Polino, that natty haired alleged expert in the Dynamics GP space, posted his 8 Extra Good Reasons for Attending the Dynamics GPUG on October. As usual, he couldn’t resist taking a swipe at me, his clear superior in every way. To demonstrate this, here are my 8 reasons you should attend:
- Frosted hair tips. Mark has promised that he will again rollout autographed photos of himself from the 90’s when he sported frosted hair tips on his faux-hawk.
- Bob McAdam will be presenting giving you the delightful opportunity to poke his belly and watch him giggle.
- Huber Cooney, the world’s worst GP consultant and human being, will be presenting an entirely worthless session on something stupid. However, you will be allowed to throw baseballs at him every time he tells a bad joke. Bring a sack full and ice your shoulder afterwards.
- Content, Content, Content: Andy Hafer and his team really kick ass at putting this show together. Do yourself the favor of diving in and bathing in a sea of career enhancing content.
- 50 Tips in 50 Minutes for GP – also known as “The Only Thing Mark Polino Knows How to Do So He is Going to Beat it to Death Until His Career is Over – Which Will Probably Be Next Week”
- The chance to see Michelle Spitzer in person – rrrrroooowwwwrrrr (you need to say this like a really cheesy lion and while making a grabby claw with your hand).
- The chance to see Huber Cooney flirt embarrassingly with Michelle Spitzer in person.
- The chance to meet Jon Byrd and Clinton Weldon from IBIS. Great guys and great GP resources. Just don’t get between Clinton and the bar. Seriously. I’m not kidding.
At WPC2012, Microsoft, to the thud of jaws dropping and the jackhammer staccato of CEO hearts, announced that Dynamics AX would be sold under Microsoft Enterprise Agreements. In addition, any customer on an EA that already owns AX can place maintenance payments on the EA. The program starts September 1 2012.
For those of you unfamiliar with EA’s, you can look here. In essence, it’s a three year contract with MS to license large amounts of software at a rather significant discount. Although technically sold by a partner (in this case a Large Area Reseller), the majority of the work in doing an EA is done direct by the Microsoft Enterprise sales team.
Given that much of the partner channel’s financial model is built off the sale of software directly to the client for a fairly decent slice of margin, this has two immediate effects:
- Panic, terror and riot
- An elimination of margin and replacement with a CSA fee, claimed from MS, payable (we assume) over the three year period in an amount much less than that one would get from selling directly to the client.
I’m not arguing whether the change is right or wrong. Instead, I’ve been thinking about the possible outcomes of this in the next 12 to 24 months. Here are some of my thoughts on such possibilities:
Will Microsoft truly sell direct to the Enterprise ERP customer?
To some degree. However, let’s not forget that MS does not already have a competent group of direct ERP salespeople. The have good some good technical specialists and some good channel sales people, but they have very few that can actually pursue a lead to closure. To build that team, they’ll have to hire competitively against the partner channel and the main software competitors. And, they’ll have to pay out the wazoo to do so since these are scarce resources. Given that, I assume they will focus their attention on the very largest of opportunities worldwide, rather than trying to close very deal.
If they sell direct, will they do all the demo work?
Good question. One assumes that if they act like SAP, they would close the software deal and walk in a systems integrator. But they are chronically short staffed in these areas. So we have to assume they can’t serve the entire sales cycle for all Enterprise deals and will instead depend on partner relationships where a) the deal is off their critical radar or b) the deal is driven by a vertical solution the partner has tied up (like process mfg or distribution). The fear here is that AX will be just like CRM – the partner still carries the majority burden of lead generation expenses and gets almost nothing in software margin in return.
If they sell direct, what happens to services?
In case you missed it, Microsoft Consulting services is enjoying yet another rebirth in ERP (and in CRM). They are focused on building massive amounts of staff in ERP and CRM, most of the ERP staff being AX. The SSP’s in the region have a good size commission in their plan for bringing in MCS, so I assume they will. However, like the sale side of the house, MSC can’t get to every deal, so I think they’ll focus on the top global opportunities. Where they don’t have vertical expertise, given my past experience with them, they’ll either fake it and fail or find a partner to provide staff but project manage everything under their paper. The big problem here is the SSP’s – with them being comp’d on bringing in MCS, they, quite rightly, will probably introduce every deal to them. Hopefully, MCS will pick and choose and the SSP will then take it to a partner, but, again based on past experience, I think it more likely that MCS will talk to them, set expectations and then the partner will get involved. The customer will be confused, the partner will feel pressure to match whatever MCS said, then MCS will want to manage the deal sub-contracting work to the partner under their paper. This way, the claim the top line revenue and expand their reach, but don’t really have to fight the hard battle of hiring qualified staff.
Are we going to lose maintenance dollars?
Yeah, probably, for any customer that is already on EA and owns AX.
Is all we have left small deals?
Hell no. There is plenty of moving room in the market for everyone. However, I do think it will be easier to fly under the MS radar or outside their flight path than to try and compete in the same market. Specifically, if you have defendable space in a vertical, have your own IP, and/or service a geographic territory in which MS isn’t interested, you have a better chance of being unaffected.
Is MS really serious about this and about selling direct?
To answer the first, yes. They aren’t turning back. To answer the second, we’ll see. My fear is that someone up the executive chain had this conversation – “Look guys, we did the same thing with CRM. The partner channel bitched about the margin cut, but still went on absorbing the majority of the direct sales expense via SE’s and Pre-sales demo resources. They’ll do the same thing with AX, we’ll just have to suck up maybe a quarter of confusion. Frankly, the partner’s are so addicted to the business model that they don’t have a choice. So, don’t worry about this. Things will be fine, we’ll give away less margin, and our sales will continue climbing.”
I can’t claim that conversation happened. I just fear it did and this is the mindset underlying the strategy.
Overall, if my guesses are right, here’s what I recommend:
- Clean up your sales and marketing expense, specifically your cost to acquire new accounts. If you can’t cut it in half, you are going to be in trouble.
- Be profitable on professional services – for the entire company. Make software margin the nice whip cream on top but make certain you keep the company running and viable solely on services.
- To that end, find and establish space in a vertical and start looking at IP.
- Scale up or sell out. If you are not large, merge with another partner. If you are an ISV, this probably doesn’t matter quite as much. Same with a very unique niche player. For the rest of us, we better get bigger or risk being left behind.
- Spend time making certain the SSP’s in your market know and trust you. Don’t worry about MS national – focus local. Do it consistently. The first time MCS burns an SSP (and they will) you need to be there ready to pick it up.
- And, most importantly, I think its time to diversify the revenue base away from ERP software and consulting. I’ll probably write more on this later, but if you’ve already spent a ton of money to acquire a customer, don’t re-spend it on a new one. Find more services (like BI and Sharepoint) to sell to existing customers.