Microsoft CRM: Friend or Foe?
Finding out Microsoft is entering the product space you consider your bread and butter is a little like finding out Tiger Woods is playing in the same golf tournament you are. It is not a sure hole in one that Microsoft will come in and dominate, but it would be par for the course if the software behemoth did.
Rumor and speculation swirled around for more than a year that Microsoft would make a play to get into the lucrative CRM space, which hit $14 billion at the end of 2001, according to market research firm Aberdeen Group Inc. After all, Microsoft is already a background CRM player offering infrastructure-level software and applications such as operating systems, databases, office automation suites, and e-mail/organizer software, including Outlook, which are used to support existing CRM applications. In addition, Microsoft's Great Plains division, which was set up when the company acquired accounting software maker Great Plains in December 2000, currently resells and comarkets Siebel Systems Inc.'s enterprise CRM offering.
Microsoft made its foray into the CRM space official on February 25 by unveiling plans to deliver Microsoft Customer Relationship Management, a CRM solution built on its .Net platform. Slated for release by the end of the year, Microsoft is aiming the CRM solution at small and medium-size businesses. The product, which Microsoft has not yet announced pricing for, will initially be sold through the Microsoft's Great Plains division. Most analysts estimate that pricing will start at $500 per user.
While Microsoft's public unveiling stopped some speculation, it also raised many more questions about what its impact on the existing CRM marketplace would mean for companies deploying CRM solutions, existing vendors providing those solutions, and Microsoft itself.
Some analysts who have seen alpha versions of MS CRM and been briefed by Microsoft executives say that small to medium-size businesses (SMBs) looking to deploy a CRM solution will benefit from Microsoft's offering because it is an out-of-the-box solution designed for rapid deployment, needs little technical resources to implement, is easy to use, and offers integration with Microsoft Office and Microsoft Great Plains' back-office solutions.
"The product is very complete for a 1.0 release," says Sharon Ward, vice president of Enterprise Solutions at market researcher Hurwitz Group, based in Framingham, Mass. Microsoft's out-of-the-box capabilities are far-reaching and its CRM application offers tremendous interoperability and visually is very beautiful."
Although current definitions of SMBs vary, Microsoft itself is defining that market as more than 25 workers and scaling up to a few hundred employees. Most of the companies Microsoft is targeting do not have extensive IT staffs, according to David Thacher, general manager of Microsoft CRM.
Analysts estimate that the SMB market has about 6.1 million businesses and that CRM software has reached only 20 percent of those companies, making it one of the fastest-growing and potentially lucrative segments of the market.
"[CRM] has not been a very energetic market; we need to do better work selling and servicing the customer. We believe Microsoft can create market demand in this space," Thacher says. The metric Microsoft will use to measure the success of MS CRM is whether the product energizes the mid-market. The company will determine that level of energy by "how many new participants are in the mid-market, and the level of interest from ERP customers," he says.
Most recognize that Microsoft's entry in the CRM space means change, but the degree to which things will change is what is up for debate. "Microsoft is laying the groundwork today to dominate this market and in doing so will change the rules of CRM. Whether this web of services, MS Office extensions, and applications gets called CRM by the small-business person is moot: Microsoft is today redefining what CRM and e-business are all about, and it is happening faster than most of the companies in this current CRM market recognize," according to a recent Aberdeen report.
CRM vendors are very aware that Microsoft has a track record of entering markets that already have an established leader and then dominating that space or at least shaking it up dramatically--think Lotus 1-2-3, Netscape, and WordPerfect. Microsoft is the clear leader in more than a half dozen software segments--including office suites (which includes word processing and spreadsheet applications), presentation software, browsers, e-mail, and Internet servers--where the company was not first to market with a product, but used its sheer marketing muscle, leveraged its huge installed based of users in other areas of its business, and ended up devastating the competition.
"Microsoft is one of the few companies in the technology industry with enough technical, financial, and marketing critical mass to change the rules of the game--any game--virtually any time it wants to. Microsoft is also adept at sitting on the sidelines of a market until it develops, and then decisively entering and capturing a majority of that market," the Aberdeen report states.
Although the company has not rolled over rivals in all areas (Quicken still tops Microsoft Money as the personal-finance package of choice), few would dismiss Microsoft as anything less than a massive force to be reckoned with.
But with the Redmond, Wash.-based software maker's sights set on the CRM market, existing CRM players publicly still say they are not concerned about having a company that has been described as an 800-pound gorilla, a monopoly, and a marketing juggernaut, entering their space.
In fact, many CRM vendors went out of their way to roll out the welcome mat for Microsoft, saying that the presence of company of Microsoft's caliber and with its cachet, simply validates the CRM market.
Matt Duncan, vice president of marketing at Pivotal Corp., says Microsoft's CRM entry "brings a little bit of clarity" as to how the CRM market is shaping up.
"It's a good thing," says Kevin Myers, vice president of product and services marketing for Interact Commerce Corp. "We are encouraged by Microsoft getting into the space. It will give credit to the space."
However, Keith Raffel, UpShot Corp.'s founder and chief executive officer, believes otherwise. "CRM is mature enough that it doesn't need validation," Raffel says.
Others have attempted to quell worries that Microsoft has its CRM guns aimed directly at them by sending out press releases saying the impact on their business is nonexistent.
Onyx Software Corp., which some analysts highlighted as one of the companies that could be potentially impacted by MS CRM, put out a statement responding to such claims. "While Onyx anticipates little or no impact to itself, the company believes a successful entry into the small-business CRM market by Microsoft Great Plains may affect the low-end CRM vendors sometime in the future," the release states.
The matter is complicated even more by the fact that Microsoft has partnerships with many of the existing CRM players, such as Onyx and Pivotal. Microsoft also has a deal whereby its Great Plains division resells Siebel's high-end CRM offering, along with Great Plains' back office accounting software.
Still, some partners insist their relationships with Microsoft will not be impacted.
"Onyx does not believe Microsoft Great Plains' entry into the small-business CRM market will impact the strong relationship that exists between the two companies. In addition to collaborative work with various technologies, products, and divisions, the two companies have multiple sales, marketing, and development initiatives underway to deliver CRM solutions to medium and large enterprises. Onyx believes the partnership between Onyx and Microsoft will continue to provide benefits to the companies' joint customers and to each other," the Onyx press release reads.
According to Microsoft's Thacher, the company's commitment to its partners remains unchanged. "Most of our CRM partners are playing in a space above our target markets (enterprise segment), and/or have existing back-office relationships with Microsoft Great Plains," Thacher says. "Microsoft has partnerships with all the other players. The vast majority has been enterprise focused--E.piphany, Siebel. Those partnerships are about building solutions together with Microsoft as the platform. We are doing comarketing and coselling with those partners. [MS CRM] is aimed a different solution. We are squarely targeting the [SMB] market. That will be our core business. And we've been getting a good reaction from our partners about this. We want to help higher-end partners as they grow, but we are not getting into the high-end space."
But not everyone is buying Microsoft's pure intentions.
"Microsoft's entry into CRM and the business applications market represents the single biggest threat and the single biggest opportunity suppliers have seen for a long time," says Christopher Fletcher, vice president and research director of Aberdeen.
The opportunity comes in the form of Microsoft leveraging its .Net architecture, which enables disparate applications and systems to communicate via XML interfaces. .Net is part of a company-wide initiative by Microsoft, which also includes Passport and .Net My Services, formerly called Hailstorm, that would help position Microsoft as "a Colossus that sits astride the Internet, providing the key technologies, architecture, services, and business partnerships that will become an integral requirement of doing business on the Web," Fletcher says.
"Web servers on .Net will dominate in the future and everyone will be moving to Web services in the future. It's a critically important vision for everyone, not just Microsoft," says Barton Goldenberg, founder and president of ISM Inc., a CRM research and consulting firm.
This is along the same lines as Microsoft's thinking. "We do think .Net is important to CRM," Microsoft's Thacher says. "It's a way to build a model for different systems to work together to improve business processes."
Most of the existing CRM players are also betting on .Net.
"We are .Net, and if it's a success that's good for us," UpShot's Raffel says.
But some in the CRM community are playing devil's advocate when it comes to treating .Net like it has already become a success.
".Net has to prove that it's ready for prime time. We believe the technology is advanced and robust. But that it still hasn't won the war," Pivotal's Duncan says. Despite that, Pivotal is using the .Net architecture.
Joe Outlaw, an analyst with Stamford, Conn.-based market researcher Gartner Inc., says, "The .Net architecture will have a strong foothold in the low end. Where it's less clear is the high end."
PeopleSoft President and CEO Craig Conway agrees. The way it stands now, Conway believes Microsoft's business model has proven itself in low-cost, high-volume markets, something the corporate CRM landscape is not. However, this strategy and the .Net platform is perfect for the midsize business market, which PeopleSoft will shortly begin targeting, he says.
However, Conway warns, nothing is stopping Microsoft from throwing bodies and money at a CRM enterprise push at some point, if the software giant so desires to go that way.
Again, Microsoft claims this is not part of its CRM strategy. "Microsoft is targeting small and medium business," Thacher says. "We are going after users with people dedicated to sales, service and support, and marketing, and they have a real need for CRM's broad functionality, but they are not large enough to cross into the medium-enterprise space. They do not have a large IT staff with application developers."
There are other concerns as well. Richard Brock, president and chief executive of Firstwave Technologies Inc., says Microsoft will face challenges in support and customization.
"Microsoft has not been geared for high levels of end-user support. CRM is a mission-critical application. Since it affects everybody, rapid and accurate support is a key component. If they don't change the way they deliver support, they will be adding to the CRM casualty list instead of adding to the list of successful CRM initiatives," Brock says.
Brock also points out that in CRM one size does not fit all, and customization will be key; supporting those modifications is something new for Microsoft. "[Microsoft is] also going to be challenged because they will have to support the customizations as well as the base product. They have identified that they must allow end-user customizations. However, they may not yet realize the support ramifications of supporting end-users. The inherent extra support costs is going to force them to price higher than they normally would," Block says.
Still, most analysts called Microsoft's entry into the CRM space a welcome addition.
"In spite of the devastating effect Microsoft's entry into a market has on its struggling competitors, one has to acknowledge the positive role Microsoft's presence can play," Aberdeen's Fletcher says. "Microsoft has brought standardization--and in some instances, legitimacy--to many industry segments that might not have survived without Microsoft's ability to anchor the market and create an industry around specific technologies."
Goldenberg took it a step further: "If Microsoft can provide software to these small and midsize businesses that will minimize business-process chaos and boost productivity, then that productivity is not just good for them, but for the United States," he says. "That might even help boost the Gross National Product."
Regardless of what the net result will be, one thing is clear: Microsoft is making its way to the CRM tee, and will certainly be ready to play for the full 18 holes.
--Elliot Markowitz contributed to this story