Microsoft looks to secure new ground in enterprise space

Bill Gates outlined his vision of seamless computing in his keynote speech at Comdex 2003. He described a world where next-generation software links devices across the home, work and business. Gates doesn’t want Microsoft to be a bit part player in this end-to-end computing environment; he wants his company to pioneer it. However, for this to become a reality, the software giant has to cement its position in the enterprise space.

  • E-Mail
By  Patrick Phelvin Published  November 23, 2003

Targeting the enterprise market.|~||~||~|Bill Gates believes in seamless computing. He outlined this vision to those listening to his keynote speech at Comdex 2003, describing a world where next-generation software links devices across the home, work and business. Gates doesn’t want Microsoft to be a bit part player in this end-to-end computing environment; he wants his company to pioneer it. However, for this to become a reality, the software giant has to move beyond its home user, midmarket and small business stronghold and cement its position in the enterprise space.

The vendor’s push into the high end computing market has already started. On the operating system side, Windows Server 2003 has been heralded as a vast improvement on its predecessors and its dynamic systems initiative (DSI) is boosting both security and ease of use. In terms of applications, the acquisition of Great Plains and Navision kick started Microsoft’s campaign. While the Redmond giant has traditionally had a tough time competing with the likes of SAP, Oracle and PeopleSoft, there are signs it is making progress.

A recent study by Datamonitor reveals that Microsoft is either the primary or secondary consideration for enterprise companies when it comes to mobility, applications, integration, business process management (BPM), web services and portals. Added to this is the success of Windows 2003 Server Edition, with 46% sales growth last year and a new version, codenamed Yukon, already in the pipeline. The company now attributes a third of its revenues to the enterprise market, where it has 12,000 staff and 20,000 customers.

“It is surprising Microsoft has gained such a large following in this area. The results really do highlight the efforts the company has been making to enter and compete effectively in the enterprise market. While we would have expected greater appreciation for Microsoft’s offerings among smaller companies, the fact that so many enterprise-sized businesses rated the company shows that Microsoft must be doing something right,” says Datamonitor report author and technology analyst, Richard Clifford.

On the surface, Microsoft’s ambitions to move into the enterprise space come at a challenging time, when a global economic slowdown has led to big companies slashing IT budgets and adopting a make-do-and-mend philosophy. Forrester predicts IT growth in the enterprise market will be just 1.7% this financial year, compared to 13% growth in the small-to-medium-sized business (SMB) market. But this dynamic, coupled with pressure on software vendors to grow new markets, could actually work in the Redmond giant’s favour. “The current economic climate is certainly going to help them push into the enterprise a little bit more. Enterprise spending is very static and there is a change of focus to more tactical solutions as opposed to strategic solutions, and to solving specific issues rather than investing in overarching strategic initiatives. This means Microsoft products are more suited to this point in time,” argues Clifford.

“If you are going to implement a strategic, company-wide integration system you will probably go with IBM, but if you want to solve one particular pain point at business unit level, then maybe Microsoft is good because it’s that much cheaper,” he adds.||**||Winning hearts and minds|~||~||~|
From a mindset, if not product perspective, the reception of Office 2003’s numerous enterprise add ons could be a good indicator to just how seriously the enterprise market is taking Microsoft. If the tools are good enough and facilitate more effective business practices, enterprises will upgrade. If the product is simply seen as an incremental improvement on its predecessor, high end operators will be less tempted.

“We are getting to a saturation point with Office where people are questioning whether to upgrade to Office 2003, because as a pure workforce solution it does not offer a massive amount of difference compared to Office XP. Users have to deploy [plug-ins like] InfoPath, PortalServer and Truepoint before they start to get the benefit of the new Office system,” says Tony Hart, managing analyst of Datamonitor’s enterprise apps team.

Despite initial success in winning over some hearts and minds in the enterprise market, the company faces three major problems. The first of these issues is that, despite the market’s reported enthusiasm for Microsoft solutions, migration costs and the stranglehold of companies like SAP, Oracle and Peoplesoft in the sector may put companies off actual Microsoft implementations. This factor has significant impact in the Middle East, where businesses tend to be more wary of solutions that are not tried and tested. “Success stories mean a lot in this part of the world and SAP and Oracle have a sizeable installed base, they are able to quote references in most large industries. Microsoft’s focus on the SMB segment makes it very difficult for it to venture into the region’s enterprise market,” argues Jyoti Lalchandani, Middle East technology analyst, IDC.

“The problem with Microsoft is that in this region, it is not yet considered a company which is focussed on business solutions. It is still viewed as a company providing the platform. SAP and Oracle have created a niche for themselves in the business solutions space so, by default, large organisations tend to opt for their solutions,” he adds.
The second problem faced by Microsoft is the perception that the company is heavy on marketing and light on performance, a model that may prove successful in the consumer and SMB sector, but will not wash in the enterprise. But Microsoft says it has worked hard to change this state of affairs, and the reality is that the firm is now very different. This year, for the first time in more than a decade, Microsoft spent more on research and development (R&D) — US$5billion — than it did on sales and marketing.

“People have to update their view of our company. We are always acquiring new audiences. We used to just serve developers, then we started to serve machine builders, then we started to serve end users, then we started on IT people and now, ultimately, we serve business people, as well as consumers at large,” says Simon Witts, corporate vice president, Microsoft enterprise & partner group.

“I would have historically talked about us as a marketing-driven company and if you went into the average subsidiary around the world they would have spent more on marketing than on salaries. As we’ve moved into the enterprise that’s not true, we actually spend more on salary in enterprise than on marketing,” he adds.
Despite the enterprise sector’s gloomy growth forecast, Witts remains confident Microsoft will succeed in the Middle East’s high end environment, where he argues companies are more ready to accept change than the dominant software vendors would like to admit.

“I would not typify the Middle East as a laggard with new technology,” he says. “I think that Microsoft was late into the region with some of its enterprise offerings, especially when compared to Oracle in particular. But the share of Oracle Financials, even against SAP, is disproportional in the Middle East. Therefore, we believe we have a prime opportunity for growth in the region and we consider the area to be worthy of extreme investment and extreme growth,” Witts explains. ||**||Open war on open source|~||~||~|

However, in order to achieve this growth, Microsoft must also overcome the enterprise sector’s growing fascination with all things open source. The latest acquisition of Linux services firm SuSE by Novell undoubtedly rang alarm bells at Redmond, as it signified further maturity in the open source market and confirmed that the operating system has evolved from being a hobbyist tool to the OS of choice for many enterprise firms.

Microsoft has chosen to deal with the challenge posed by the open source operating system in a typically aggressive fashion, appointing former director of business strategy, Martin Taylor, as general manager of platform strategy, an initiative known unofficially around the Redmond campus as the Kill Linux Campaign.

Microsoft is attacking the open source platform on a number of levels. It says Linux is too complicated and slow to implement. It has also criticised Linux on a security basis, an argument described as “extremely ironic” by Clifford, in view of Microsoft’s security record. But the Redmond giant says the open source platform is more vulnerable to security breaches as patches take longer to distribute. The vendor is also seizing on the growing commercialisation of Linux.

As Red Hat and SuSE seek to leverage a profit from the open source platform, Microsoft believes it is more able to compete on a like-for-like basis. Taylor is attempting to take the heat out of the open source versus Microsoft argument by telling businesses that Linux can often work out more expensive. The announcement that Red Hat would start charging for some versions of Linux adds credibility to this argument, while Microsoft adds that the bulk of Linux’s 2.75 million server installations have come from companies moving from Unix rather than its own platform.

“As customers look to move off expensive Unix systems we have an opportunity, and we have to work hard at it, because people think that Linux is a more natural move [from Unix] so it’s our job to really show them the value of the Microsoft platform,” says Taylor.

“We now see the customers looking at multifunction servers a little bit more and looking at interoperability and security as something that spans across everybody. We have a great opportunity there with our multi-function server approach and our value offering, but we have a lot of work to do. Our growth will continue in the enterprise if we continue to work hard with our new [product] sets. We are going to have increased opportunity,” he adds.
In another attempt to quell the open source revolution, Microsoft says it has experimented by giving access to its Windows source code to a select group of large enterprise companies, mainly in the banking sector, under strict security agreements. The initiative has yielded interesting results.

“We thought if people can see the source then they can build stuff a lot faster, we actually found that is not the case. It is like health clubs, a lot of people buy membership but rarely actually go. We see that same dynamic with the shared source, people all wanted the ability to see the source, but they really did not want to do anything with it, nor did it really help them build apps on top of it,” argues Taylor. “We have solutions developments kits that ship with all our products that give people all of the hooks and all of the API code they need build an app on top of them,” he adds.

Microsoft’s war on Linux and its battle to be taken seriously in the enterprise sector will doubtless continue for some time. Although it has achieved some success so far, it still has hurdles to overcome. Furthermore, the Redmond giant’s success or failure in the enterprise may be more critical for the vendor than it cares to admit, especially as many enterprise vendors are now looking to move into its traditional space. “Microsoft simply has to push into the enterprise. There is no question about it,” says Hart. “All the traditional application vendors are trying to push down into the midmarket, because they have realised they are missing out. It is clear Microsoft has no alternative but to push into the enterprise to achieve further growth and enhance its reputation,” he adds.

Add a Comment

Your display name This field is mandatory

Your e-mail address This field is mandatory (Your e-mail address won't be published)

Security code