FAQ: Inside Microsoft's cloud ERP strategy

The arrival in June of Azure ERP deployment options will usher in some changes

Microsoft has announced some key details of how it will introduce Dynamics ERP (enterprise resource planning) software products to the cloud computing model, from initial release dates to the precise role of partners.

Dynamics NAV 2013 and GP 2013, both of which cater to smaller and midsized companies, will be available on Microsoft's Azure cloud service through partners in June, Microsoft announced this week at the Convergence conference in New Orleans. Microsoft also affirmed that the next major version of AX, its enterprise-focused product, will be available on Azure.

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Here's a look at some of the biggest questions raised by those announcements.

Partners have long hosted Dynamics software and made their own data center optimizations, so what do they stand to gain, as well as lose, from the Azure deployment option?

"It's all the things you can expect from an enterprise-grade cloud service," namely "stability, protection, security and the ability to scale and grow," said Kirill Tatarinov, president of Microsoft's Business Solutions division, in an interview at Convergence. "Azure is elastic. The fact they can grow without adding servers is huge for them."

In addition, it's all business as usual for partners with respect to Dynamics consulting on Azure. Dynamics ERP is sold through channel partners, many of whom add extensions that fine tune the software for a particular customer's needs. That won't change, and partner-built extensions will also run on Azure.

But will Azure save people money over regular hosting or on-premises installations?

They will, according to Tatarinov. "The cost variables in the cloud change so rapidly between different providers and suppliers, but Azure is and will continue to be cost-competitive," he said. "And ultimately, yes, they will benefit."

That's not to say Microsoft intends Azure as a be-all, end-all cloud platform for Dynamics ERP, said Michael Ehrenberg, a Microsoft technical fellow who oversees development of the Dynamics products, in an interview at Convergence.

"Our target is to be the best provider at volume, at scale," he said. Some hosting partners have specialized offerings, such as for local legal requirements, a higher service-level agreement, or extensive hands-on support; Microsoft won't try to supplant them with Azure, he said. "That's where the partner hosts have a long-term model."

"We have some partners that host today, but there's nothing really special about it," Ehrenberg added. "We expect most of them to transition [to Azure]."

Saving money is nice, but is it the only point of the Azure option?

"Now the customer's dealing with their partner, the software is from Microsoft, and there's some third-party [hosting service] like Rackspace," Ehrenberg said. "This is more, let's give them the comfort of infrastructure run by Microsoft. Now, I'm dealing with my partner and Microsoft." That said, "over time we expect that our costs in the cloud will become super-competitive," he added.

Why did the availability date for NAV and GP on Azure slip from December 2012 to this June?

There are a few reasons for this, according to Ehrenberg. First of all, the bulk of customers on those products run them on-premises, so Microsoft ended up putting off some work needed to cloud-enable GP and NAV in order to ensure the on-premises version shipped on time, he said. (NAV 2013 was released in October and GP 2013 in December.)

Secondly, Microsoft wanted to make sure the Azure rollout would go right, he added. "We ended up adding a bunch of time to get partners ready," he said, mentioning that other vendors made "early promises" about cloud ERP that "didn't end up happening," in an apparent allusion to SAP's Business ByDesign.

SAP launched ByDesign several years ago with great fanfare but ended up having to scale back the rollout and do some retooling in order to ensure it could make money selling the on-demand software suite at scale.

Microsoft is wise to take its time before opening up access to Dynamics ERP on Azure, both for that reason as well as the mission-critical nature of ERP systems, a factor that has resulted in the software category lagging others when it comes to cloud deployments. Microsoft is confident that all will be ready for launch in June, according to Ehrenberg.

How will Microsoft handle AX on Azure?

The next major release of Dynamics AX will get an Azure option as well. That product is scheduled for early-adopter access in 2014. AX played a prominent role at Convergence as Microsoft, in a shot across the bow of Oracle and SAP, showcased how global cosmetics maker Revlon was standardizing its business on AX.

Microsoft recently rolled out an update to AX that made it possible to run a company on a single global instance of the software, and is hoping to win many more deals like the Revlon one.

"That is essentially going to be first time ever in the industry where someone delivers the ability to run their full business end-to-end in the cloud," Tatarinov claimed during a session at Convergence this week.

While AX partners will play mostly similar roles with respect to Azure on AX, one key difference is that Microsoft will handle the billing and subscription relationship with a customer, rather than having the money flow through partners. Microsoft may desire a greater level of control because AX customers could have more complex licensing agreements that will need to be mapped to the Azure pricing model.

Will Dynamics in the cloud shake up the product release cycle?

Cloud software vendors tend to roll out new features a number of times each year, taking advantage of the deployment model's flexibility, rather than deliver big-bang releases every two or three years.

For Dynamics, Microsoft has done a large release in that time frame while also issuing smaller service packs in between, Ehrenberg said. The cloud option will have an influence on that schedule, he said.

"We will definitely be on a faster cadence," he said. However, "for me, quarterly [updating] just doesn't make sense for these kinds of apps," Ehrenberg added.

Expect Microsoft to settle into an every-six-months release pattern over time, he said. "We won't be there day one."

Chris Kanaracus covers enterprise software and general technology breaking news for The IDG News Service. Chris' email address is Chris_Kanaracus@idg.com

Copyright © 2013 IDG Communications, Inc.