Update: Microsoft To Buy Great Plains

Microsoft is buying Great Plains Software Inc. for $1.1 billion as part of an effort to bolster its back-office products for small and midsize businesses. Buying Great Plains would give Microsoft its first true enterprise resource planning product. E-business software maker Great Plains would become the Great Plains division of Microsoft and continue to develop, market, and support its software.

The companies plan to develop new capabilities that complement bCentral, Microsoft's Web-based service for small companies. Software from both companies would be integrated to create new business apps built for Microsoft's .Net initiative. The apps would be accessible on PCs, terminals, handhelds, and wireless devices, and would be deployed either as hosted services or installed at a customer's facility.

Microsoft Productivity and Business Services Group VP Jeff Raikes says companies are increasingly running integrated business processes such as core financials, CRM, supply-chain management, and E-commerce as integrated mixes of applications installed in-house and hosted on the Internet. As part of its bCentral initiative, Microsoft studied whether to build its own ERP and E-business products or buy an ERP vendor like its 19-year partner, Great Plains, Raikes says. The combined company would offer new approaches to connecting software installed at a customer's site and hosted .Net services, he says.

Microsoft president and CEO Steve Ballmer says Great Plains and Microsoft view the future of business applications for small and midsize companies in the same way. Great Plains' CEO Doug Burgum says his company, which recently acquired Solomon Software, wasn't looking for a buyer, but that the companies can do more together than they could apart to serve this market. The proposed all-stock deal is valued at about $1.1 billion. Each share of Great Plains common stock will be exchanged for 1.1 shares of Microsoft common stock. The transaction is subject to regulatory review.

Gartner analyst David Smith says Microsoft is very serious about continuing to sell software in its strongest market--small and medium-size business, and the Great Plains deal is designed to make it even stronger by offering apps that work with its database, Web infrastructure and other products. Microsoft has little chance to increase sales of those products to large companies, where the database market is dominated by Oracle and IBM. That market segment's applications, and the Web infrastructure they run on, are dominated by Commerce One, Ariba, SAP, Oracle, J.D. Edwards, PeopleSoft, and numerous others.

Smith says Microsoft's competitors will worry that this move will give them too much power and influence. "Microsoft will have to answer a lot of questions about whether this makes them too powerful," he says. Similar questions have been asked of Microsoft in the past, particularly during this year's federal antitrust trial which resulted in a court ordering the breakup of Microsoft.

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