Microsoft thinks small

SEATTLE — News that Microsoft Corp. discussed a merger with business software giant SAP AG has focused new attention on Microsoft’s limited success in a market it would love to conquer.

Microsoft is rejiggering plans to cater to the more specialized needs of small businesses, part of a wider effort to find new revenue streams to augment its traditional cash cows. The hope is to score with accounting and other software that Microsoft is not traditionally known for. The target customer: companies with fewer than 1,000 employees.

The most recent changes — including putting the Microsoft Business Solutions unit under the direct control of chief executive Steve Ballmer — come as the company concedes it has not been able to beat the competition as it hoped.

Microsoft made its first big push in the market several years ago, with the $1.1 billion acquisition of Great Plains Software Inc., a longtime player in a fragmented sector lacking a dominant leader. Microsoft believes the market includes as many as 40 million companies worldwide.

Now the segment is more important because Microsoft’s big moneymakers — the Windows operating system and Office software — have grown so dominant that their respective markets are getting saturated. Microsoft’s stock price has remained relatively flat in recent years.

Chris Alliegro, lead analyst with independent research firm Directions on Microsoft, believes Microsoft sees small- and mid-sized business software as the “potential next big revenue wave.”

But despite Microsoft’s potential power — including around $60 billion in cash to fund acqusitions or product research — selling to small and mid-sized companies hasn’t come easily.

The Business Solutions division, MBS, had the weakest results of Microsoft’s seven units in the most recent quarter, meeting expectations but continuing to lose money — $65 million on revenue of $153 million.

The unit was created out of acqusitions of Great Plains and Denmark’s Navision, combined with some of Microsoft’s own small-business software. That’s left it with a wide array of products catering to specialized needs, such as accounting and customer relationship management, for niche businesses like mom-and-pop manufacturers or small firms needing broad multinational support.