Guild Companies

Microsoft clearly sees that the application software market as its way back to growth and profits. Last week, the company quietly absorbed another Windows application software vendor, Sales Management Systems, that specializes in retail and point of sale (POS) applications. The SMS acquisition came to light just as Sage Group went to court in Denmark to contest Microsoft's $1.3 billion acquisition of Navision. Sage is the UK application vendor that is the main rival to Microsoft's Great Plains unit and Navision.

Neither Microsoft nor SMS provided the financial details of the SMS acquisition. SMS was founded in 1995 in Anaheim, California, and its initial products and the ones that it sells today allow retailers to integrate their POS terminals with servers running Windows NT and even desktop versions of Windows operating systems rather than using proprietary POS servers and terminals from IBM, NCR, and others. That first product was called QuickSell 2000, and it quickly became popular among small retailers. In 1998, SMS expanded beyond a simple one-store, one-server model for its applications and launched QuickSell HQ, a centralized multiple store management system. In early 2000, the company launched QuickSell Commerce, an e-business front end to the retail system that allowed brick-and-mortar stores or store chains to move out onto the Web but keep their same QuickSell backend systems.

Microsoft bought QuickSell because it needs to beef up the retail capabilities of its Great Plains application suites for Windows NT and Windows 2000 servers. How the QuickSell applications will be merged into the Great Plains and Navision suites is still unknown, but all three formerly independent companies are staunch supporters of Microsoft's technologies, including the new XML and .NET technologies that Microsoft is starting to deliver to the market now. Microsoft says that the SMS applications will be integrated with the Great Plains Dynamics and Small Business Manager modules by the third quarter of this year, and that the integrated version of the SMS products will cost $2,285. This integrated solution will only be available in North America until it is rolled out worldwide sometime in 2003. In the meantime, Microsoft will continue to sell QuickSell 2000 for $990 per POS and QuickSell Commerce for $1,290 for a single, single register license.

Why SMS decided to sell out to Microsoft is a unknown, but it isn't hard to speculate. With the economy in the dumps and the IPO market dubious, companies like SMS or Navision have a hard time walking away from the prospects given to them by becoming a part of the Microsoft collective--not to mention great technical support for multiple languages and currencies and advanced knowledge about Windows platforms. Microsoft has one of the largest customers bases in the world, and is particularly entrenched in the small and midsized business market where these companies make their livings. Three years ago, the founders of companies like Navision and SMS would have balked at just about any amount of money Microsoft put on the table. Now, they are probably just happy to be asked to dance at all, and happier still to walk away with a decent premium over the value of their companies, whether they are publicly or privately held. Navision and SMS executives might have been looking at the cost of implementing their applications in .NET and discovered that making a deal with Microsoft was the only way to affordably and profitably deploy .NET and other new technologies. In effect, the companies that become part of Microsoft can shift the burden of moving to .NET directly to Microsoft. Companies that are not owned by Microsoft will, of course, not have that option and they will have to fund this development themselves. This may put them at a disadvantage. Sage, which has been left out in the cold by all of Microsoft's wheeling and dealing, certainly seems to feel this way.

According to the Danish business newspaper Boersen, the top brass of Sage were in Copenhagen yesterday with their lawyers to try to block Microsoft's acquisition of Navision on the grounds that Microsoft will bundle Navision applications with its other offerings and kill off the competition, such as Sage. Sage is expected to have its lawyers make similar cases before the competition authorities in England, Germany, and France as well. Whether or not Sage can stop the Navision deal is unclear, but it probably can slow it down if Sage's maneuvers come to the attention of Mario Monti, the commissioner in charge of competition for the European Commission federation of European countries. So far, Monti has been mum about the Navision deal. But he is not afraid to take on Microsoft when he believes that the company has overreached European antitrust laws. It will be interesting to see what, if anything, Monti does with the interests of Sage as well as Navision being officially his problem.