Confirmed: The Impact of Microsoft Dynamics 365 on the Dynamics Channel

Confirmed: The Impact of Microsoft Dynamics 365 on the Dynamics Channel

nav-directions-reaction-dynamics 365

The following is a blog post written by Terry Petrzelka, founder and former CEO of Tectura Corporation.

A few weeks ago, I was a speaker on a webcast hosted by – “Dynamics 365- What Does It Mean for Dynamics ERP VARs?”  The topic hit home with a lot of people in the Dynamics community – over 600 people registered, more than 400 joined us live and an overwhelming majority of the attendees stayed on the webcast for 90 minutes with significant Q & A.  We focused our discussion on five things resellers need to know about the fundamental changes that the launch of Dynamics 365 will have on the market, five actions they need to take to survive the disruption that Dynamics 365 will cause, and three strategies to leverage in order to profit from Dynamics 365.  (If you missed it you can watch a recording of the webcast here).

We felt that resellers needed to know:

  1. Dynamics 365 will be getting the majority of the industry mindshare. While Microsoft will continue to invest in and support the on-premises products, increasing customer demand for cloud solutions coupled with the “newness” of Dynamics 365 brand and exciting technical innovations like the Common Data Model and PowerApps will result in a much higher visibility for Dynamics 365.  (Honestly, do you think we would have gotten 400 people to discuss the new Dynamics family ERP offering??  Well, we did…)
  2. Dynamics 365 will only be sold through the Cloud Solution Provider (CSP) program.
  3. All CSP Partners will be able to sell Dynamics 365. Since there are opportunities for any Microsoft partner to participate in the CSP program, every Microsoft partner will have the chance to resell Dynamics 365.
  4. The nature of the channel will change. Dynamics partners will be dealing with new competition from large and small Office 365 partners all of whom have had to change their business model to deal with the lower margins and service revenues inherent in cloud solutions.
  5. You’ve got to change to stay relevant.

In summary, what we felt resellers needed to know was that the smaller deal sizes, margins and market expectations of reduced services costs associated with SaaS – coupled with the larger and more diverse partner channel that will be reselling Dynamics 365 – will mean a wholesale change in the nature of the channel.  Partners who want to participate in the Dynamics 365 revolution and stay relevant in the market, need to make some hard decisions and fundamental changes in their business model. They will need to focus more on transaction speed and volume and lower cost implementation and support.

This past week at NAV Directions 2016, Microsoft provided partners with what to expect from both Dynamics 365 and NAV 2017.  Because of the relationship between the two products, NAV partners are the most qualified group to deliver Dynamics 365 Business Edition Financials (formerly Project Madeira), but the Dynamics 365 challenge isn’t technical.  Jason Gumpert of MSDynamicsWorld summarized it perfectly:

Microsoft has made it clear that Dynamics NAV partners are both well qualified and largely unprepared to sell and deliver Dynamics 365 Business Edition (D365BE) Financials. The new offering is based on NAV (that’s good), but it can’t be a pillar of a company full of well-paid employees who deliver high-value services and support like a NAV partner does today (that’s bad). It provides much improved integration with Office 365 (that’s good), but Office 365 will also not be sold by most NAV partners, at least not as a primary line of business (that’s bad).

What Dynamics NAV partners do not yet have, Microsoft acknowledges, is a business model that can support the sale of D365BE Financials. The main challenge they will face is how to profit from volume sales of a very low-priced product by ERP standards. Compare a typical D365BE deal (as far as it can be imagined today) with the type of business that sustains a typical NAV VAR’s team today, and the problems become immediately clear. NAV partners hire skilled employees and compensate them relatively well. Work is planned based on lengthy engagements (i.e., more than a day or two). And just a few NAV upgrade or implementation projects can sustain a smaller shop in tough times. By contrast, an organization selling D365BE Financials must employ lower paid workers (think “junior team members,” Microsoft advises) and must attain high-volume sales with low churn if they want to build up a reasonable revenue stream. (Full story.)

Microsoft tailored the message at Directions to NAV partners, but it applies equally to GP, SL, or even CRM partners. (Dynamics Business Edition Sales is coming in the Spring!)  In upcoming posts, I’ll provide some more detail on both the actions partners need to take and the strategies available to them. If you just can’t wait, I again invite you to view the webcast recording!