Industry prepares for Microsoft CRM’s arrival

Microsoft is poised to launch its closely watched customer relationship management software, prompting customers and industry rivals to brace for the arrival of a package that could result in an upheaval in the CRM sector.

Microsoft is poised to launch its closely watched customer relationship management software, prompting customers and industry rivals to brace for the arrival of a package that could result in an upheaval in the CRM sector.

The suite, due to be released by Christmas, is the first major built-from-scratch offering of Microsoft’s newly constituted Microsoft Business Solutions unit, created by combining acquired vendors Great Plains Software and Navision Software with Microsoft’s own bCentral information portal group. It’s also the company’s first application built on .Net, Microsoft’s much-hyped but nebulously defined platform for systems integration and Web services.

When Microsoft announced in February its intention to enter the CRM market, initial industry buzz was that the move could spell trouble down the road for CRM powerhouses, particularly Microsoft partner Siebel Systems. But analysts, other vendors, and Microsoft itself say that for the time being, Microsoft’s CRM package will appeal mainly to entry-level CRM buyers.

“The real opportunity for a company like Microsoft is to apply its skills around sales and marketing, and that really means going into the low end. For the most part, the big vendors have never really focused much there at all,” said Jim Shepherd, a senior vice president with AMR Research Inc., in Boston. “Companies in the $50 million to $200 million range will absolutely see Microsoft competing there.”

Microsoft CRM will include account activity and history tracking features, reports, order management functionality and communications tools. The software will integrate with Microsoft Office 2000 and Office XP applications.

With prices starting at $395 per user (plus $995 for the server) and a channel-focused sales strategy, Microsoft says the software is aimed at companies with several dozen to several hundred employees. That low-end market is highly fragmented and largely untapped: Research firm AMI Partners Inc., which focuses on the small and mid-size business (SMB) market, calculates that only 784,000 of an estimated 7.6 million U.S. SMBs are using sales-force automation or CRM applications, many of which are homegrown or cobbled together.

Microsoft, according to AMI, is well-poised for a major push into the SMB CRM market. The sector will grow more than 50 percent annually, to around $2 billion by 2006, AMI forecasts.

One potential Microsoft rival says he’s happy the powerful company is eying the CRM market.

“I think it’s wonderful,” said Greg Colley, chief executive officer of software and services firm Clear Technologies, based in Coppell, Texas. “The day the news hit the wire I got 38 e-mails from friends and consultants saying, ‘Hey is the sky falling? What do you think about this?’ I think when you have somebody legitimate like IBM or Microsoft stirring up the pot and sending the message ‘It’s not a luxury item but a strategic solution,’ I think that will help us all.”

Clear Technologies, a close IBM partner, sells C2, a CRM system designed for companies with several hundred employees and annual revenue of up to around $400 million. That puts it squarely in the path of Microsoft CRM.

But Colley says it will take Microsoft years to develop its CRM offering fully enough for complex businesses to consider deploying the product.

“You can make some huge mistakes. We’ve been doing this for a decade, and we made and fixed a lot of mistakes in that time to get it where it is today,” he said.

In the meantime, Colley hopes Microsoft’s marketing of the virtues of CRM will dispel some of the concerns of customers besieged by horror stories of expensive, endless implementations gone wrong.

“Given the size and scope of the market and all the negative messaging that’s out there, having Microsoft in will help,” he said.

It sounds a bit like whistling in the dark, but it’s a prediction several observers agree with. Aberdeen Group’s Christopher Fletcher, an analyst who forecast a Microsoft CRM-sparked “sea change” in the industry, expects Microsoft to usher in a new era of CRM, one that benefits customers and other vendors as the long-promised benefits of Web services are finally realized.

“The new model for CRM will become a hybrid one, consisting of an application on the desktop, integrated and enhanced by dynamic data provided by a .Net application over the Web,” Fletcher wrote in a report. “There is no doubt that the CRM market will be changed by Microsoft’s MS CRM announcement. We continue to believe, however, that for the company — software vendor, systems integrator, or partner — with the vision, the appropriate technology and services base, and the financial resources to weather these changes that more opportunity is being created here than is being destroyed.”

AMR’s Shepherd also forecasts a “rising tide lifts all boats” scenario.

“It helps everybody in the market,” he said. “Some niche vendors at the low end could find themselves displaced. Their lack of development resources could put them in jeopardy. But for the most part, this is probably good news.”

One key advantage of Microsoft CRM will be its promised seamless integration with Microsoft Office. With many small businesses relying on Office’s collection of spreadsheet, word processing and other productivity applications, the potential to easily tap into data from those applications is likely to appeal to small businesses.

One probable customer said that integration was an important element in his decision.

“It almost looks like Outlook,” said David Root, chief financial officer and IT head of Eagle’s Flight Creative Training Excellence, a corporate training company in Guelph, Ontario.

Eagle’s Flight has been a Great Plains customer since before that vendor’s acquisition by Microsoft. For CRM, it’s been using a version of Siebel’s software sold via Great Plains through an alliance ended in August. While the Siebel software is still being supported, Root said he plans to migrate to Microsoft CRM, probably toward the end of 2003.

“I don’t want to be on the bleeding edge,” Root said.

While Root hasn’t officially committed to buying the package — he says he’s “95%” certain he’ll do so — he’s been discussing his requirements with a local VAR (value-added reseller) he works with frequently, which has in turn been giving Microsoft feedback on the evolving software.

There are a few features, including integration features with other software, in Eagle’s Flight’s current CRM system it would like to see added to Microsoft’s product. Once those are in place and early kinks are worked out, Root said he expects to switch — and he expects to pay less for the software than he does now for Eagle’s Flight’s CRM set-up.

Companies like Eagle’s Flight, accustomed to Microsoft products and eager for a system that will work well with what they already have, could overwhelmingly turn to Microsoft. If any vendors are going to be pushed out of the market by this new arrival, it’s the smaller ones, analysts say.

Names frequently mentioned as potential casualties include Pivotal, Onyx Software, salesforce.com and Best Software (makers of SalesLogix). All have strenuously denied that they feel threatened by Microsoft, citing advantages including more mature technology, established installed bases and differing sales models.

An executive at one VAR that has long handled Onyx and salesforce.com deployments and recently began working on Microsoft CRM projects said he thinks Microsoft CRM’s displacement effect will be minimal.

“All three are strong products,” said Lance Kyle, vice president of business development  Acetta, a VAR in Seattle. “It’s usually fairly obvious which is a better fit for customers.”

It’s hard to type the packages and slot them into predefined categories for customer needs, Kyle said: “It’s not as simple as just saying if they’re looking for one particular thing, this is the product they need. CRM has a lot of players in it, and each player has their strengths. It’s usually a customer looking at a CRM solution, filling out the feature functionalities they’re looking at, the must-haves, and mapping those to the complexities of the products.”

Such a complicated market leaves room for both Microsoft CRM and plenty of alternatives, he said.

Still, Microsoft CRM is likely to leap onto the list for many customers of products they consider when making CRM decisions.

Chad Pomeroy, chief technology officer of Alexandria, Va., health-care program provider Lumenos, went looking in August for a CRM system for his growing company. Seeking something basic that could be quickly installed, he settled on salesforce.com, with which he has been happy and plans to continue using. If Microsoft CRM had been out then, though, he says he would have evaluated it.

“I needed something I could buy in August,” he said. “But everything is up for grabs at any point in time. If there had been a (Microsoft) solution out I’m sure we would have taken a look at it.”

And while Microsoft says it wants to participate in the CRM market, not steamroller it, vendors still wonder if the footsteps they hear are ominous ones.

“There’s no doubt in my mind that they can take over a market,” said Clear Technologies’ Colley. “Microsoft was not in e-business. One day Bill Gates woke up and said, ‘Buy 2,000 sleeping bags for 2,000 programmers and have them hit it 90 hours a week for two years.’ And poof, like magic, they were in that market in a big way.”