Is CRM Too Hard for Microsoft?

At Microsoft's Convergence event in March, President and Chief Executive Officer Steve Ballmer told attendees that, thanks to acquisitions and its own development work, Microsoft was in the right place as far as business applications were concerned. "Unless we close this Yahoo! deal, the biggest decision I've made as CEO is pushing into the business applications area," he said. "It's one of the best decisions I've ever made, one of the most important decisions I've ever made, and the reason that brings us all here today."

Ballmer also reinforced Microsoft's ongoing commitment to some of its core business-software design philosophies: role-tailored user interfaces; the expansion of business intelligence to the individual user; ubiquity in personal productivity applications; and familiarity for business users accessing team applications regardless of whether those applications are deployed on company servers or via one of Microsoft's hosted arrangements. Ballmer also noted that the increasingly broad options available in CRM technology meant it was re-emerging in various incarnations, managing relationships of all kinds -- a phenomenon he referred to as "xRM."

Ballmer then tackled a question often posed by prospective customers: Why Microsoft? "We've been in [this marketplace] now for about seven years," Ballmer said, "and I still get asked, 'Is Microsoft a serious player in business applications?' " Before making comparisons to other vendors, he pitched Microsoft's own merits: "We're going to bring raw innovation to these issues," he said. "We're going to bring integrated thinking about how ERP and CRM fit in the broader context of what people are trying to do with technology." Microsoft, he added, would approach business solutions "with the same kind of long-term approach and tenacity we bring to everything."

But, in a report released a week before the conference, The 451 Group suggested that the right strategy for Microsoft is disengagement--not from the customer, but from CRM entirely. "[In] one area, Microsoft stubbornly clings to business as usual: CRM and ERP software, which it sells under the Dynamics brand," wrote Brenon Daly, a financial analyst with The 451 Group. "Despite spending more than $2 billion on deals -- plus untold tens of millions on [research and development] over the past half decade -- this product line continues to lag rivals significantly, particularly at the high end of the market." The report went on: "Unlike its also-ran online search division, which has turned to a desperation bid for Yahoo to make up lost ground, Microsoft shouldn't look to acquisitions to close the gap on rivals of Dynamics. In fact, quite the opposite. We would argue that Microsoft would be best served by simply acknowledging that it never made much of Dynamics, and selling off its CRM and ERP assets."

Daly's strong sentiments weren't echoed by Convergence attendees; the consensus has been that the Dynamics platform, including CRM, is a strong software-and-services offering, hindered by an incomplete vision. Ballmer's view of owning the "white space" between personal productivity and applications platforms is something Denis Pombriant, founder and managing principal of Beagle Research Group, a CRM consultancy, calls "a 15-year-old Microsoft strategy." Pombriant's reaction to Microsoft's positioning? "The message that sends is that [Microsoft is] a big ERP company that is building integrations from ERP to CRM, which is backwards for this industry."

"The messaging...is really a mixed bag," writes Paul Greenberg, chief customer officer of CRM consultancy BPT Partners and author of CRM at the Speed of Light, on his blog. "It's not wrong -- but it's not what I'd be doing up against SAP and Oracle, Salesforce[.com] and Sage [Software]."

In fact, Greenberg and others believe Microsoft has turned a corner. He calls Dynamics CRM 4.0 the company's "first truly good CRM product" -- but also stresses that its success rests heavily on the savvy of certain executives, including Ballmer and Brad Wilson, the general manager of Dynamics CRM.

"Microsoft has an extraordinary opportunity to grab some market share and even, with some fortuitous breaks, lead the market," Greenberg writes. Microsoft isn't about building new frameworks for its ecosystem, he says, but merely extending an old framework "that is long broken." In the industry at large, according to Greenberg, that outdated, vendor-defined model is "now being replaced by one dominated by the customer."

Another sign of rejiggered frameworks? In the aftermath of Convergence, Microsoft announced a branding change, rechristening Dynamics CRM Live -- its hosted CRM product -- as Dynamics CRM Online. The new labels denote what is being delivered, to whom, and who is doing the hosting: "Live" will now be reserved for consumer and very-small-business offerings; "Online" will refer to small-and-midsize business and enterprise services hosted by Microsoft in its own data center.