After launching in a blaze of hype early last year, Microsoft's customer relationship management (CRM) software is on a slower-than-expected development path, frustrating some partners and customers.After launching in a blaze of hype early last year,\u00a0Microsoft's\u00a0customer relationship management (CRM) software is on a slower-than-expected development path, frustrating some partners and customers.Microsoft now expects to have version 2 of the software ready in mid-2005, more than two years after it released the first version. In the interim, the company has issued point upgrades to fix bugs and expand functionality, but the current release, Microsoft CRM 1.2, still lacks features found in rival midmarket products."I think Microsoft CRM wasn't ready when it was released," said one customer, Jeremy Whiteley, who switched from GoldMine to Microsoft CRM, then switched back.Whiteley, CEO of Promarketing Gear, bought 10 Microsoft CRM licenses for his company, a Kirkland, Wash., vendor of branded promotional products. But he quickly ran into what he saw as a deal-breaking glitch in the software: Its insertion of a long string of characters in the subject line of every e-mail sent through the system. Intended as a feature to help with tracking, the ID string annoyed many customers, and Microsoft issued a patch to let users turn it off.That patch came only after Whiteley had decided to stop using the software. Microsoft refunded the $7,000 he'd spent on it. Though he found the initial version riddled with problems, he's still interested in returning when the software matures."I understand they're releasing a new, complicated product. I think there's potential if they do it right," he said. "We'll evaluate 2.0 when it comes out."Getting 2.0 out the door will be a major milestone for Microsoft. Microsoft CRM was the first internally created product from Microsoft Business Solutions, the built-through-acquisitions group intended to gain Microsoft entry to the back-end business applications market. Microsoft already dominates in the operating system and desktop applications market; adding software to run sales, marketing, accounting and human resources systems opens up a new frontier for the company.For CRM functionality, the high end of the market is dominated by SAP, PeopleSoft, Oracle and Siebel Systems. The lower end is served by application service providers like Salesforce.com and inexpensive contact management systems like FrontRange Solutions' GoldMine and Best Software's SalesLogix. In the middle, for companies looking to spend perhaps $100,000 on a CRM system for a few dozen employees, is an open market, according to analysts and consultants."There are two areas that are really lacking something. One is the really small market, and the other is a viable, low-cost alternative, something that's not hosted, in the midmarket," said Yankee Group analyst Sheryl Kingstone. "Microsoft is doing okay -- they're still generating interest -- but they have to stay active in the market so that they don't look like they're not prioritizing it. A lot of their competition is becoming very active with the channel, and the channel is getting frustrated with Microsoft."Green Beacon Solutions CEO Ben Holtz is one of those channel partners getting impatient. He's a big believer in Microsoft CRM's potential. He just wants to see it realized faster."If it was going to be two years to 2.0, they should have delayed releasing 1.0," he said.Microsoft doesn't like to commit to release dates, and it only recently acknowledged version 2 wouldn't be finished this year. The update's feature set is still being determined, though Microsoft said it will include integration with Navision 4, an important addition for customers of the Navision applications Microsoft acquired.Holtz's Watertown, Mass., services firm has done several Microsoft CRM deals, and those customers are generally happy, he said. However, Holtz said he's not selling the software as quickly as he'd expected because of its functionality gaps."We're not actively marketing it because the effort it takes to overcome the customers' objections is just too difficult," he said. "We just closed a $50,000, 50-seat deal that will require $150,000 in customization work. For this customer, it's a good fit, but most companies won't spend that much on customization."Because Microsoft CRM is a wholly new product, the company is still working to fill in functionality already there in rival software. Customers say the reporting and marketing features are comparatively weak, and while integration with other Microsoft products is a selling point of the software, those connections aren't yet seamless.Designer Doors Inc. information systems manager Michael Kruger said his company is scaling back its Microsoft CRM use until version 2 is available. The River Falls, Wis., custom door maker began using the software in October for around 40 employees, but soon hit major problems with unreliable synchronization between Microsoft CRM and Outlook."We've had issues with other parts of it, but that's the big one. Most of the others we could live with, but we need to have our remote salespeople be able to use the product," he said.Consultations with Microsoft -- which has been responsive and helpful, Kruger said -- led Designer Doors to conclude its problem won't be fixed until next year's update. As a temporary workaround, Designer Doors is expanding an internally built pricing tool and using that instead of Microsoft CRM."I like Microsoft CRM, and I believe I will like version 2 a lot," Kruger said. "We feel that in the long run Microsoft will be a dominant player in this market, and this is a long-term decision for us. We understood (the software) is a version 1, but we didn't understand there would be this many challenges. Had we known, we may have waited."Microsoft claims 1,800 customers for its CRM software. In a recent report, Gartner rated the product "promising" but noted that "functionality gaps and an inexperienced partner network reduce its appeal to midsize businesses with more-complex, broader CRM needs." Despite those reservations, the research firm still expects Microsoft to be a top-five CRM vendor by 2005.One consultancy that deals exclusively with Microsoft CRM, Chicago-based Sonoma Partners, said business has picked up since Microsoft began promoting the software to its developer community. Microsoft's December release of Microsoft CRM 1.2, and the feature extensions due in August, have gone a long way toward filling in holes, according to Sonoma Partners principal Mike Snyder."I think most people realize Microsoft CRM is really strong," Snyder said. "Everyone wants it done faster, but most people aren't buying it for the quick hit. It's not perfect right now, but it's clear to customers that there's a road map and improvements are coming."The challenge for Microsoft is to make those improvements before buyers lose patience."My guess is that 2.0 will do many of the things we've asked for, but in the meantime, SalesLogix will have two or three releases," said Green Beacon's Holtz.Analyst Kingstone also sees an increasingly competitive environment in the midmarket."Salesforce.com is going upstream, and Siebel and SAP are coming downstream," she said. "Microsoft is Microsoft, and they can take their time and still end up dominating a market. But the economy is turning around and people are making buying decisions. Some won't wait. Everyone is looking to Microsoft to fix the problem here (in the midmarket), but they have to decide if they want to be in the market or not."