Microsoft Says 2.No

Microsoft has scrapped plans to launch its highly anticipated Microsoft CRM version 2.0 to make way for version 3.0. The double upgrade is part of the company's efforts to expand its presence into the small business market, after more than two years of focusing on the midmarket. The enhancement, Microsoft's most significant since it entered the CRM market in the first quarter of 2003, will be available to its roughly 4,000 existing customers in Q4 of 2005, and made generally available in Q1 of 2006. This comes about one year after version 2.0 was last intended to ship. Why abandon 2.0? According to Brad Wilson, general manager of Microsoft CRM, skipping version 2.0 comes at the behest of partners and customers who preferred to wait for a more robust offering. Enter 3.0.

To reflect the company's expanded focus on the SMB market, Microsoft CRM 3.0 will include a hosting option that enables customers to rent before they buy, Outlook integration, and marketing automation tools. The company will offer a low-cost, hosted, monthly subscription model through its business partners for small companies looking
to test the CRM waters. NaviSite (a Microsoft solutions integrator), for example, already has a hosted pricing agreement with the company in which it charges companies $99 per user, per month if they own a license, $122 if they don't. Moving forward, pricing will be set by individual partners and could vary based on the degree of customization. "SMBs are looking for a hosted model, but a more flexible model than Salesforce.com," says Vernd Leger, NaviSite's vice president of marketing.

"A lot of companies want to get up and running quickly, but they're not sure if they eventually want to bring it back in house in two to three years."

SMBs want to feel comfortable using a CRM product within a familiar Outlook experience, Wilson says. "We really spent a lot of time trying to create a native Outlook experience. For people who live in Outlook, this is the easiest way you can do CRM. You don't have to leave your email."

Microsoft partner Matt Duncan, chief business officer of Resonate, sees integration as the biggest advantage. The architecture also gives Resonate more flexibility to customize objects within the actual system for particular industries. "One of the most powerful things about Microsoft is how this ties into their daily life. That's the Outlook [and] Office integration."

"We want to promote a choice model," Wilson says. "We're a flexible, affordable CRM platform that's going to meet the needs of companies in the years ahead. For small and midmarket customers this is a real strong [offering]." Customers can choose to rent for a while, and then migrate to an on-premise solution, if they prefer. Wilson sees most people moving in that direction once they weigh the costs of renting versus buying.

Notably absent from Microsoft CRM was a marketing automation tool. Version 3.0 adds tools for direct marketers in charge of centrally coordinated campaigns and ad hoc options for salespeople or executives unfamiliar with the more advanced tools. "They had to put marketing functionality in. That was a gaping hole," says Brian Prentice, research director at Gartner. "Marketing is a key component of the overall customer experience. You had to make some real concessions buying into Microsoft CRM."

Liz Herbert, an analyst at Forrester Research, says Microsoft may be playing catch up, but customers will appreciate not having to buy a third-party module. "Microsoft had nothing in the way of marketing; [now they've got] something. Even a very basic marketing module will solve a lot of the needs of SMBs."