"I hope it's clear we see this as a space critical to our vision," said Gates, who noted that the software giant's multiyear product plan and increasing R&D investment aim to produce software "mirroring the real world and reflecting how companies actually do business."
The centerpiece of the Microsoft Dynamics roadmap will be next year's Office 12 release, which has business intelligence capabilities built in and deeper integration promised with the SQL Server database and SharePoint portal and workflow software. Ultimately, Microsoft wants to tightly link desktop productivity tools and business process software.
"Their overall strategy is very much in line with what we want to do, but I'm left with more questions than answers," said Richard Lindner, information systems manager of The Shepherd Color Co., a maker of complex color pigments in Cincinnati, Ohio. He is especially interested in next month's release of Microsoft's new customer relationship management (CRM) product, the first piece of the upcoming Dynamics line of business applications for the midmarket. "I'm drinking the Kool-Aid. I've bought in. But where do I focus first?"
Gates and Ballmer both referred to an extensive internal research project -- involving 750 midsized businesses and more than 2,500 in-depth interviews with midmarket customers -- as a crucial factor in shaping their thinking on how to approach this market. The research made them realize that midmarket businesses were more complicated, diverse and demanding than they realized. "I've spent more time trying to understand the midmarket than any other customer segment in all my years at Microsoft," Ballmer told the assembled executives. "It's not complete magic, but it requires more work than understanding the consumer or the enterprise."
With his usual rapid-fire, high-energy delivery, Ballmer acknowledged that Microsoft wants to sell more products into midsized companies but has struggled with how to strike up a "high-quality relationship" with more than 1 million customers. "The two things we have to do are to create a broader product portfolio and to invest in the partnerships and tools we need to have that personalized connection," he said.
IT executives interviewed at the event spotted Microsoft's classic delayed-gratification approach with the Dynamics roadmap, and some wryly noted that with potential delivery dates stretching out to 2008, it would likely be their successors doing the installations.
"I liked Ballmer admitting that this is in their economic advantage to be doing. That's talking to me as a business person, not a computer geek," said Fernando Gonzalez, IT director of Byer California, a $400 million clothing manufacturer in San Francisco that is in the market for a new ERP system. "But we have decisions we need to make today. The message I got is that we're going to be hungry for another couple of years. We can't hold steady for three years while Microsoft gets there."
But some CIOs said even a vague roadmap can give them enough direction to start planning.
"It's important to find out what direction they're going, so we can align that with our management direction," said CIO Vincent Marino of Soave Enterprises Ltd., a $1.5 billion holding company in Detroit. "They've never had a strategy or much of a relationship with the midmarket. We're kind of like the adopted child."
"We'd love to see a way for us to do some sort of integration" between legacy applications and the upcoming Dynamics products, added Ronald Crall, CIO of St. Joseph Healthcare in Bangor, Maine. Crall runs a Microsoft shop that is beta-testing the next version of Windows, due late next year.
The Dynamics products will roll out in two waves, Gates said. The first wave starts with the Dynamics CRM product next month and continues through 2007 with a new version of the SharePoint portal and workflow software, a SQL-based business intelligence offering and other integration products. Wave 2 is scheduled to crest in 2008 with enhancements to Visual Studio .Net tools, capabilities in "modular process configuration" and a converged suite of Microsoft Dynamics products. "We have a lot of work to do," Gates acknowledged.
"It's a step in the right direction, but how all those products and their current products will integrate into that common framework is still not very clear. It's still a ways off," said Sanjeev Aggarwal, a senior analyst at Boston-based Yankee Group Research Inc. Microsoft is recognizing not only the importance of the midmarket but also the threatened loss of those customers to rivals such as IBM, the analyst added.
Ballmer also dropped a few hints about future offerings in the hosted applications arena. "The midmarket customer will be on the leading edge of customers adopting Internet-based online services, to take further costs and complexity out of IT," Ballmer said, adding that those customers are also "the most open" to using hosted business services. "From the midmarket customer perspective, the best piece of software is what they can subscribe to -- not implement."
With its own Live Meeting product and newly acquired FrontBridge software, Ballmer said over the next year or two Microsoft will "push to let our customer have it their way in the midmarket -- with on- or off-premise implementations."
Responding to a question about Saleforce.com's momentum in the hosted CRM market, the Microsoft CEO was vague on any specific plans but said, "We expect to give Salesforce.com a very effective run for its money." Later in the day, Salesforce.com CEO Marc Benioff issued a response, snapping back at Microsoft for its "failed enterprise software strategy," and adding that "We have competed against them in the CRM market since 2002, and they have failed to deliver a competitive product."