Businesses will soon have the chance to try Microsoft's new CRM 4.0 as a software service, providing another alternative in a market dominated by Salesforce.com. But will businesses bite?

Richard Smith, VP at reseller Green Beacon Solutions, thinks so. Further, Smith predicts the offering will present a serious challenge for Salesforce.com within the next 18 months.

Green Beacon partners with Microsoft -- not Salesforce -- so Smith stands to benefit from any momentum behind CRM 4.0. Still, his early experience with the offering provides a good insider's view to what's different with CRM 4.0. Microsoft released the software to manufacturing last month, and resellers are working with customers to get it up and running as a subscription service. Alternatively, Microsoft will offer CRM 4.0 on demand from its own data centers within the next several months, and also sells it as traditional, on-premises software.

Much has been made about Microsoft CRM 4.0, code-named Titan, being the company's first software designed to work as a multitenant service. That means resellers can save money, and pass on those savings, by letting multiple customers access a single instance of the software running on their servers.

But the real benefit of CRM 4.0 is improvements in how resellers can more easily configure the software to work with customers' existing business processes, said Smith in an interview. Smith said he's been working with the beta of the software for nine months, and has about seven customers currently evaluating it. Most are coming off of legacy/mainframe approaches to CRM or niche offerings they've outgrown, he said. "Version 1 of Microsoft CRM was really proof of concept, and version 3 was a major step forward architecturally, but struggled to model clients' business processes," Smith said. "The key phrase for CRM 4.0 is 'configure versus customize,'" he added. "CRM 3 required a lot of custom code," while 4.0 comes with configuration tools that make it easy to map the software to business processes.

One Green Beacon client, for example, sells to a distributor channel but handles support requests for end users. The new version makes it easier to link end user records to the appropriate distributors. "We haven't hit anything yet we couldn't model, and that certainly wasn't the case with 3.0," he said.

Oracle, meanwhile, has been relatively quiet about its Siebel On-Demand in recent months, but Smith said reseller channel activity indicates the company's sales staff is getting much more aggressive with the product. Oracle's also gotten aggressive about pricing, he said. And so has Microsoft, with CRM 4.0 costing anywhere from one-third to one-half what a Salesforce subscription costs, Smith added. "My prediction is Salesforce.com is going to have an interesting time of it in 12 to 18 months, with both Oracle and Microsoft, the titans of this industry, going after them," Smith said. Salesforce.com is well aware of the growing competition, but maintains that the major fault of those offerings is they weren't designed from the ground up to work like as an online service. Something as simple as requiring customers to run upgrade wizards shows how CRM 4.0 is more like traditional software than a service, says Peter Coffee, director of platform intelligence at Salesforce.com.

"Our customers never see any ripples or dips in an upgrade process, because the system was architected from the bottom up to deliver a completely transparent model," he said. By comparison, Amazon.com or Google wouldn't ask users to run an upgrade wizard if the company upgraded its server software over the weekend. When it comes to an online service, "users shouldn't settle for anything less in terms of convenience," he said.

Coffee also predicts that customization problems will arise for customers of on-demand software sold by traditional software vendors. The Salesforce.com approach is to treat customization as metadata; any custom code is compiled in an intermediate form and runs under the control of Salesforce.com's code. The Salesforce.com system, in fact, can recognize any problems with custom code and sends automated e-mails to developers about any problems. "We began from the notion that customization should be a species of metadata rather than being this hazardous and brittle modification of software code," Coffee said. "We can deliver full customization without the breakage opportunities, and without the cost of the upgrade conversion," he said.

Coffee, meanwhile, added that Microsoft's claim to be able to support 25 customers on one instance of its software is still just proof of concept. Pointing out that Salesforce.com has 38,000 customers, Microsoft's beta of 600 customers "doesn't seem a very valid user test," Coffee said. "Multi-tenancy isn't package choice; it's architectural, fundamental decision that's at the core of everything we do in terms of how we create and deliver capabilities."

Regarding cost, Salesforce.com CEO Marc Benioff has maintained that you get what you pay for. The potential for success with Microsoft CRM 4.0, it seems, lies in whether Microsoft can deliver that magic combo of easy customization, ease of use, and low cost as it expands the offering beyond its initial base of 600 testers.