Service Contract

Microsoft purchase sows field for ASP dreams

Microsofts planned $1.1 billion purchase of Great Plains Software will give the worlds largest software company an instant presence in the server application market, but Great Plains brings something extra to the deal. As one of the most aggressive software vendors in the application services business, Great Plains should help boost Microsofts application service provider prowess and advance its .Net initiative.

"Great Plains has done some very innovative things in aligning their channel partners with the model of hosted services and solutions. We can learn from that," says Mark Chestnut, general manager of Internet service provider/application service provider (ISP/ASP) business development at Microsofts Network Service Providers Group. The focus on application services at the Fargo, N.D., company complements Microsofts own software-as-services strategy, he says. "Business applications are a powerful way to drive Microsofts .Net vision for business forward. This acquisition will accelerate the .Net vision."

Laurie McCabe, an analyst at Summit Strategies in Boston, says the deal makes sense for Microsoft. "Great Plains has put a huge amount of time into developing and fostering its ASP strategy, and Microsoft will benefit from what they have learned." With Oracle strong in the enterprise market and small companies providing scant revenue, she says, Great Plains midsized customers are just what Microsoft needs.

At the same time, tighter integration with Microsoft products and access to the development resources of its new parent should make Great Plains software services more attractive to ASP customers. "There wont be earth-shattering changes in the short term, but we foresee an acceleration of the synergies between us," says Jim Traynor, director of ASP business development at Great Plains, noting that the two companies have worked together in the past. "The .Net strategy is a grand plan to transform software into services, and weve bought into that from day one. They just put a label on it. ASPs will be one part of that solution."

Both Microsoft and Great Plains have relationships with Siebel Systems, which Great Plains markets to its midsized customers under the name Great Plains Siebel Front Office. Great Plains also has a nascent relationship with supply-chain software vendor Logility. "You could potentially see an ASP user access our database software from, say, a wireless device in a way that involves a combination of the technologies we now have available," Traynor says.

The deal looks like a good one for Great Plains ASP partners, says Tom Kieffer, chief executive of Agiliti, an ASP that features Great Plains and Microsoft on its menu. "We see life getting better," he says, adding that his customers seem likely to continue using the high-touch services his reseller partners provide instead of turning to Microsofts bCentral business services portal. All current Great Plains ASP partners are already Microsoft ASP partners, Chestnut notes, because the underlying hosting platform provided by all of these partners is Windows and SQL Server.

"Our hope is that this will liberate Great Plains to get more aggressive in making their products work better for ASP. Its still ugly, Citrix [Systems]-delivered stuff today," Kieffer says. "My understanding of .Net is that its a set of standards to enable ASP delivery, and that should help Webify their applications."

Becoming part of Microsoft might also make it easier for Great Plains to make the transition from one-time licensing revenue to monthly payments in the ASP model, Kieffer says. "Changing the way you report income is hard in a smaller company, but they [Great Plains] will be a rounding error at Microsoft, so maybe that will make it easier to manage."

Great Plains, which has formal relationships with more than 40 entities calling themselves ASPs, has seen steady but undramatic growth in its services business. "Were adding one or two customers at a time, not the hockey stick growth model, but consistent, quiet, positive growth," Traynor says.

About 2 percent of revenue comes from application services, a number he says should reach 5 percent by the end of the companys fiscal year in May and perhaps twice that much at years end. "Id say we could realistically level off at 25 percent at some point in the future," he says.