Microsoft (NASDAQ:MSFT) Dynamics is a sophisticated business software suite that helps businesses track customer information, sales pipelines, and allocate resources efficiently based on internal processes. Under the Dynamics business suite, Microsoft mainly sells Customer Relationship Management (CRM) and Enterprise Resource Planning (ERP) software. Dynamics is part of Microsoft’s broader Microsoft Office productivity business which we estimate constitutes about 30% of Microsoft’s stock.
Microsoft Dynamics competes with software products from SAP (NYSE:SAP), Oracle (NASDAQ:ORCL), Infor and Sage. Microsoft has recently gained share in the CRM market, but has lost share in the ERP market. Its CRM market share increased from less than 3% in 2006 to around 7% in 2009, while its ERP market share declined from more than 4% in 2006 to less than 3% in 2009.
However, Dynamics revenues associated with Microsoft’s CRM market share increase has more than offset ERP revenue decline for Microsoft, and resulted in a net increase of revenues from $0.92 billion in 2006 to $1.25 billion in 2009 for the Microsoft Dynamics segment.
- Microsoft Earnings: Revenue And EPS Miss Expectation
- Microsoft Earnings Preview: Cloud Adoption To Spur Revenues In Q3.
- What’s Microsoft’s Fundamental Value Based On 2015 Results?
- By What Percentage Can Microsoft’s Revenues And EBITDA Grow In The Next 3 Years?
- How Has Microsoft’s Revenue Composition Changed Over The Last 5 Years?
- By What Percentage Did Microsoft’s Revenue And EBITDA Increase In The Last Five Years?
Microsoft Dynamics Sold As On-Premise As Well As On-Demand
- On-Premise is the traditional enterprise software model, which requires each customer to install, configure, manage and maintain the hardware, software and network services to implement a software application in-house.
- On-Demand is the medium of delivering software over the internet as needed with little or no implementation services required, and without the need to install third-party software in-house.
Two Reasons for Growing Dyanmics Revenues
Below we explain the reasons why Microsoft’s gains in CRM market will offset losses in the ERP market, resulting in increased Microsoft Dynamics revenues.
1. Increased SaaS offerings will help Microsoft gain CRM market share
Microsoft has benefited from an increase in its CRM On-demand or SaaS offerings. SaaS CRM market segment has seen faster growth of around 30% in the past few years. We expect the SaaS CRM market will continue to gain higher adoption, and will grow at a faster rate than the traditional on-premise CRM market.
2. Competitive pressures will lead to ERP market share loss
We expect Microsoft to lose further share in the ERP segment because of the competitive pressures from smaller players like Infor and Sage and bigger players like Oracle.
Although Microsoft has lost share in the ERP market, it has benefited from an increase in Global ERP market. Overall, its revenues from ERP segment declined from $740 in 2006 to $570 in 2009, while its revenues from CRM segment increased from $180 million in 2006 to $680 million in 2009.
Microsoft Dynamics Revenues Expected to Surpass $2 billion by 2016
We believe Microsoft will continue to increase its CRM software revenues by increasing its share in the ever increasing CRM market. We also expect it to more than offset any revenue loss experienced from ERP software sales.
Hence we expect the overall Microsoft Dynamics revenues to increase to $2.1 billion by the end of Trefis forecast period.
You can modify our forecast above to see how Microsoft’s stock will be impacted if Microsoft Dynamics revenues were to increase at a faster rate than we forecast.
For additional analysis and forecasts, here is our complete model for Microsoft’s stock.