The ERP battle: Microsoft vs Microsoft

Microsoft has become one of the globally leading vendors of ERP systems. With exception of the smallest organizations, Microsoft is represented in major part of all selections of ERP systems in Scandinavia. This trend became clear already 10 years ago as a result of many organizations had applied a “Microsoft strategy”, ie regardless of how the landscape of applications where changing, it was always a change in line with the Microsoft strategy.

Ever since Microsoft acquired the Danish company Navision in 2002, the previous systems NAV and AX (today Business Central and for Finance and Supply Chain) have been regarded as little brother and big brother with partly different target groups. Although the original companies Navision Software and Damgaard were founded at the same time in the early 1980s, Damgaard was considered to have developed and applied a more modern technical architecture.

After Microsoft acquired the merged NavisionDamgaard, it was unclear for a long time whether both applications would survive, as Microsoft acquired several ERP systems in a short time. However, it soon turned out that both NAV and AX sold well and gained a rapid international spread. And even though NAV was considered to be built with an older architecture, the product sold so well that Microsoft considered that there was room for two systems, one of which was a system that covered the lower segment and a system that could be pushed up against the higher customer segment.

When we summarize the situation almost 20 years later, we can state that today’s Business Central and for Finance and Supply Chain have established themselves at the top of the best-selling and most widespread ERP systems of all time. Finance and Supply Chain has about 20,000 customers globally and Business Central has around 220,000 customers and a spread to +150 countries and +40 languages.

Microsoft has invested heavily in both applications as well as in its technical platform and we can state that Microsoft is stronger today than ever before when it comes to “Business Solutions”. One result, however, of Microsoft’s investments and that both applications have significantly increased their scope of functionality is that their respective target groups have gradually moved and are still moving upwards when it comes to the size of the average customer. The reason is that increased functionality and increased flexibility requires increased effort in implementation. Today’s versions of Business Central and for Finance and Supply Chain require, on average, significantly more consultants and more hours for an implementation compared to the situation 15 years ago. And the result is that the total cost of implementation has increased for both applications.

If we go back to the years before 2010, Navision had its main target group in the segment of 5-20 users and Axapta was in the segment about 25-100 users. Today, the current Business Central targets the segment of 20-200 users and Finance and Supply Chain has moved up to the segment of at least 200 users. At the same time, there are rather many examples of customers with several thousand employees using Business Central and customers with only 20 users using Finance and Supply Chain.

As a result, there is today an overlap in the existing customer base. And a consequence of both applications moving upwards in customer segment is that a lot of customers who previously used Axapta have now chosen to move to Business Central, which has a better fit for the smaller company.

It is not entirely fair to compare Business Central with Finance and Supply Chain as they intentionally target different target groups, but it is still worth noting that Business Central is showing faster growth. Over the past 10 years, Finance and Supply Chain has increased the number of customers by approximately 100% on a global level, while Business Central has increased the number of customers by approximately 300% during the same period.

From previously competing with the smallest business systems, Business Central is today up and competing successfully against, for example Epicor, Sage and Netsuite. At the same time, Finance and Supply Chain has taken the step up and today competes successfully against the largest ERP systems such as Oracle, SAP, Infor and IFS.

Both Business Central and Finance and Supply Chain are on their way to being marketed exclusively as cloud-based offerings with Azure as their natural home. This joins the rest of the market, which today mainly only offers subscription-based cloud services.

Previously, Business Central was considered to target smaller operations but with limitations regarding group structures. However, this no longer applies. Although Business Central has historically had limitations with group structures and intercompany trade, this is no longer a major obstacle today. For both Business Central and Finance and Operations, the range of additional functions via partners is virtually unlimited, which means that it is often possible to find functionality for almost every conceivable industry. However, what holds back the possibility is that Scandinavian partners do not always have the network or experience required to be able to offer add-ons to all industries.

If we stick to the Swedish market, which has about 45,000 companies with +10 employees, of which 4,000 have over 100 employees, it is Business Central that has the greatest potential in terms of numbers. Business Central currently has about 5,000 customers in Sweden and Finance and Supply Chain about 800 customers. For both applications, there is a potential for doubling within the next 10 years, while competition from other suppliers has significantly increased in recent years. And not least the competition from SAP Business ByDesign and Netsuite, which are now growing quite fast in the Swedish market.

There are still reasons for Microsoft to offer both Business Central and Finance and Supply Chain as they partly cover different customer segments. At the same time, we are waiting for Microsoft to release an additional software for the smallest organizations. As a result of the previous Navision being pushed upwards in the market, the target group with companies in the size of 1-20 employees has been handed over to the new start-ups of cloud-based applications. It has been speculated that Microsoft will package a simpler version of Business Central as a fully integrated part of Office365 and with the aim of also covering the micro segment of companies. It is not unlikely that this will happen, but only when a fully elaborated cloud offering has been established.