ended in June 2019, was a record for Microsoft; LinkedIn revenue increased 25%, Dynamics products and cloud services revenue increased 12% driven by Dynamics 365 revenue growth of 45, Office Commercial products and cloud services revenue increased 14% driven by Office 365 Commercial revenue growth of 31%.
Microsoft Risks and Challenges
The massive push by Microsoft to seed the market with Office 365 could backfire. While the vendor has been offering steep discounts to convert many of its large corporate clients to the Cloud, it could run the risks of making it harder to sustain the Office franchise.
Increased use of enterprise messaging tool like Slack has already undermined the collaboration capabilities of Office. A new generation of Cloud-based financial management apps for expense management, financial close and workflow approvals could render the use of Word, Excel and PowerPoint a moot point.
Some of these new Cloud tools are being developed by end users because of the ease and ubiquity of Amazon Web Services and Microsoft Azure. Many of these new tools are designed to streamline workflows that used to be the domain of sending Excel files back and forth. In a mobile-centric workplace, that domain could be replaced by touch-based and speech-based solutions for everything from placing an order to filing a service request.
Clearly, none of these secular trends matter if Microsoft can convince a growing percentage of the huge installed base of 1.2 billion Office users to keep paying for Office 365 every month. According to Microsoft, the investments it has been making – including new features, stronger security and greater integration with intelligence and machine learning – are driving increased Office usage.
While Office used to hold a special position in the PC-centric world, the reality is that it has been relegated to a lesser role in a highly fragmented apps marketplace. That’s why it’s more important to bundle Dynamics 365 into Office 365 or vice versa, establishing the linkage that can withstand the digital transformation tidal wave that many of its customers are going through. Without that, Microsoft runs the risks of ceding more ground to a rising number of Cloud options whose purpose is to nibble away at the huge Office installed base one user at a time.
Microsoft Ecosystem, Partners, Resellers and SI
Microsoft primarily works with its ecosystem of 640,000 Microsoft Partner Network partners including many involved in its Office apps and business tools like SQL Server.
Microsoft Dynamics software offerings are licensed to enterprises through a global network of resellers, managed service providers and ISV partners that develop and market vertical solutions and specialized services.
In July 2016, Microsoft announced it is doubling its investment in free software, cloud services, and platforms for partners over the next year, giving partners the tools needed to build innovative solutions on top of Microsoft technologies. The number of Microsoft partners has remained fairly static given the sluggish sales of Windows through the OEM channel, while the Nokia purchase and its eventual spinoff yielded little benefits for its ecosystem or its partners.
Currently there are 10,000 Microsoft Dynamics partners including 2000 CRM VARs (value added resellers), 100 ISV (independent software vendor) partners and hundreds of hosting partners in 85 countries. Microsoft Dynamics 365 is supported in Southeast Asia by a network of global consultants and system integrators including Avanade, HP Enterprise Services, Hitachi, Logica, Ciber, Infosys and HCL.
Microsoft Cloud Infrastructure Insights
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Data used in research reports are derived from publicly available documents, continuous surveys of applications vendors, customers, resellers, Independent Software Vendors, systems integrators and other verifiable sources.
Vendor shares and market forecast results are based on a combination of existing databases as well as demand side and supply side research conducted throughout the year with validation from vendors, customers, channel partners and documentations such as earnings releases and 10Q and 10K filings, vertical industry studies, regional and country-level statistics from public and private institutions(i.e. colleges, universities, government agencies and trade associations).
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