Carolyn Moody, president of CRM Consulting, likes the application's link to Outlook and says it will help get employees to use the software. "It's one less package that has to be learned," she says.

Moody is confident that Microsoft has produced a useful first-generation CRM product. "It used to be with Microsoft products that you'd wait until the third version," she says. "But they know that perception is out there about them, and they try to deal with it. They've really polished this."

Paul Eichel, an independent project-management consultant and VP of membership for the New York chapter of the Project Management Institute, is looking at the software to track the organization's 100,000 members worldwide. "Our members are our customers," he says, adding that Microsoft CRM looks like an easy-to-use, adaptable way to better serve them. "This package seems to present a panoply of usable functions that directly impact productivity."

Microsoft already has gained ground in the midsize- company market by buying software developers Great Plains and Navision for more than $2 billion in recent years, giving it enterprise resource planning, supply-chain, and financial software. Microsoft chairman Bill Gates has painted a vision of business applications woven together with desktop applications for use by small businesses (see "To The Middle"). However, Microsoft CRM initially won't be integrated with the vendor's other enterprise applications. Microsoft says it plans to provide connectors to link the apps later this year.

As it has done when it entered markets such as server operating systems and databases, Microsoft is charging less than most other vendors. The standard edition of its CRM suite is priced at $395 per user; the professional edition, which comes with more complex back-office tools, goes for $1,295 per user. Both versions require Windows 2000 Server. In contrast, high-end CRM software can cost $5,000 to $15,000 per user, or $1,000 per user per year to employ a hosted CRM service.

Top CRM vendors aren't likely to be intimidated. Market leaders Oracle, PeopleSoft, SAP, and Siebel are large software companies with enough resources to compete even against Microsoft. However, their CRM applications have a reputation of being complex, costly, and difficult to deploy.

In addition, those vendors tend to market to larger companies. Microsoft initially is targeting the smaller end of the market. "Midmarket companies are poised to be the primary buyers of CRM," says Aberdeen Group analyst Denis Pombriant. And Microsoft has a strong position in that hot market. "There are 100 million Outlook and Exchange customers out there, and the CRM product fits into that pretty well. They should be able to build on that."

Microsoft's first battle will be against hosted applications. The middle market is price sensitive and receptive to hosted apps, Pombriant says. "The big competition is going to be with companies like Salesforce. They have a large installed base, a ton of users, and the customers are pretty happy with what's been delivered," he says. Microsoft says it will make its CRM application available to ASPs, initially through ManagedOps.com Inc.