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Chuck Schaeffer Dynamics 365 — The Future of Microsoft Dynamics

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 By on October 10, 2016

Dynamics 365 was announced today as the next generation of Microsoft's Azure-hosted business services. From an ERP and CRM software perspective, Dynamics 365 is mostly a change to branding and bundling. While the ERP and CRM software hasn't changed, the messaging is clear that what were separate applications are morphing and being offered in a more flexible consumption model.

This new Microsoft business application bundling includes some new product names of what were previously called Dynamics AX, Dynamics CRM and Project Madeira arranged into two editions.

Dynamics 365 suites

The Business Edition is intended for small and midsize businesses (SMBs) with less than 250 employees. The Business Edition Financials are born from Project Madeira, code name for the new multi-tenant, cloud ERP application built from Dynamics NAV. The Sales and Marketing applications come from Dynamics CRM, however, are limited with reduced feature sets in order to support a lower price point.

The Dynamics 365 Enterprise Edition steps up beyond the 250 employee threshold. In this suite, Dynamics AX has been renamed Operations and Dynamics CRM has been componentized into Sales, Marketing and three Service suites. Dynamics 365 Enterprise supports cloud or on-premise delivery.

Dynamics 365 is a cloud-first solution. However, the dual use rights licensing permits on-premise operation. While on-premise delivery may cater to preferences for data sovereignty, direct database access or more control with system integration, it's important to recognize that on-premise operation must still be cloud connected. Many productivity and embedded tools designed for Dynamics 365 - such as Power BI, PowerApps, Flow, Azure machine learning and Cortana intelligence - only reside in the cloud. Also, many new features such as the Azure Search run in the cloud.

The Dynamics 365 Enterprise Edition also includes two new platform tools. PowerApps is a mobile-first service used to create device agnostic business apps using a visual designer. It includes many cloud services which facilitate quick connections among cloud apps. The demo suggests it can be used by Business Analysts, power users or what Microsoft likes to call citizen developers. However, my trial of this new product clearly demonstrated that once you get past the initial forms, deeper technical knowledge is required.

Microsoft Flow is a new workflow management tool that facilitates process automation using a visual design tool and a library of connected services that orchestrate data movement across Microsoft and non-Microsoft applications. It looks good for creating alerts and moving simple data, however, still doesn't solve Microsoft's ERP and CRM void of routing and approval processing.

Microsoft's new AppSource is also part of the Dynamics 365 evolution. Despite a long history in supporting ISV (Independent Software Vendor) solutions, Microsoft has failed to keep pace in the online ecosystems that Salesforce pioneered with AppExchange. AppSource intends to change that. In fact, Microsoft hired key AppExchange talent from Salesforce in order to build a Dynamics 365 ERP and CRM rich ecosystem of third party industry, micro-vertical and niche solutions.

Dynamics GP and SL will remain standalone products and separate from Dynamics 365.

The overarching goal is to deliver a broader platform with more unified enterprise-wide cloud business applications. IMHO, this is long overdue. Dynamics AX and Dynamics CRM are both accelerating their market momentum, but with different customers in different markets. AX has been dragged down by an under-whelming internal CRM system. Microsoft's new bundling will better facilitate AX customers acquiring the Microsoft CRM flagship product – Dynamics CRM. Similarly, Dynamics CRM continues to look for differentiation against arch rival Salesforce. Offering a vendor managed front to back office integration will help that cause.

Microsoft has long used an AX to CRM connector (the Dynamics Connector) but it has been notoriously unreliable. This new approach will put more stress on the Dynamics Connector and should be carefully vetted by customers seeking an enterprise-wide solution based on Microsoft's flagship ERP and CRM products.

Competitive Positioning

Business applications have followed a consistent evolutional pattern over the prior 50 years. From mainframes, to client/server systems to cloud services, business applications have evolved from point applications (i.e. SFA) to application suites (i.e. CRM) to enterprise-wide suites (i.e. ERP). Microsoft is now getting in front of this inevitable curve and driving the transition from applications suites (ERP or CRM) to fully integrated, front-to-back office solutions (ERP with CRM).

Within the CRM market, this drive will have a chilling effect on primary competitor Salesforce who is without an ERP offering. Within the ERP market, this drive will deliver new competitive advantages against SAP and Oracle, who offer impressive ERP solutions but appear incapable of offering equally impressive CRM solutions.

Customers will reward those business software publishers that help them collapse technology siloes, lessen fragmented business processes and reduce system integration.

Dynamics 365 Pricing

I don't normally blog about pricing, but in this case I believe Microsoft's new consumption based procurement flexibility will benefit customers, and ultimately require competitors to respond.

Microsoft ERP and CRM applications can now be procured by work stream, or what the company sometimes calls function specific business process services. For example, the revenue cycle stems from lead to cash and thereby crosses both CRM and ERP functional processes. Customers can now procure a more limited set of application components to support just those business processes needed instead of having to procure full CRM and ERP suites.

Dynamics 365 Business Financials will run about $40 per user per month, or about $50 when bundled with the sales and marketing apps. Dynamics 365 Enterprise will start at about $115 without Operations (ERP) or about $210 with Operations. Prices may increase for add-ons such as PowerApps.

Alternative pricing plans are available for Apps, Plans and Team Members. An App is an individual work stream or standalone software component. A Plan is a collection of Apps. Team Members are light users permitted read access or minimal edit capabilities of all procured Apps. Business Edition Team Members cost $5 per user per month while Enterprise Edition Team Members are $10 per user per month. While I like the new pricing flexibility, Microsoft should be cautious that the new Dynamics pricing lies on a tipping point between creative flexibility and unnecessary confusion.

Dynamics 365 Users

The Point is This

At this point Dynamics 365 is little more than a change in branding, bundling and roadmap. Microsoft is making a conscience decision to do away with the ERP and CRM monikers in favor of business process labeling. While the messaging is understandable, the industry at large has tried multiple times over to do away with the three letter acronyms. Yet decades later we still identify these business applications as ERP, CRM, SCM, HCM, MRP, MEP and so on. Maybe this time will be different. But I doubt it. End

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Dynamics AX and Dynamics CRM are both accelerating their market momentum, but with different customers in different markets


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