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Microsoft Makes Play For Enterprise With New CRM App

Microsoft is hoping its desktop domination with Outlook and Office will provide Dynamics CRM 3.0 with an advantage over established CRM app vendors.
A word to the wise: the long-anticipated update of Microsoft's customer-relationship-management software is here, and Redmond is hungry.

Dismissed as a minor player when it took its first crack at the CRM market three years ago, Microsoft is taking aim at bigger fish with its long-delayed release this week of Microsoft Dynamics CRM 3.0. The price is lower, the Outlook-like interface is familiar and substantially simplified, and complete marketing-automation and service-scheduling modules have been added. Plus, the software will soon be available as a subscription-based, on-demand service and its 100% Web services architecture is intended to let any IT shop that's comfortable developing in Visual Studio do deep customizations without calling on consultants.

Of course, it's also about 18 months later than anticipated after Microsoft chose to skip a planned 2.0 release when beta customers suggested it beef up the product rather than introducing something mediocre. None of which has Microsoft concerned about how the market will receive its new offering. "This is going to be our coming-out party at the enterprise level," declares Kevin Faulkner, senior director of product management for Microsoft's CRM offerings.

The question, of course, is whether Microsoft Dynamics CRM 3.0 can wrestle business away from the likes of Siebel Systems (soon to be owned by Oracle), PeopleSoft (already owned by Oracle), and SAP. It has a lot of ground to make up. According to AMR Research, Microsoft booked CRM-related revenue of $202 million in 2004, compared with SAP's $1.7 billion and Siebel's $1.4 billion. PeopleSoft and Oracle's legacy CRM apps combined to rake in $758 million.

To make its CRM lineup more formidable, Microsoft has attempted to leverage one of its biggest advantages, namely its ubiquity on the desktop via Outlook and the Office productivity suite. The new CRM software operates part-and-parcel with Outlook, removing a key barrier to adoption among the many salespeople who rely heavily on their Outlook inboxes and contact lists. For instance, when an email arrives in the Outlook inbox, a quick click of the "track in CRM" automatically ties that message " and all replies to it " to related leads and opportunities stored in the CRM app, all of which also can be accessed via Outlook.

While Microsoft is stressing that its new CRM software doesn't strong-arm customers into having to use Outlook (there's a Web-based interface, as well, which also bears a strong resemblance to Outlook), it's banking that Outlook as a de facto interface will help it overcome the adoption struggles that have caused so many big CRM deployments to flounder. If salespeople don't have to learn another interface, Faulkner reasons, they're a lot more likely to start using the software right away. Some big-name companies already have placed faith in the technology, with H&R Block and Volvo among the initial customers.

Microsoft Dynamics CRM arrives Tuesday in English, with French, German, Dutch, and Russian versions slated for release on Jan. 1, followed by more than a dozen additional languages in the first quarter of the year, and then Japanese and Chinese in the spring.

Pricing has been slashed an average of 30% compared with Microsoft CRM 1.2, although the company is no longer offering a la carte options, opting instead for a strictly suite approach. The professional edition geared for larger companies runs between $622 and $880 per user, while a license for a single server that supports up to 1,200 users will cost between $1,244 and $1,761. Meanwhile, a small business version with slightly pared-down capabilities lists for between $440 and $499 per user, plus $528-$599 for a server license.

Microsoft also is looking to generate some revenue where there was none previously, introducing licenses for connectors that enable partners, customers, and other external users to access the application priced between $8,830 and $12,500 per server. Faulkner says many customers were building such connectors already in the absence of a formal licensing fee.

On the on-demand front, Microsoft is relying on its vast partner channel to offer CRM services that CEO Steve Ballmer has promised will challenge on-demand CRM powerhouse Microsoft will let its channel partners set the retail pricing for its on-demand offering, charging them $24.95 a month per user to offer the service and allowing them to brand and customize it however they choose. It's not requiring any up-front contractual obligations, opting to charge partners based only on actual subscriptions.

But at least one on-demand vendor isn't exactly shaking with fear. Greg Gianforte, CEO of RightNow Technologies Inc., says it's a rare case of Microsoft operating from a competitive disadvantage " one that he's not convinced it can overcome. "You can't write off a company with the kind of resources Microsoft has," says Gianforte. "But they have to develop a direct sales channel, they have to work with customers they've never engaged with, and they have to cannibalize their own business. If they can do all that, they'll be successful."

That's a lot of ifs. But here's another: If Microsoft Dynamics 3.0 can make serious inroads into the on-premises CRM market and establish itself as a significant force in CRM, then the Salesforces and RightNows will have a lot more to worry about.