The Microsoft Reorg and Microsoft Dynamics: Odd Man Out or Shining Example?

Three words were missing from Steve Ballmer’s memo to his employees last week that, on face value, looked ominous for Microsoft Dynamics. The first two words were business process, and the third was industry (okay, he said the word once, but in reference to Microsoft’s industry sector). And as I read and re-read the memo, the void seemed to only grow: services and devices without a focus on packaged software (which Ballmer did mention, only to say that there wasn’t a future in it), business processes, or industries looked like the setup to a sale of the division that specializes in these three concepts.

The truth, luckily for Dynamics and perhaps unluckily for a few private equity-backed buyers I know of, is that enterprise software has a future inside Microsoft. And while Ballmer said that Dynamics still needs a “special focus” – which sounds a little like damning with faint praise – the concept of Dynamics acting as the “unifying fabric” of Microsoft remains in place.

So rather than worry about whether Dynamics will be jettisoned as part of a new focus on devices and services, the question about Dynamics’ future is really whether it will get lost in the enormity of the changes that are part of a wholesale, and desperately needed, reorganization of Microsoft.

Part of what should help Dynamics’ cause is that two of the executives who surfaced as part of the senior leadership in the reorg have solid backgrounds with Dynamics. Satya Nadella, who now heads the cloud and enterprise engineering group, spent a year running Dynamics in 2006-2007, and Tami Reller, the new EVP of marketing, came to Microsoft when Great Plains, a flagship Dynamics product, was acquired in 2001. In addition, the fact that key members of the Dynamics team, which is still run by Kirill Tatarinov, will have dotted line responsibility to Satya and Tami will hopefully continue to solidify the links between Dynamics and the rest of the company.

But ensuring that those links translate into face time and development and marketing budget for Dynamics may take more than having a track record with three of Ballmer’s direct reports (Kirill included) and some dotted line reporting. The irony of the “special focus” that Ballmer mentioned for Dynamics is that, as far I can see, Dynamics does a better job fulfilling its mandate to be a leader in its core market than some other, bigger-profiled divisions are doing fulfilling their mandates to lead in their respective markets.

While Dynamics may need “special focus”, many of the core businesses at Microsoft need much, much more. Here’s a quick list:

Windows 8 phone: as I have noted before, Windows 8 phone is so dead in the water that no big box retailer in the Northern California runs ads for Windows phones. Some telcos just don’t even bother carrying the phone: My carrier, Sprint, is finally coming out this summer with two low-end Windows 8 phones, which I predict will be largely DOA. Meanwhile, Windows phone is internally fragmented in Microsoft, and as I wrote here, partners and customers have recently had trouble getting support for embedded Windows phone development efforts, among other problems. Result – Windows 8 has pretty much zero penetration in the phone market this side of Redmond.

Lync: as I also have noted before, Lync is an embarrassment. It’s as if Microsoft decided that Google’s bad habit of releasing buggy beta software was a virtue to emulate, and so decided to get the latest versions of Lync out in the market well before they are ready. I recently conducted two workshops for a client that has made a corporate switch to Lync, and in both cases we simply couldn’t get Lync to work. In all I have tried to use Lync for a number of different purposes, including joining in on a recent analyst call run by the Lync team during which Lync crashed and burned, and have successfully conducted one and only one call using Lync in over a month. Result – a living, breathing advertisement for WebEx and Go-to-Meeting.

Xbox video: I wrote about this mess last year, and it’s still a mess. The latest: Xbox forgot that browsing titles is a good way to find interesting movies. Browse the Windows 8 Xbox store using the categories in the UI and you find, frankly, a lot of second tier crap masquerading as something someone would spend good money watching. You’d think that was all Xbox video has to offer. But as long as you know the name of a movie or movie star you are interested in, you can search and find an impressive number of great movies. But name by name search is the only way. For a company that has put a lot of effort into Bing and the search market, Microsoft has a very 20th century version of search running in the Xbox video store. Result – Netflix, iTunes and Amazon Prime can all sleep well at night.

Windows 8: As I wrote here, the confusion created by not differentiating the touch experience enough has made for a much bigger mess than Microsoft should be in regarding Windows 8. Apple has no touch screen laptops, and when I show mine to Mac users you can see their eyes light up. But instead of leveraging this opportunity, the best Microsoft can say to date is that Windows 8 is beating Vista’s uptake in the market, which is kind of like saying Windows 8 phone has surpassed Palm OS in the phone market. BFD. Result – more time for Apple to come out with a unified OS strategy, while a lot of corporate upgrades go from Windows XP to Windows 7 instead of Windows 8.

There are more, but I’ll leave it at that. The point is, just planning and executing a reorg sucks a huge amount of executive cycles, and then there’s the execution side. Considering how big the reorg is and how numerous the problems, one has to wonder how much time even execs like Satya and Tami will have to think about Dynamics. Satya’s recent keynote at Microsoft’s Worldwide Partner Conference had a demo of Dynamics CRM, and he managed to mention it 10 times, primarily in the context of CRM. Tami never said Dynamics once in her keynote. Ballmer also mentioned Dynamics in his WPC keynote, but it was largely in the context of a “last but not least” mention that unfortunately really was last and least. Better than nothing, I guess.

As I said at the beginning, I first thought that the “significant opportunity” Ballmer referred to with respect to Dynamics involved a sale, but I have been assured by my contacts inside Dynamics that, quite to the contrary, Dynamics is alive and well and poised to thrive inside the new Microsoft. I believe them. For now.

But the proof will be in the pudding: we’ll know if Microsoft really means to leverage this “significant opportunity” when the “unifying fabric” concept starts to get much greater play with the likes of Ballmer, Reller, and Nadella, and that also means some discussion about the things that Dynamics is good at, like business processes and a focus on industries.

There’s a place for both in a services and devices company – services that don’t directly support or enable business processes or are tailored for specific industry requirements are relatively low in strategic value to customers, and therefore won’t be as valuable to the new Microsoft as well. And devices – tablets, hybrid PCs, Xbox Kinect, and even Windows phones – can have their greatest strategic value when they are enabling complex business processes to be undertaken in more automated and effective ways.

Ironically, the sickness that Ballmer is trying to root out with his reorg is so vast and pervasive that the fact that Dynamics is doing relatively well means it may not get the attention it deserves. With so much to change at Microsoft, it may come to be that Dynamics changes the least of all.