Posted by Brian Walker on November 11, 2011
With other enterprise players such as IBM, Oracle, hybris, eBay and others at the table betting heavy on commerce solutions, Microsoft announced today that it is folding Commerce Server and leaving its shrinking pile of chips behind. While others have invested heavily through acquisitions, product investment, partner recruiting, and have been increasing their focus on commerce, Microsoft will walk away and hand over the product to a third party –Ascentium. Oh how much the game has changed; in 1999 Microsoft was the one with the tall chips.
Ascentium, a Bellevue, WA based digital agency and commerce services provider, will be taking over all the intellectual property rights, future product development, marketing, and support of Commerce Server from Microsoft.
What it means for Microsoft Commerce Server clients:
- Nowhere to go but up. Commerce Server has languished for years(1), hampered by its relatively soft sales traction compared to other Microsoft solutions and a dependence on integration to other Microsoft tools such as SharePoint, BizTalk Server, and SQL Server in the market. While most commerce platforms are akin to various cars on a high end auto lot, Microsoft was selling an engine which could just as easily be used in a custom-built boat, tank, or a small plane. The product was under-resourced and lacked executive sponsorship inside Microsoft, and as a result has not been a credible competitor in the commerce platform market for years.
- Little short-term disruption. Since Microsoft did not provide services to clients, and relied on partners to support the product in the field, there will be little shortterm change for current Microsoft Commerce Server customers. There is no reason to react immediately. Check with the lawyers to make sure your contracts and licenses are clear, and that’s about it for now.
- The real questions are over the long term. Current Microsoft Commerce Server customers really want to look at the combined roadmaps of Ascentium and their partners to see out 2-4 years and understand if their vision for their commerce solution needs will be met. Ascentium has a lot of work to do with the current solution to turn it back into a real competitive on-premise or hosted offering, or pivot these assets into a different approach that may or may not align with your vision. Ascentium is committed to developing a customer advisory board, may raise capital to invest in this product, and has a strong team, so at this point I expect a focused and rapid improvement in the product over the next 12-24 months.
- But this may accelerate exploration of alternatives. In a hot market for commerce solutions(2) driven by digital disruption, maturing digital businesses, and agile commerce needs many current Microsoft Commerce Server customers have been recognizing that they may need to explore an alternative in the near term future. With the lack of innovation and progress they have seen with Microsoft in this area many have expressed a willingness to look at SaaS and java-based hosted solutions. This transition may accelerate these questions, or certainly put them in a whole new light. For Ascentium, clear and ongoing communication on their roadmap, product investment, and strategy will be critical to help current Commerce Server clients see value in working with them over the long term.
What it means for Commerce Server focused Microsoft partners:
- Stay in the game, wait for the river. (OK, I am not a great poker player, so maybe I am over my proverbial terminology head here...) For .NET and Microsoft-focused partners there is not honestly much choice but to stick with it for awhile. And as above – there is nowhere to really go but up. This transition to Ascentium may actually end up being a boon for partners in terms of productization opportunities for tools and solutions partners have built to supplement and augment Commerce Server. And as in the past, customers who favor a Microsoft-centric approach will need partners.
- Ascentium is signaling the right things to partners thus far. The initial sentiment from current partners is that this is likely a positive thing given the current state of the product and little changes in their current relationship with clients. Longer term, the relationship between Ascentium and partners will need to find its footing, but at this point Ascentium appears to be committed to a partner strategy and in developing a solution partners can continue to build a business on.
Why did Microsoft fold when others are betting heavy?
- Microsoft has a big problem and it is called Azure. It has to get Azure going or it will become increasingly disintermediated. However, Azure is not taking off and it needs to focus on fixing it ASAP, and dumping products on periphery won't contribute significant revenue and present distraction given the situation.
- Commerce Server does not fit the big picture for Microsoft. The Server & Tools business at Microsoft has an enormous charter to go after – middleware, database, and developer tools - and looking at the portfolio and these solutions which are not high volume it is clear they needed to get rationalized out. Beyond Commerce Server, BizTalk Server may be another one. As things move to the cloud and SaaS, why spend a lot on money on the old model when it is clear that they are not in the game?
- The real game is in services, a table Microsoft does not play at. With mid-market and enterprise commerce solutions, customers spend eight times more on services around platforms and technology than on actual licenses. The licensing revenue is a fraction of the services revenue. IBM, eBay (GSI/Magento/Intershop), Oracle, and even hybris are either there or are increasingly building out services – while also feeding a partner ecosystem. Microsoft did not match up here and could not get the same revenue benefits.
- But this will limit Microsoft’s ability to present a commerce solution for clients. Microsoft will rely on partners, such as Ascentium and others, to develop those solutions. This is in stark contrast to IBM and Oracle. Long term this may erode Microsoft’s ability to serve as a strategic solution set for enterprises – all of which will be dealing with digital disruption and the need to become commerce enabled. Maybe Microsoft will climb back in someday once Azure is a viable offering, but at this stage that is a ways off.
And why Ascentium anyway?
- It is the best fit. Given this decision by Microsoft, Ascentium is the logical choice given its acquisition of Cactus Commerce only a few months ago. Cactus was the shadow outside development team for Commerce Server for a number of years and is the most knowledgeable team in the market today implementing and supporting Commerce Server. The Cactus team in Gatineau, Quebec is still largely intact as a part of Ascentium today.
- And there is a deep relationship between Microsoft and Ascentium. Though details are unclear, Microsoft played a role in supporting the Ascentium acquisition of Cactus, making the assigning of the rights perhaps a bit more palatable. Maybe there is some level of benefit for Microsoft in the long-term growth of an Ascentium led Commerce Server-based solution beyond core technology adoption in the market.
What’s next for Ascentium?
- Product and services is a complicated cocktail. When Ascentium bought Cactus in September I saw it as indicative of a broader trend toward global commerce service providers that combine strategic consulting, customer experience, integration, and managed services. With the addition of a product, things get more complicated. I look to Ascentium to split the company into a services company and separate product-focused entity. This would be akin to the IBM model with products and services, but where clients may work with third-party services firms most of the time.
- Lots of whiteboard sessions and conversations. Ascentium has a short window in which to reach out to partners and customers of Microsoft Commerce server and reinforce their road map and strategic objectives moving forward.
Interesting times. Get comfortable, the game continues…
(1) For more on how Microsoft Commerce Server compared to other commerce solutions see our 2010 B2C eCommerce Platform Wave™ report.
(2) Nearly 25% of US online retailers are planning to re-platform within the next 18 months, and 20% have a project already underway. Likewise demand across other vertical remains very strong, incl manufacturing, media & entertainment, travel, healthcare, etc., across both B2C and B2B solutions. See our “2011 Online Retail Technology Investment Outlook” for more details.