Dynamics 365 On Premise Fact or Fiction

Dynamics 365 On Premise Fact or Fiction

Two weeks ago a single declaration during the Q&A portion of the AXUG Summit General Session in Tampa, FL sent the Dynamics AX community into a spin. One response to a question from an inquiring user defined this year’s Summit. It was made by Microsoft’s General Manager in charge of Cloud Business Solutions Sri Srinivasan and was very blunt. Paraphrasing Sri’s statement, this was the first time the vast majority of the folks in the audience heard an acknowledgement from Microsoft that AX 2012 R3 is the last fully on premise version of AX, and it will be supported through 2021. While sitting in the room I personally received multiple messages immediately (within minutes) from existing AX clients in attendance expressing concerns about this statement. The realization kicked in that Dynamics 365 is not on premise bound.

However, after 10 days of pondering, meditating, questioning Microsoft, consulting with customers and prospects, and chattering with other partners, I came to the conclusion that while Sri’s statement was likely factually accurate, it was at best misconstrued and at worst misjudged. Please allow me to start with a disclaimer that all of the thoughts expressed below are our interpretation of Microsoft strategy and the acceptance expectations from the market at large, not an official company line.

Microsoft’s Journey to the Clouds

According to the Urban Dictionary, one of the definitions of the word “cloud” is “something that is so cool and awesome but not out of this world cool and awesome”. So how “cloud” is Microsoft’s on premise vision for Dynamics 365? Unfortunately, they have not done a tremendously great job explaining their position to the community hungry for answers. Additionally, their focus has changed over time with dramatic fluctuations in the last 12-18 months. However, such amendments can be expected in an emerging market (and don’t be misled, cloud ERP is still an emerging market).


First, let’s extrapolate the current considerations for the Dynamics 365 on premise options. The answer actually comes from Sri himself. In another session at AXUG Summit a day earlier, which covered the Microsoft Product Roadmap, he outlined the “on premise approach”. For inquiring minds, you can re-visit this session at https://www.ustream.tv/recorded/92170675. It is our understanding that at the very least, the cloud components will be required for the financial roll-up consolidation features, which will then utilize Azure (cloud) analytical tools for BI and other explorations. All other components (warehouse management, shop floor, retail, etc.) will be available for an on premise deployment and synchronization with the Azure mother-ship. In fact, the path was laid by the retail solution in Dynamics AX 2012 and included an option for offline maintenance and periodic re-synch. I envision this architecture as Azure SQL being the primary data storage and the on premise installation representing a replicated “backup”.

Many important questions remain unanswered, including licensing, upgrade options, and disaster recovery, to name just a few. And how about the task of synchronizing data between on premise and cloud databases for a complex enterprise level ERP system? It’s no small feat. No two ways about it – very ambitious and groundbreaking. If Microsoft can make it work for an enterprise level ERP system with thousands of related tables and transactions/business logic relying on timing, this will be a monumental achievement. While we have not seen any formally published dates, one of our Microsoft contacts mentioned Q1-2017 as the target for the preview release of this technology. Moreover, there will be no more dependency on the Azure Stack for this deployment.

The Elephant in the Room (or cloud, for that matter…)

Fear. Companies are scared to migrate to the cloud for a variety of reasons – let’s explore why they are resisting the cloud option…


I suspect everyone has at some point experienced performance issues with externally hosted solutions. Microsoft is investing north of $10B per year on Azure data centers. It is very early to judge or make comprehensive conclusions, however I can pass along some positive news. From personal experience, our only customer currently live on the latest and greatest Dynamics AX7 (soon to be Dynamics 365) has experienced wonderful results with regards to performance of their solution since going live almost 2 months ago. It seems the Production environment (which is fully in the hands of Microsoft when it comes to server configuration and performance monitoring) has been overcompensated for on the safe side.

The Last Mile Argument

No matter how great Azure data centers are, if a construction crew at the neighbor’s building cuts a wire, you are out of business. This is probably the top area addressed by this version of the “hybrid cloud” (or “on premise” as we expect it will be called soon). The ability to transact using the local version of the database is the key resolution to this challenge. Obviously, if you remain disconnected from the world for a long time, this “offline maintenance” option may not be enough. Nonetheless, this is exactly the architecture Microsoft is offering to overcome the last mile contentions.


At the end of the day, this is probably the most influential part of the equation. The jury is still out on how competitive Dynamics 365 will be. Even though the prices are now known for new prospects via either CSP or EA, the subscription model makes it difficult to compare to prior versions of perpetual AX licenses or competing ERPs. One piece of evidence is obvious – in the short term, expect some discounts from Microsoft as they attempt to buy the shelf space.

Data Outsourcing/Security

While many studies point to the statistical observation that cloud data centers are more secure than on-premise installations, the bottom line is still the same – the fact of letting “somebody else” host your data is not acceptable for many conventional IT leaders. CNN, constantly breaking news with Russian and Chinese hackers going wild, does not help the situation. In particular, last week’s attack which took down Amazon, Netflix, Twitter and hundreds of others (https://fortune.com/2016/10/21/internet-outages/) added fuel for the anti-cloud traditionalists. It is an emotional decision, and an obstacle Microsoft cannot address through technical means.

Support/Managed Services

This was initially the biggest challenge we predicted when the first set of rules of AX in the cloud appeared. Inability of customers (and their partners) to access their own servers and their own data directly seems like the top no-go reason for the Azure deployment. Since then Microsoft has promised this adjustment for the cloud AX: “hybrid” deployment that will allow data access and the ability to directly communicate with the database. When it indeed comes to fruition, we think it will satisfy this particular argument from the user/partner community.

Sri’s comments remain true, however without the additional explanations and lacking the immediate context, we believe it put more scare into the AX community than it should. Next week’s US Industry Summit should provide additional clarifications as Dynamics 365 is rolled out to the world. Stay tuned …


Are you interested in learning more about Dynamics 365?

Contact us today!

  Dynamics 365 & Azure Iot Suite - Color Sensor Demo