Microsoft throws gloves down in hosted CRM field

Microsoft’s ability to offer both on-demand and on-premise customer relationship management and its strong market presence could make it contender in the hosted CRM market, according to one analyst. But others disagree, saying Microsoft is playing catch-up with its competition.

“Microsoft is a very late entrant to the CRM on-demand space,” said Mauricio Rodriguez a Toronto-based senior research analyst with Info-Tech Research Group in an e-mail. “In my opinion, it won’t represent a serious challenge to established players with mature solutions.”

Part of the problem is that with its Dynamics CRM Live, Microsoft isn’t offering anything new, Rodriguez said.

“With this move, instead of innovating, Microsoft is simply catching up with its competition.”

Microsoft is launching its Dynamics CRM as a service to try to gain a competitive edge, he said.

This, according to Liz Herbert, a Forrester Research Inc. senior analyst in Cambridge, Mass., is just the kind of approach that might resonate with customers.

“I think that some of Microsoft’s strength includes the ability to offer flexible deployment options,” Herbert said.

With Microsoft soon offering its Dynamics CRM as a service, users will have the ability to quickly ramp up with little start-up cost and then bring the application in-house if their needs change, she said.

Rodriguez agrees. “The low switching costs of the on-demand model definitely represent an attractive option because companies can try an application for real before committing to it,” he said. “As the company’s CRM processes mature and their user population grows, the traditional on-premises alternative could become more attractive and economically viable.”

And to this capability, Microsoft also brings a large overall market presence, Herbert said. This, she said, makes corporate decision-makers more comfortable.

The sense that a vendor will be around in another year or five years is an important factor for users when it comes to deciding which solution to use, said Chris Alliegro, a lead analyst with Directions on Microsoft in Kirkland, Wash.

There probably won’t be a lot of differentiators in terms of feature sets between Microsoft’s offerings and others, he said, so price and trust will play a big part in the decision. “I think a lot of the decision will probably come down to which is the vendor I trust, which is the vendor that I have confidence will continue to be around to support the service and then cost,” Alliegro said.

Microsoft hasn’t yet announced pricing for Dynamics CRM Live, which CEO Steve Ballmer introduced last month, but Alliegro thinks it will likely be competitive with Salesforce.com’s offering.

Microsoft’s hosted CRM will be a good fit for small- to medium-sized businesses that don’t have a customer relationship management solution in place, Info-Tech’s Rodriguez said.

“In particular, this solution will be a very good fit for companies that are already using a Microsoft Live service. The value proposition for SMEs is to have almost immediate access to a world-class CRM application that easily integrates with other Microsoft products.”

The on-demand approach has a lot of advantages, he said. Customers using the software-as-a-service model can benefit from lower total cost of ownership and a higher ROI. Hosted services also allow companies to concentrate on the more strategic aspects of IT projects. And organizations using hosted services assume lower risk, are always using the most up-to-date version of a suite and can more easily switch applications if their existing software doesn’t meet their needs.

Herbert agrees that the on demand model has much in its favour.

“I think we’re seeing a lot of interest in that model as companies are looking for CRM they can get up and running very quickly without a lot or sometimes any upfront cost.”

But there are cons as well, Rodriguez said. Hosted CRM applications are impractical if a great deal of customization is required, and data security and privacy become a concern. Also, he said, there have been reliability problems with some software-as-a-service products. And finally hosted applications make integration with other products more challenging.

Microsoft’s product roadmap for CRM Live includes tighter integration with its other applications.

Software suites that do everything from ERP to CRM to business intelligence are an attractive prospect to customers, Herbert said.

“I’d say, increasingly, we are seeing people look for suites in all areas of application spending. I think a lot of it has to do with people finding out that many of their business processes cross individual modules. So to truly enable end-to-end business processes, it makes more sense to go with a suite.”

But specialized vendors also have something to offer, Rodriguez said.

“The more specialized a vendor is, the better products and services it will be able to deliver. A pure-play vendor such as Salesforce.com has 100 per cent commitment, focus and dedication to its market,” he said. “This usually means more innovation that translates (into) solutions that deliver greater business value to customers.” Users that have more sophisticated needs or processes can especially benefit from pure-play applications, he said.

Though CRM on demand revenue represents only 10 per cent of the overall CRM market, it’s growing rapidly, Herbert says.

Not only are new vendors entering the space – SAP launched its hosted CRM solution earlier this year – but established vendors are growing. Salesforce.com has nearly 23,000 customers, by Herbert’s estimation.

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