SAP and Microsoft are about to release to 40 early-adopter customers the first version of their jointly developed integration product, codenamed Mendocino.Mendocino sparked intense customer interest after SAP unveiled the project plans at its Sapphire show in April. The software is intended to link SAP's back-office ERP systems with Microsoft's ubiquitous Office software, allowing customers to use the familiar Microsoft user interface to work with back-office corporate data from systems like accounting and human resources.The first version of Mendocino is scheduled for general release in July. The software's first ship date is later this month, when it will go out to 40 customers for testing. In April, SAP plans to extend that release to an additional 50 customers.SAP is concentrating initially on enabling a small number of corporate processes, including time and leave management, organizational management and budget monitoring.SAP showed off a small demo of early Mendocino functionality at an SAP industry analyst meeting in Las Vegas on Monday. Corporate reports from SAP's software can be automatically sent to a user's Outlook box. Clinking on those reports allows the user to work with and make changes on those reports without leaving the Microsoft Office environment.AMR Research analyst Bruce Richardson said the beauty of Mendocino is that it will reduce data entry redundancy. Today, users often need to transfer information back and forth from Microsoft's applications to SAP's; linking the systems together eliminates that duplication.He expects early Mendocino functionality to be limited, however. "To me, the real killer app for this is CRM, and that won't be at all in the first version," Richardson said.Analysts at the meeting said the Mendocino project looks like a big win for SAP and a potential complication for Microsoft, which sells its own enterprise applications through its Microsoft Business Solutions (MBS) division. One of MBS's biggest selling points is its software's integration with Office. If SAP can also boast of Office integration, MBS's pitch loses some of its power."Microsoft is losing one of the advantages they wanted for themselves," said Josh Greenbaum, the principal analyst of Enterprise Applications Consulting Inc. "It's to the advantage of SAP and the detriment of MBS for SAP to do this."Still, MBS is only one of Microsoft's fiefdoms, and its revenue is dwarfed by the sums Microsoft generates from its Office dominance. If Mendocino helps users draw more value from Office, Microsoft too stands to benefit from the product, analysts said.SAP executives refused to discuss pricing for Mendocino, but AMR's Richardson expects it to be low compared to SAP's traditional per-user software licensing fees. Mendocino is an excellent opportunity for SAP to expand its footprint within its customer base, he said - plenty of organizations license Office for more of their employees than use SAP. If SAP makes it easy to tap into its ERP systems through Office, that opens the door for SAP's sales force to push customers to expand their SAP licensing, Richardson noted.