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A short story about maritime trading, steamboats and Microsoft’s Azure Services Platform in short to mid-term ERP and Microsoft Dynamics NAV perspective

This is a story of a business which failed, and it didn’t have to. It had all the capital and resources it needed to grow, it held a solid share in an expanding market. And yet, they failed.

Associazione Marittima di Sabioncello (AMS), or Maritime Society of Pelješac, was a shipping company founded in 1865 in Orebić, a small coastal town of southern Croatia. They grew to a fleet of 33 sailing ships, they shipped worldwide, their business expanded so much that eventually they built their own shipyard. Allegedly, they were one of the biggest and most prosperous maritime merchant companies in the Mediterranean.

And then an innovation came along, which ruined them.

Steamboat.

Although steamboats had been around for a century or so already, it hadn’t been before 1870s that a number of technological advances made trans-oceanic shipping economically viable. Suddenly, a new kind of ships appeared: they were larger, faster, of greater capacity and almost without dependency on weather conditions. A new industry was born.

AMS thought they were smarter. They saw a momentary fashion, a technology hype, where there was a huge opportunity. Instead of modernizing their fleet, they decided to stick with old and proven technologies and business models.

Needless to say, they folded. In 1891, they bankrupted, liquidated the assets, paid debts, and marched into history.

The example is a century old, but the warning and the lesson are evergreen: companies used to old, proven business models often don’t want to try new ones. But the market doesn’t wait, it goes for more cost effectiveness, more agility, more quality, more reliability. Whoever can offer that, wins. Who can’t, loses.

A few weeks ago I attended a presentation about Azure Services Platform. It’s Microsoft’s new platform for Cloud computing, which I believe will change the way we think and do IT and will enable the ISV ecosystem to build zillions of subscription-based competitively priced in-the-cloud applications and services.

It made me think about ERP. ERP as we know it is dying. Even though market is not completely saturated, it is going to be soon. Fifteen years ago, ERP was strictly enterprise animal. Ten years ago it started shifting towards mid-market, today it’s everywhere. Market saturation will come in two shapes: first, everybody will have ERP; second, as a consequence of the first, if everyone has ERP, it will stop providing companies the competitive edge. (It’s already very debatable whether ERP provides that edge, or it’s a necessity.)

When this happens, the ERP vendors will need to offer something more than mere ERP functionality to their customers, something that will continue to translate into margin expansion for the customers.

Azure provides exactly that, exactly when we need it.

The growth of hosted ERP market shows that customers are increasingly more willing to give up on tight integration of their processes with ERP—if you can’t customize it, you either adapt your processes, or you decouple them from the ERP. Many companies, who insisted on customizing every single function there is, are now more willing to give in and adopt hosted ERP, a solution which offers very limited customization flexibility. But the work that was done in customized solutions still has to be done somewhere, right?

Right. But somewhere clearly outside the system boundaries.

Having it tightly coupled within the system, without it contributing to operational efficiency or gross margin, doesn’t make much sense. Especially not with ubiquity of Web services.

Azure plus Web services plus hosted ERP opens a whole universe of possibilities. You can host ERP in its pristine uncustomized form, exposing its Web services to swarms of outside applications that don’t need tight integration with ERP processes or data models. Development of such applications will come with little risks typically associated with ERP customizations, and the applications themselves can be more complex, while being less expensive to develop, maintain, and sell.

Microsoft Dynamics NAV 2009 fits into this story fantastically. It comes with built-in support for Web services which you can expose without programming. You can’t deploy it in Azure (yet), but you can deploy it in a hosted environment, develop several value-adding vertical or horizontal applications on Azure, and sell the whole shebang for peanuts on subscription basis.

Things like this are going to happen. Soon. It’s the steamboat story repeating.

We’ve had ERP around for a long time, it’s time for its next generation. Web services and SOA and SaaS and hosted have all ceased being news, but the number of technologies and concepts you can put together to build something of tremendous value for your customers is amazing.

And now that Azure is coming, what do you see: a yet another geeky hype, or an opportunity?