Microsoft Wades Into CRM

The crowded CRM space suddenly turned into a log jam today after Microsoft announced it will deliver a CRM product for the small to mid-sized business (SMB) market. The news sent large and small CRM vendors and partners scrambling to tell the world that they're not the ones in the direct path of the Redmond software giant, or that they've got an insurmountable head start.

On the technical front, Microsoft Customer Relationship Management is being built on the newly announced Visual studio .Net development platform. The software can be accessed through Microsoft Outlook or the Web and hook into Microsoft's Office suite and SQL server. Microsoft CRM is expected to ship later this year; pricing wasn't disclosed.

Distribution will be handled through the Microsoft Great Plains partner channel, which specializes in small to mid-sized companies. Microsoft CRM can be sold as a standalone application, as a hosted solution from some of Microsoft's channel partners, or as pre-integrated feature in Microsoft Great Plains's Dynamics, Solomon and eEnterprise products.

Here's how the Microsoft CRM portfolio breaks down: Microsoft will pitch its bCentral lead management service and other CRM-related products to companies with less than 25 employees. The new product, Microsoft CRM, will be sold to companies with 25 to a few hundred employees. A co-branded solution, based on Seibel System's mid-market enterprise edition, will target companies with around 500 employees. Finally, Microsoft also partners with CRM vendors such as Onyx, Pivotal and SAP, to create solutions for enterprise customers.

Microsoft's announcement sent tremors throughout the CRM landscape. Onyx, for instance, issued a statement that the company does not consider Microsoft CRM threatening to its mid to high-end market segment. "Microsoft is dipping its toes into the CRM pool, and it would probably take them a few years to move upward into our space," says Robin Rees, spokesperson at Onyx. "Siebel, though, is probably going to suffer a little more," given similar target markets of its mid-market edition.

Microsoft has no intentions of moving upward and going head-to-head with strategic partner and market leader Siebel, counters Holly Holt, senior product manager of CRM at Microsoft. Besides, there's room for everyone in the middle. "The mid-market is incredibly underserved and quite broad in its needs," she says. "Only about 10 percent of mid-market customers have a CRM solution."

Certainly, CRM vendors are already staking out market segments separate from Microsoft CRM, which, of course, is still vaporware. Wishful thinking? Probably. While Microsoft likely won't compete with high-end vendors in the near term, especially given a first-generation product with vanilla features, it's nevertheless daunting to have this kind of heavyweight in the ring. So says Kelly Spang, senior analyst at researcher Current Analysis. "Would you take Microsoft at its word? I wouldn't," she says. "CRM vendors had better plan for worst case scenarios." Inundated with calls this morning, Siebel declined to comment.

Industry watchers agree those directly impacted by Microsoft CRM will be downstream vendors like Front Range Solutions, Multiactive Software and Interact Commerce. Christopher Fletcher, vice president and research director at the Aberdeen Group, says that these companies will have to look over their shoulders when Microsoft CRM comes to market. Already, Interact Commerce is gearing up for the battle. Responding to Microsoft's news, Interact Commerce, whose flagship products include ACT! and SalesLogix, claims its customer base of more than 67,000 will help secure its place. "We welcome Microsoft to the space, but we feel we're in a better position to execute," says Kevin Myers, vice president of product and services marketing for SalesLogix.

Indeed, there's a lot of opportunity at the lower end of the CRM spectrum, says Sheryl Kingstone, analyst at the Yankee Group. Aberdeen reported 6 million SMB businesses in North America alone, only a tiny fraction of which have a CRM solution. And despite a crowded CRM vendor community, "There's a lot of companies out there needing CRM solutions, and not a lot of low-end solutions available," Kingstone says. To this end, Microsoft's strategy is sound, especially when leveraging Microsoft Outlook -- a staple among many SMB businesses -- into CRM customer wins. But Kingstone also sees the proof in the pudding, and says Microsoft CRM is still in development with a long way to go.

Tom Kaneshige and Jerry Rosa also write for Line56.com