Microsoft's Late, But The Hosted CRM Game Is Far From Over

Used to be whenever Microsoft declared it was entering a new market, competitors shook with fear. When the software company last week said it would offer a software-as-a-service version of its Microsoft Dynamics CRM application by mid-2007, one rival responded with taunts.

"They're so late they're going to have to start carbon-dating their release dates," mocked Kendall Collins, product marketing VP at Salesforce.com, which this week will go live with the 20th release of its own hosted CRM applications.

Best to watch out. Comedy may be part of the culture at Salesforce, but coming back after a slow start is part of Microsoft's.

Microsoft is undoubtedly late to the market. Salesforce has provided on-demand CRM apps since 2000, and Oracle, through its Siebel acquisition, is a major market player. Even SAP, which took its own sweet time before finally jumping into the on-demand CRM arena in February, has attracted a number of customers, including American Standard, Capita Insurance Services, and DuPont. By initially aiming Dynamics CRM Live at small and medium-sized businesses, Microsoft also will be competing against smaller vendors such as NetSuite, RightNow Technologies, and Sage Software.

Microsoft wasn't above a little bravado of its own. CEO Steve Ballmer said his company is "using the Internet to remake the software business itself," in a speech before 7,000 business partners at the Microsoft Worldwide Partner Conference in Boston last week.

Microsoft Dynamics CRM Live will use the same code base as the next major release of the on-premises version of Dynamics CRM, known as Titan, that's also due by the middle of next year. That will let Microsoft provide customers with combinations of the on-premises and hosted versions of the application, similar to the strategy SAP has followed with its CRM applications. For about a year, Microsoft also has provided a version of its Dynamics CRM application that's hosted by business partners.

Microsoft will host Dynamics CRM Live in the same data centers that host other Microsoft Live on-demand services, including Windows Live and Office Live. Each customer instance of Dynamics CRM Live will run on its own database with database servers organized in clusters of up to 64, says Kevin Faulkner, product marketing director for the software-as-a-service CRM product. That, he says, will reduce the impact of any system failures.

Bowing to reality, Microsoft also plans to provide later this quarter the ability to link its Dynamics CRM apps with back-office ERP and CRM software from competitors Oracle and SAP.

Salesforce's Demons

Salesforce still has its own battles to win: namely, proving that it can bag the largest business customers and be a foundation for offering broader services. It will go live this week with Summer '06, the latest upgrade of its core hosted CRM service. The release offers sales-lead history-tracking capabilities, call-scripting for sales and service employees, features that make it easier for service workers to determine what services customers' contracts entitle them to receive, and automated sales-lead assignments through Salesforce's AppExchange Mobile service. Salesforce subscribers will have immediate access to the new capabilities, Collins says. The company also is offering a connector to link its CRM services with SAP's R/3 ERP applications.

Salesforce isn't sitting still and neither are the rest of the companies battling for a piece of what is a growing market. Microsoft is sure to grab a slice of the CRM software-as-a-service market once it gets there, but the company's going to have to fight hard for a leadership position.