When Microsoft recently began shipping its Dynamics CRM 3.0 update, it tweaked the software's licensing structure to encourage more partners to offer the system as a hosted subscription service.

But Microsoft's change is essentially a cosmetic one: The architectural overhaul necessary to make Microsoft a true force in the on-demand software market won't happen until Dynamics CRM's next update, which isn't scheduled for release until 2007 at the earliest.

Microsoft's launch included the unveiling of a subscription licensing option that allows its partners to essentially rent Microsoft Dynamics CRM licenses to customers for $24.95 per user, per month. The move is aimed at making Microsoft's offering more competitive with the subscription services run by other applications vendors - most notably, Salesforce.com and Siebel. Those vendors sell subscriptions to their hosted, managed services at prices starting as low as $65 per user, per month.

Microsoft has long had a handful of partners offering its Dynamics CRM software as a hosted managed service, but it hadn't officially offered a subscription licensing option. In most cases, customers interested in taking advantage of the partners' hosting services had to pay upfront for licenses, which start at $622 per user for Microsoft's Professional Edition. By encouraging partners to offer a subscription licensing option, Microsoft hopes to woo small companies that would be put off by high start-up costs.

For customers, however, the change is likely to have little real effect. One of Microsoft's flagship hosted-CRM partners, NaviSite, already has a private deal worked out with Microsoft that allows it to offer subscription-licensing terms. NaviSite has about a dozen hosted-CRM clients, roughly 80% of whom chose to buy licenses rather than renting them, according to Mark Clayman, NaviSite's senior vice president of service delivery.

NaviSite began offering subscription licensing last year, charging $122 per user, per month, for its hosting services and Microsoft's license. If a customer already owns a Dynamics CRM license, NaviSite charges $99 per user, per month for hosting.

"I think there will be more interest now that it's more widely announced. I think there will be quite a few more companies that want to try out the software rather than making the long-term purchase commitment," Clayman says.