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Why Gartner's Microsft Dynamics revenue figures are raising eyebrows

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7th May 2013
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Microsoft’s CRM revenue grew at 26% for a 2012 total of $1.13 billion according to a recent Gartner report but some have cast doubt over the legitimacy of the total revenue figures.

In a new blog post, Constellation founder and analyst Ray Wang explains that Microsoft claimed that all of Dynamics, including ERP and CRM products, amounted to $1 billion in annual revenues

Gartner's listed the figures as being: 

 

Using publicly available data, Wang lists assumptions as to why the figures may not pass the ‘sniff test’:

  • Enterprise software vendors have grown in the double digits over the past decade: Even at 6% growth over 12 years, the revenues of the acquisitions would double.
  • Conservative estimates assume Microsoft at least doubled its ERP business in a decade: The combined revenues could conservatively range from $750M to $950M for just ERP software alone.
  • Most of Microsoft’s acquisitions drive ERP revenue not CRM: Over 90% of the Great Plains and Navision revenues were in ERP so little exists in CRM revenue overlap.
  • Constellation keeps close tabs on Microsoft Dynamics revenues: Constellation Research estimates that the Microsoft Dynamics overall revenue sits between $1.47B and 1.56B for 2012. 

So has the ERP business shrunk or has the CRM business grown gangbusters? asks Wang.

“Even if Microsoft’s Dynamics ERP acquisitions performed in the single digit growth range, $750M in ERP revenue added to $1.135.2B in CRM revenue would have the Microsoft Dynamics business near $2B. Did Microsoft Dynamics really generate under $2B in overall revenue for 2012?”

In defence of Gartner and its potential inability to calculate the numbers right, Wang does however point out that the methodology used forsoftware market sizing means that figures can often be inaccurate.

“In reality, the market sizing game for enterprise software is both an art with some science.  Having played this role as a vendor in an Analyst Relations capacity in a past life, one knows that executives can not disclose such financial information directly to a research or market sizing firm.  

“As assumptions are built on previous numbers, one false guess in a previous year, cascades and geometrically inflates or deflates a set of future numbers.  In the case of these CRM numbers, one may speculate that past executives may have provided a higher number than actually generated, resulting in the current alleged inaccuracies. 

“Another speculation may come from previous and current analysts who may only focus on one area of the business and not have the total picture on the Microsoft Dynamics overall business. “

Additionally, he notes that the numbers for both SAP and Oracle also seem inflated, as a result of having been inflated over decades.

To conclude, Wang believes that Microsoft Dynamics has not achieved $2B in revenue in 2012 and the numbers don’t meet any “reasonable sniff test.”

“Unfortunately, what we have in the Microsoft Dynamics CRM revenue number is a scenario where the lack of revenue split transparency has create a windfall of revenue for research analyst firms covering market sizing.  Every vendor on the list: Salesforce.com, SAP, Oracle, Microsoft, and IBM must play this Kabuki theater once a year,” he concludes.

To read the full blog post, click here

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