CRM market prepares for Microsoft’s entry into hosted space

Microsoft is following in the footsteps of other companies that have built their business on delivering software as a service in announcing that it will begin offering a hosted CRM service early next year.

As expected, Microsoft’s chief executive Steve Ballmer made the announcement on Tuesday at the company’s annual partner conference in Boston. Called Microsoft Dynamics CRM Live, the service will be operated and managed at the software giant’s Windows Live data centres in the U.S starting in the second quarter of 2007.

“We’ve got three ways to deliver a CRM solution whether it’s on premise, partner-hosted or it’s direct from Microsoft,” said Frank Falcone, CRM product manager, Microsoft Canada. “You pick and choose.”

Dynamics CRM Live, which will be initially targeted at small and mid-sized businesses, will be integrated with Microsoft Windows Live services and Office Live services, according to the company.

While CRM on demand still represents a small part of the overall CRM market, Microsoft is confident that its partners and customers are ready for what it is offering.

“(SMEs) need CRM as much as mid-market and enterprise,” said Falcone. “Up until this point, there really hasn’t been something attractive and easy for them to get into.”

Microsoft faces competition from other hosted CRM players such as Oracle, which acquired Siebel Systems last fall, SAP, which re-launched mySAP earlier this year, and Oracle refused to comment on Microsoft’s release.

Dan Kraus, vice-president of SAP Business One, SAP’s offering for the SME market, said while Microsoft has done a nice job with its CRM product (he should know, as a former employee at Great Plains, which Microsoft acquired in 2000), it hasn’t focused on the enterprise customer.

“The problem is that most SMBs that could really benefit from having a CRM package have already invested in the infrastructure,” said Kraus. “If you end up paying for a hosted solution and you’ve already bought your network and your servers, then you’re paying for infrastructure twice.”

With Microsoft throwing its hat into the hosted CRM market, its competitors are now faced with one of the most recognized brands on the planet. But Marc Benioff, chairman and CEO of, in an internal memo to staff, said Microsoft’s announcement is a signal of changing times in the software industry.

“And, finally, Microsoft has announced that it will begin hosting its own business software under the Live brand,” he wrote. “The world has changed. Everyone and everything is becoming a service.”

Benioff went on to say that executives’ opinions of software as a service have changed in recent years from thinking of it as exclusive to specific markets to something capable of delivering numerous services from VoIP to ERP to CRM.

But Falcone said Microsoft’s decision to announce this service now has nothing to do with its competitors.

“This is part of our strategy,” he said. “Our customers want flexibility in how they deploy CRM and how they pay for it.”

In terms of how much Dynamics CRM Live will cost, Microsoft is not currently disclosing the amount.

Microsoft will be launching a beta program in Q4 2006 for its partners to test the service before they take it to the market next year.

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