MBS Tries Again

By Joshua Greenbaum, Thomas Publishing Company, LLC

The financial news coming from Redmond is usually the envy of the industry, which makes the news about Microsoft's Business Solutions (MBS) Group even starker. Despite a public recommitment to get its enterprise software business back on its feet, MBS remains the sick man on the team.

The numbers from MBS' most recent quarter would be startling if they weren't so familiar: revenue was flat, losses were up and, while MBS said that licenses rose even as services revenue fell, the fact that new customer wins grew in double digits only highlights the fact that existing customers spent less with MBS than in previous quarters. This is a problematic trend in an industry that lives by its ability to grow from existing customers.

Microsoft's excuses for the losses are that investing in growth and development is costly. That explains the expenses, but what explains the lack of real revenue growth? The answer is a combination of factors, many of which MBS has acknowledged and is now dealing with. The main issues, channel conflict and product roadmap confusion, were addressed at the company's user-group meeting in mid-March, but that wasn't enough to help MBS have a better quarter.

Meanwhile, the pressure on MBS continues. Oracle's e-Business Suite Special Edition, targeted at the mid-market manufacturers that form a core market for MBS, is making serious inroads. QAD, while losing ground in license revenues, has been nonetheless turning in a strong performance of late. And, SAP's announcements at its user conferences have taken the wind out of MBS' sales.

So, other than up, where can MBS go from here? Verticalization is one place where MBS might be able to make a difference. A broader feature base is another. Ironically, the problems with its channel -- too many partners with too much product chasing the same opportunities -- may also provide the platform for leveraging both opportunities.

The thousands of MBS partners have a fair amount of vertical industry knowledge and experience in developing value-added products built on MBS' core offerings. That breadth of experience has been difficult to harness: many of the partners that have the necessary expertise are in companies that are too small or too local to support a MBS-wide global development and sales effort in, say, a vendor-managed inventory solution or a RFID platform for automotive. One of the key changes that MBS outlined at its February user conference was an initiative to capture and distribute this expertise -- in the form of products and support -- across the entire MBS customer base.

While it's too early to tell how well this is going, it's clearly going in the right direction. Without a strong push toward broadening its functionality and driving specific vertical solutions into the market, MBS will never be competitive with Oracle and SAP -- both of which are driving down-market with large suites that provide much deeper functionality than any core MBS product can provide today.

Can MBS pull it off? Clearly, Microsoft is showing a high tolerance for red ink as MBS tries to spend its way into the black. Assuming the company can figure out a way to plug partner offerings into the product line and support them in multiple geographies, MBS could begin to put together its long-awaited turnaround. There's still plenty of opportunity out there, and none of its top competitors can claim true market leadership -- yet. So don't count MBS out -- they may still ride high.