Microsoft Sees Deal as Wedge -- WSJ
June 17 2016 - 3:03AM
Dow Jones News
Software giant hopes LinkedIn acquisition will boost sales for
its Dynamics product line
By Rachael King
Microsoft Corp.'s $26.2 billion planned acquisition of LinkedIn
Corp. shines light on a lesser-known Microsoft product line called
Dynamics.
The deal highlights Microsoft's weakness in the markets that
Dynamics addresses and shows its challenges in achieving growth
that Microsoft CEO Satya Nadella touted as a justification for the
acquisition.
Mr. Nadella on Monday made the case to investors that acquiring
LinkedIn would boost Dynamics, which is designed to facilitate a
variety of essential corporate functions, by tying it to LinkedIn's
social network of 434 million professionals.
"Being able to take what LinkedIn has done with the recruiter
and talent management solutions, and looking at what are the
natural ways to expand into Dynamics, is going to be the next set
of things that we will do," Mr. Nadella said.
While Mr. Nadella also emphasized LinkedIn's potential to
enhance its Office suite of business productivity tools, prospects
for growing Dynamics may be more critical to the company's future.
Microsoft dominates the $47.1 billion markets that include
productivity and collaboration tools, commanding a 43% share,
according to the market watcher International Data Corp.
But Microsoft owns a much smaller share of the two major market
categories addressed by Dynamics, leaving more room to grow.
Microsoft commands 5% of the $26.6 billion market for tools that
facilitate back-office functions such as human resources and
financial management, collectively known as enterprise resource
planning, or ERP, according to Gartner.
It holds 4.3% of the $26.3 billion market for sales tools, known
as customer relationship management, or CRM.
While Microsoft sells ERP software that customers can install
and run on their own servers, lately it has focused on delivering
the technology as a cloud service, an option that customers
increasingly embrace. LinkedIn's trove of resumes positions
Microsoft's ERP tools to help human resources professionals manage
the growing number of temporary and contingent workers, such as
drivers for Uber Technologies Inc.
However, Microsoft faces entrenched ERP competition. SAP SE
leads with 23% of the market, followed by Oracle with 12%. Both
those companies have moved their products to the cloud, trading
so-called customer lock-in for the promise of higher growth.
Lock-in occurs when customers find it difficult to migrate away
from software running on site, especially software that manages
back-office operations.
Meanwhile, as customers make what promises to be a long
transition to the cloud, lock-in gives market leaders an advantage,
said Joshua Greenbaum, principal analyst with boutique research
firm Enterprise Applications Consulting.
And SAP somewhat blunted the competitive value of LinkedIn's
social network in human resources in May 2014, when it acquired
Fieldglass, which makes cloud software that helps companies procure
and manage contingent labor and services.
Microsoft's acquisition of LinkedIn is a more-immediate threat
to Workday Inc., which has a 3% of share of the ERP market,
according to research firm Gartner Inc.
Workday, which started as a cloud service, is more vulnerable
than Oracle or SAP not only because it is smaller, but because
customers can more easily switch cloud providers than migrate from
on-premises software, Mr. Greenbaum said.
"If I were [Workday co-founders] Dave Duffield and Aneel Bhusri
and the gang at Workday, this would really frighten me," Mr.
Greenbaum said. But Workday disagreed. "We are not concerned, given
Dynamic's current market position," a company spokesman said on
Wednesday.
LinkedIn's data trove and services may be more valuable for
customer relationship management, where the social network's
in-depth information about employees and organizations can help
salespeople discover prospects and close deals. Both Mr. Nadella
and LinkedIn CEO Jeff Weiner stressed the importance of LinkedIn's
Sales Navigator service.
"Now we will be able to take that business intelligence tool,
Sales Navigator, deeply integrate that into Dynamics and CRM and we
believe we can change the game that way," Mr. Weiner told investors
on Monday.
The Microsoft-LinkedIn deal will allow Microsoft to compete more
effectively with Salesforce.com, according to a research note by
Deutsche Bank. Salesforce is a pioneer in delivering applications
software in the cloud and is the market leader in CRM with a 19.7%
share, followed by SAP at 10.2% and Oracle at 7.8%.
Write to Rachael King at rachael.king@wsj.com
(END) Dow Jones Newswires
June 17, 2016 02:48 ET (06:48 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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