Upfront: Microsoft Nets Navision

Where do you want to go today? Vedbaek, Denmark, apparently.

That's where enterprise software provider Navision was headquartered until Microsoft purchased the company in early May as part of its plan to enhance and broaden its business solutions for small to midsize enterprises. Vedbaek will serve as the center of operations for Microsoft Business Solutions in Europe, the Middle East and Africa.

This deal, following Microsoft's acquisition of Great Plains two years ago, significantly widens the company's footprint in the small to midsize enterprise market. This raises questions for Microsoft Great Plains and Navision users, and for Microsoft's larger alliance partners, including SAP, which competes with some of Navision's manufacturing applications. It may also spur further consolidation in an already active market.

Microsoft paid $1.3 billion in stock and cash for Navision, which boasts roughly $180 million in annual revenues and employs 1,400 people in 29 countries. It will combine Navision with Microsoft Great Plains under the umbrella "Microsoft Business Solutions"; that business unit is expected to have annual revenues around $500 million. Through the acquisition, Microsoft gains a larger segment of the small to midsize enterprise application (also referred to as "Tier II ERP") market, better access to the European market, and a better footprint in manufacturing industries.

In press releases following the May announcement, analysts and competitors identified obstacles that could prevent Microsoft from realizing those benefits, most of which center on the potential for difficulties integrating Navision and Microsoft Great Plains. "If Microsoft's last big enterprise acquisition -- of Great Plains last year -- is anything to go by, then Navision customers could be in for a prolonged period of uncertainty," notes Graham Steinsberg, CEO of Coda, a midmarket provider of financial and accounting solutions based in the United Kingdom. Steinsberg believes the acquisition will be perceived as an admission that Microsoft failed to transform Great Plains into a global business.

Doug Burgum, senior vice president of Microsoft and president of Microsoft Great Plains, disagrees. He asserts that the acquisition will create "even more capable and affordable solutions for customers."

Of course, customers will have the final say. Navision and Microsoft Great Plains users should watch for news from Microsoft and its resellers. Gartner analysts Robert Anderson and Yvonne Genovese recommend that Navision and Microsoft Great Plains users plan to migrate to a combined product after 2004. They warn that "users could confuse the Navision and Great Plains product offerings until Microsoft sorts out the product strategy and streamlines distribution channels."

Katherine Jones, Ph.D., managing director of enterprise business applications for Aberdeen Group in Palo Alto, Calif., agrees that initially sorting out the applications will be a challenge for Microsoft. But she believes Burgum, who founded Great Plains, will meet the challenge.