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Is Microsoft Winning the CRM Race?
The latest CRM products and partnerships from Redmond's software juggernaut have set industry tongues wagging about whether Microsoft has finally forced its way to the forefront -- or if it was ever destined to be a true leader in the first place. Plus, an exclusive interview with Microsoft Chief Executive Officer Steve Ballmer.
For the rest of the July 2008 issue of CRM magazine please click here
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Microsoft has always been a magnet for attention -- even more so after entering the CRM arena in 2002. Since then, its suite of applications has seen considerable change, and a high level of praise and criticism -- often by the same sources. 

"That’s only natural," you might say. "It’s Microsoft." Fair enough -- the Redmond, Wash., company has been a lightning rod for decades, with triumphs and troubles in a number of ventures. But there must be something beyond just the name on the box. As Microsoft launches the 4.0 iteration of its CRM software, we’ve taken a first-of-its-kind in-depth look at a single vendor’s role in the industry -- not because "it’s Microsoft," but because in many ways the company’s efforts reflect the industry itself: development in fits and starts; the pitched battle (and truce?) between on-demand and on-premise; big versus small; systems integration; feature functionality; user interfaces and user-friendliness; and others. Existing and prospective users of Microsoft’s CRM software are asking themselves the same questions: Why Microsoft? Why now?

The company’s path in CRM has been long and winding. (See "The History of Microsoft’s CRM," below.)

Many felt burned early: February 2002’s vaguely vaporware announcement of Microsoft CRM 1.0 -- not available until January 2003, almost a full year later -- was followed by pure vapor: no version 2.0. Delays led Microsoft to scrap the 2005 release in favor of a revised offering with a new name -- Microsoft Dynamics CRM 3.0.

The name-change bug struck again in 2008, when -- just weeks before the go-live date -- the hosted, software-as-a-service (SaaS) version of Dynamics CRM 4.0 was changed from "Microsoft Dynamics Live" to "Microsoft Dynamics Online," to differentiate the business application from Web-based "Live" consumer products. It was a smart move, but questionable timing. 

Still, 4.0 has arrived, along with (if you’ll pardon the pun) a host of questions and concerns about Microsoft and its CRM product. But it works, and people are using it. (See "CRM on Twitter," page 16, for some early reactions.) Some experts are even applauding -- in a blogpost, industry luminary Paul Greenberg, who literally wrote the book on CRM, called Microsoft Dynamics (MD) CRM 4.0 the company’s "first truly good CRM product." Version 4.0, Greenberg added, gives the company "an extraordinary opportunity to grab some market share and even, with some fortuitous breaks, lead the market."

Much of the 4.0 frenzy has centered on the Online option, especially because it’s a strong (if late) entrant into on-demand CRM -- a trail blazed by Salesforce.com. The San Francisco company’s messaging used to include such phrases as "on-demand operating system," in part to challenge Microsoft’s practical monopoly of the desktop PC. Today, Salesforce.com is shifting from SaaS to PaaS -- platform-as-a-service, again a challenge to Microsoft in terms of application development. Microsoft, in turn, has tried to tack in the other direction, laying claim to a "software-plus-services" message. Greenberg has set up a development challenge pitting Salesforce.com against Microsoft, and both companies have accepted. Details of The Shootout -- as it’s come to be known -- had not been finalized by press time, but by August the results of the contest will go a long way to establishing bragging rights over platform power and customizability.

Laurie McCabe, vice president for SMB insights and business solutions at research firm AMI-Partners, recalls the stir when Microsoft went for SaaS. "An 800-pound gorilla [had] entered online CRM -- people [paid] attention," she says. That ties in, she adds, with the anti-Microsoft prejudice so many are guilty of. "It is Microsoft, so we’re cynical. But it’s picking up."

Beyond the platform itself, one of Microsoft’s selling points is price. The company’s product announcements have used thinly veiled language to compare MD CRM Online’s pricing to that of Salesforce.com -- and company executives have explicitly acknowledged, on and off the record, the specific competition they’re gunning for. "Microsoft is definitely targeting Salesforce.com," McCabe says.

That may be about to change. Microsoft isn’t merely charging a smidge less per seat than Salesforce.com; it’s massively undercutting the cost, something observers suggest Salesforce.com would be hard-pressed to match. Competing on price is often a sign of oversaturation or commoditization, but McCabe doesn’t see it that way. "Price competition doesn’t worry me," she says. "We know how much Salesforce.com is spending on marketing, so there’s a lot of markup for their service. We’re due for some price pressure."

Price isn’t the only form of pressure. CRM has come to comprise so much more than just contact management or sales force automation -- there are aspects of business intelligence, customer service, and communications technology within the holistic view of CRM -- and some argue that Microsoft may be one of the few large enough to try to tackle it all. Steve Ballmer, the company’s chief executive officer, said as much in our exclusive interview with him: "Some of the most exciting things I see going on would never fall in[to] the classic definition of, quote, CRM…. I mean, everything has a tracking-and-relationship aspect to it." (For more, see "The Man Behind the Management," page 24.) Sidebars throughout this feature examine Microsoft’s efforts in just a few of those fields -- but some have openly aired the notion that the company’s overall efforts would be better directed elsewhere.

The 451 Group, for one, released a March report suggesting Microsoft would be better served by withdrawing from CRM altogether: "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."

"Watching Microsoft Dynamics’ business makes you question their commitment," says China Martens, the firm’s senior analyst for enterprise software. Sporadic activity in the Dynamics line, coupled with delays and changes of direction, has only fueled backlash, Martens contends. "Microsoft is sending mixed messages," she says. "Changing the online product’s name late in the game, launching only in North America -- NetSuite, SugarCRM, and Salesforce.com are all international. People have been waiting for Microsoft for so long, they’re impatient."

There are, of course, other views. "Some have said Microsoft has no direction in CRM; I beg to differ," says Joshua Greenbaum, principal of Enterprise Applications Consulting. Greenbaum says that most customers don’t use broad enterprise CRM. "They use the basics, for which Microsoft is very suitable. There is a huge, untapped market for basic, low-cost CRM."

A keystone of MD CRM’s value proposition -- one which the company is quick to highlight in marketing materials, press interviews, and launch events -- is integration with Outlook and Excel, applications in use by the majority of business users. Some observers -- even in this magazine -- have said that Outlook integration is less a feature of CRM than it is the price of admission, and that if Microsoft can’t flawlessly integrate with its own products it should hang up its spurs. In fact, as Greenbaum says, "professionals live within the Outlook experience -- that’s a huge issue."

But can Microsoft compete on other fronts? "I won’t get into a feature/functionality war; CRM has labored under delusions of grandeur -- enterprisewide CRM as a goal -- leading to feature bloat," Greenbaum says. "Outlook integration, as retro as it is, is still a very 2.0 play. It reduces the pain and anguish of user adoption. The online version is not retro at all. Demand for on-demand CRM has just begun to be tapped; Microsoft can grab a huge corner of this market.... Most users are filling a tactical gap: They’re moving up from a contact manager, or are in the middle of a big implementation," he says. "Microsoft’s price and functionality add the ability to exist at many levels, so customers have a strong growth path.... The ability for the customer to switch is highly important."

McCabe agrees that email integration provides an opportunity. "It’s Microsoft, it’s cheaper, and it has 100 percent Outlook integration -- most companies need to take a look at it," she says, adding that price is -- and should be -- a factor. "They’ll consider Zoho as well," she says, citing the Indian upstart offering free Web-based CRM for up to three users. "Salesforce.com has been able to set pricing for on-demand CRM, but not anymore."

Asked about Salesforce.com, Ballmer’s immediate response is straightforward: "High-cost," he says, making the case yet again for MD CRM 4.0 on price. "They’ve done some good stuff, I just think it’s a high-cost infrastructure, and I think the way they built it, it’s destined to stay high-cost both on sales and marketing costs as well as [on] the technology infrastructure."

Ballmer may have a point. Even Martens isn’t entirely critical when it comes to the price factor: "One thing I like about Microsoft is there are no hidden extras. You get the full CRM suite -- [sales force automation], service, marketing, and the rest."

What of Salesforce.com’s "No Software" cry? Microsoft’s real "mixed" message may be that users should have the power to mix and match their delivery. "‘On-demand must be a pure-play’ is a fallacy," Greenbaum says. "Solely on-demand players may find themselves crippled in the face of a hybrid" such as MD CRM 4.0.

We can’t yet grasp the repercussions Microsoft has (and will have) on CRM -- far beyond a rivalry with Salesforce.com. (Wonder why we’ve devoted so much space to comparing the two vendors? Microsoft itself is spending millions of marketing dollars doing just that.) As office productivity, and computing in general, moves into the cloud and migrates to mobile, no one -- not even Steve Ballmer -- really knows where (and against whom) the battle goes next. But Microsoft at least has an eye on CRM 2.0, with online communities (community.dynamics.com), a blog (blogs.msdn.com/crm), integration with Facebook (community.dynamics.com/content/networking.aspx) and other networks, and a measure of transparency that includes witty marketing (www.microsoft.com/dynamics/game/default.mspx). Everyone seems to agree on one thing, though -- this town is big enough for the two big guns, and perhaps many more. "With maybe 7 million true SMBs out there, [Salesforce.com’s] 41,000 customers doesn’t even make a dent," McCabe says.

Will the final score for Microsoft’s CRM align with Ballmer’s vision, or with that of the naysayers? It’s still too soon to call, of course, but McCabe best sums up the truth of the matter: "Success will be framed more by other things: If Microsoft can maintain desktop dominance, Microsoft will be a winner. Ultimately, the customers will decide if this product has legs."

Contact Senior Editor Marshall Lager at mlager@destinationCRM.com. 

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To contact the editors, please email editor@destinationCRM.com
Every month, CRM magazine covers the customer relationship management industry and beyond. To subscribe, please visit http://www.destinationCRM.com/subscribe/.
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