Microsoft's Convergence 2011 conference, which took place this week in Atlanta, was loaded with bells and whistles regarding the company's cloud-based business software solutions. Still, several factors have thrown a wrinkle in Latin American adoption.
BNamericas caught up with Microsoft's Dynamics lead for Latin America, Daniel Peña, who analyzed differences between regional cloud-based CRM and ERP growth, pricing misconceptions and where the software giant is gaining and losing market share.
BNamericas: So far during Microsoft's fiscal year, what percentage of total Dynamics implementations have been cloud based?
Daniel Peña: There are two sides to the story - one is CRM and the other is ERP. On the CRM side, we're more advanced in terms of the cloud because we already had a lot of business partners providing these services through the cloud in all of Latin America.
At the same time, Microsoft announced in January the solution CRM Online, which is Microsoft's cloud-based solution. We've launched it in eight Latin American countries, and it's causing greater cloud interest.
At this time, in terms of the number of users, fewer than 10% are in the cloud at this time.
BNamericas: Just to confirm, that statistic is for both CRM and ERP in the cloud?
Peña: No, that's just for CRM.
BNamericas: And what about ERP?
Peña: It's something like 1%; it is much smaller. When it comes to financial information, companies prefer to keep that in their own facilities.
BNamericas: Market analysts have said that many Latin American companies are only putting non-core applications in the cloud. What haven't manufacturers like Microsoft done in order to increase confidence enough so that companies put critical applications in the cloud?
Peña: I don't think it's a question of application availability, because with our CRM solution we are guaranteeing an up-time of more than 99%. The issue is that many companies believe that their financial information is very, very sensitive, and they don't want it to be physically outside of the company.
Banks in various Latin American countries also have limitations on where they can store their financial information.
BNamericas: Then are companies' wishes to retain their financial information and also the regulations putting limits on cloud computing growth in Latin America?
Peña: We aren't seeing those limitations on the CRM side, and we believe that we are going to see very high growth there. Those factors won't put limits, but they will make ERP grow a lot slower than CRM.
Government represents a very significant part of any business, and there are a lot of governments that have put out legislation without thinking about the existence of the cloud concept. They're trying to adapt their laws to this new technological reality.
BNamericas: What are Microsoft's latest growth expectations for cloud-based Dynamics CRM and cloud-based Dynamics ERP in Latin America during upcoming months?
Peña: During the next 12 months, we are expecting triple-digit growth for CRM in the cloud. We think that the growth could reach 500-1,000%.
BNamericas: And for Dynamics ERP in the cloud?
Peña: We'll be seeing growth of 20-30%.
BNamericas: It's been said that some Latin American companies are ending up saving less on cloud-based solutions than they had originally thought. Has Microsoft encountered this issue in Latin America with companies adopting cloud-based ERP and CRM solutions?
Peña: It all depends on the type of the project that the company has. In these types of projects, the cost of services is rather significant. Many times, if we are talking about a complex project that requires a large amount of development, the service costs don't vary a lot between cloud and on-premise. Many times, licensing can represent 20% of the total cost of a project and the remaining 80% comes from services. If the services don't vary a lot, then the difference in costs won't be that great.
It is definitely possible to reduce operational costs, above all for companies that don't want to invest in a significant IT department. In that case, you can achieve reductions in costs, but they [the savings] aren't as high as many companies believe.
BNamericas: To support its Latin American cloud computing business, Microsoft has a data center in Brazil. Is the company constructing additional data centers in Latin America to support this business?
Peña: At this time, we haven't confirmed any data center in Latin America. Our policy is not to explain where we have data centers. Latin America is a very important market for Microsoft, and we are constantly reviewing our options to provide better service to clients.
BNamericas: Microsoft Chile's director of technology and innovation, Wilson Pais, told us last year that Microsoft is investing US$500mn in a Brazil data center to support cloud computing.
Peña: That could be true. I don't deny it.
BNamericas: But will there be other data centers in Latin America?
Peña: Nothing that I can confirm at this time.
BNamericas: Is it possible to name any clients that have adopted cloud-based Dynamics CRM or ERP solutions in Latin America during recent months?
Peña: CRM Online is a new product that was launched in January, and consequently we aren't ready to disclose any new clients.
What I can tell you is that interest in cloud in Latin America is high. The growth in the number of [cloud-based CRM] trials that we are seeing in Latin America is one of the highest in the world. In particular, Brazil has one of the highest numbers of on-demand CRM trials in the world. The demand that we are seeing in Latin America at this time is higher than Europe or Asia.
BNamericas: But is it possible to name a key win in the cloud?
Peña: We don't have any clients that we can announce.
BNamericas: Changing topics, what are the main trends in Latin America in terms of on-premise Dynamics CRM and Dynamics ERP adoption?
Peña: The overall growth rate of Dynamics is one of the highest for Microsoft in Latin America. The Dynamics AX ERP is successful, and is being adopted by clients in Brazil, Mexico, Argentina, Chile and Colombia. The new solution that we have launched, which is called AX 2012, shows how much Microsoft is willing to invest in this product.
BNamericas: Regarding traditional implementations, which Dynamics solution is growing fastest in Latin America?
Peña: CRM is growing a lot in markets such as government and finances.
In terms of ERP, the solution that is growing the fastest is Dynamics AX. Traditionally, this solution has been strong in manufacturing. At the end of the last calendar year, we launched a version for retail, and we are seeing significant interest from the market. The solution integrates everything from the point-of-sale to the back-office. Consequently, in this area, we're seeing the fastest growth from retail and distribution.
BNamericas: According to Microsoft's estimations, where are you gaining ERP and CRM market share from your competitors in Latin America?
Peña: According to the information we receive from consultancies such as IDC, we are gaining in both areas.
BNamericas: But are there any geographies or vertical markets that stand out in terms of market share gains?
Peña: In Brazil, we are seeing strong growth; that is the country where we are gaining the most market. In Colombia, we are also gaining a lot of market in both ERP and CRM. In terms of CRM, we are gaining a lot of market in government, as well as in banks and insurance companies. In terms of AX, as I said, we are advancing in retail.
BNamericas: On the other hand, where are you losing market share to competitors in Latin America?
Peña: At this time, I don't think we're losing share. For ERP, our focus is on medium-sized and large companies. Small companies have never represented a fundamental market for us, and it's a market where we don't have a significant market share.
BNamericas: I understand that Microsoft is launching new versions of Dynamics. When will they be available in Latin America?
Peña: The next important product that we are launching is AX 2012, and that will be available in the second half of this [calendar] year.
Daniel Peña has been with Microsoft since 1998, and previously worked in the company's developer support area. Peña's prior experience includes a stint as information systems manager in GE.
The executive holds an MBA from the University of Miami.
About the company
Founded in 1975, Microsoft now employs more than 92,700 people and has 108 subsidiaries worldwide. Global sales reached US$62.5bn during its FY10, ended last June 30.