Microsoft Highlights Dynamics Growth in Annual Report

Microsoft has been notably discreet about the revenue details of its Azure cloud business, often leaving investors comparing its growth rate with rivals Amazon and Google. However, the company has recently chosen to shed light on its Dynamics business, which encompasses software for sales, marketing, and customer service.

In the annual report released to investors last week, Microsoft revealed the revenue figures for Dynamics for the first time, alongside other products. Dynamics generated $5.44 billion in revenue in the fiscal year 2023, marking a 16% growth year over year. This growth rate is double that of Microsoft's overall growth, making Dynamics one of the fastest-expanding major products, second only to Server Products and Cloud Services, which includes Azure.

Dynamics now accounts for 2.5% of Microsoft's total revenue, a rise from 2.2% two years ago. While Dynamics is considerably smaller than Microsoft's leading franchises like Office, Windows, or the burgeoning Azure business, Satya Nadella, chief executive officer of Microsoft, has begun to place more emphasis on it.

During the company's earnings call, Nadella stated, "Dynamics surpassed $5 billion in revenue over the past fiscal year with our customer experience, service, and finance and supply chain businesses, all surpassing $1 billion in annual sales."

Microsoft's main competitor in the Dynamics space is Salesforce, a significantly larger player. According to IDC, Salesforce controlled about 23.8% of the customer relationship management applications market in 2021, while Microsoft held 5.3%. Both companies have increased their market share since 2019, while others like Oracle and SAP have lost ground.

Nadella also highlighted new features such as generative artificial intelligence assistants for cloud-based Dynamics 365 services and integration with Microsoft Sales Copilot. Some companies are even switching from Salesforce to Dynamics, partly motivated by Microsoft's AI capabilities, according to Manny Medina, CEO of sales software startup Outreach.

Salesforce, on the other hand, has faced challenges in the past year, including slowed revenue growth and management changes. In response, Salesforce has expanded its adjusted operating margin and managed to avoid a proxy fight.

Dynamics, as a brand, has a history dating back to 1993, predating Salesforce. It originated with North Dakota-based Great Plains Software and was acquired by Microsoft for $1.1 billion in 2001.

Recently, Microsoft has been more assertive in marketing Dynamics, offering subsidies to potential customers already committed to Salesforce and assisting with implementation costs. Adam Mansfield, a practice lead at consulting firm UpperEdge, noted that Microsoft is willing to make the product as affordable as needed for clients.

Microsoft declined to comment on pricing strategies.

In conclusion, Microsoft's decision to disclose the scale of Dynamics in its annual report reflects a strategic emphasis on this growing segment. With its robust growth and integration with cutting-edge technologies like AI, Dynamics is positioning itself as a strong contender in the market, challenging established players like Salesforce.

Source: This article is inspired by a report published on CNBC, titled "Microsoft is touting the size and growth rate of its Salesforce rival Dynamics" on August 3, 2023.