Microsoft 'Rationalizing' Overlapping Products

Microsoft is stuck with an intractable issue that no amount of rationalization will remedy. Through a series of ill-considered acquisitions in the early years of this decade, the company finds itself stuck with four software products that essentially perform the same functions, but which it can’t whittle down to a more manageable number (like one) without risking relationships with key business partners.

The four products — Axapta, Navision, Great Plains Software and Solomon — are the legacy of companies acquired between 2001 and 2003, and since 2005 have been branded as Microsoft Dynamics AX, Microsoft Dynamics NAV, Microsoft Dynamics GP and Microsoft Dynamics SL. All four provide enterprise resource planning [ERP] tools to large and mid-sized companies. Most companies would rationalize those product lines — tech industry parlance for combining them into one — but Microsoft can’t because of its partner-driven sales channel strategy.

Microsoft has tried to rationalize the existence of four almost identical products by saying they belong to four ever-so-slightly different categories of software, but the variations in what those products can do are in fact so miniscule as to render that argument ridiculous on its face. Kirill Tatarinov, corporate vice president of Microsoft’s Business Division (pictured above), admitted during a conference call with analysts today that keeping its partners happy is, “the most important driver behind our desire to keep those four lines.”

Microsoft’s channel partner strategy is essentially the backbone of its entire enterprise business; its care and feeding of channel partners is what differentiated it and allowed it to obliterate competitors like Novell in the applications server market during the 1990s. Now, however, the strategy that was key to its past success may be crimping its future prospects. Since the resellers tend to specialize in one of those products to the exclusion of the others, any attempt by Microsoft to unify the product lines is bound to cause unhappiness among all its partners.

Those resellers are seen by customers as their own trusted partners, and are in many cases the only IT department to which those customers can turn. If those partners were to switch allegiance to another vendor of enterprise software, like SAP, Oracle or Sage, Microsoft’s access to those markets would be severely blunted.

How big an issue is this for Microsoft? According to Tatarinov, Dynamics customers also tend to purchase Microsoft SQL Server and Windows Server, and often also upgrade to the latest version of Office. “This truly emphasizes the importance of Microsoft Dynamics to Microsoft,” he said.

Tatarinov did say that Microsoft will slowly begin to share more technology across the four product lines, but the code bases of the products are still too different to allow Microsoft to enjoy any economies of scale. So Microsoft remains a victim of its own irrational exuberance, and will continue to offer those four redundant products into the foreseeable future.