Technology

Microsoft's CRM Catch-Up Plan


Microsoft's move into Web-delivered software got a big boost on July 11, when CEO Steven A. Ballmer disclosed plans to sell a service for handling customer relationship management (CRM) applications over the Internet. The move puts Microsoft in direct competition with the trailblazer of hosted CRM applications, Salesforce.com. And it bolsters Microsoft's efforts to roll out scads of new Web-based programs to consumers (see BusinessWeek.com, 3/30/06, "Keeping Up with the Googles").

The new product, Microsoft Dynamics CRM Live, is the most extensive business push on the Web for the software giant. Starting in mid-2007, the company will host a service on its data center servers that will let customers manage business contacts and help them follow sales leads. The software will have the same look and feel that the packaged version of Microsoft Dynamics CRM has today.

STRUGGLES. What's more, Microsoft (MSFT) will weave in its widely used Outlook e-mail, contact, and calendaring software. Already, its CRM software meshes inside Outlook, making it a snap to create a business lead right from an e-mail.

But Microsoft has a lot of catching up to do. Salesforce.com (CRM) pioneered hosted CRM and remains the market leader. And other big rivals have jumped in recently. SAP (SAP) launched a hosted CRM service earlier this year (see BusinessWeek.com, 2/2/06, "SAP Gets On-Demand Religion") and Oracle (ORCL), through its recent Siebel acquisition, now offers Siebel OnDemand. Microsoft previously offered its CRM technology through partners, which in turn sold their services running on top of Microsoft's technology.

What's more, Microsoft has struggled in its packaged CRM software business (see BusinessWeek.com, 11/18/05, "Microsoft's New Word: Accountability"). The company pondered acquiring various companies in the business before launching its own version of the software in 2003.

LOW ENTRY COST. One of them was Salesforce.com, according to CEO Marc Benioff. He says Microsoft offered $75 million for his company in 2000. "But we didn't believe they 'got it.' And we still don't," Benioff says in an e-mail to BusinessWeek.com. "They remain followers, not leaders."

Microsoft's business software group was also busy trying to mesh different product lines from two different acquisitions, putting them all on the same code base, along with the new CRM software. At the same time, Web-based services, such as Salesforce.com, were frequently updating their offerings. While Microsoft's division has seen some solid revenue growth in the current fiscal year, it's lost $716 million in the last three years.

Microsoft, though, believes that it is better positioned than ever. When CRM Live debuts, the company will be able to offer a lightweight service with a low entry cost. And if those customers want to own the software and run the applications themselves, they can easily move to that model, using Microsoft's packaged CRM software. "You can move across these models based on your business needs," says Brad Wilson, general manager of Microsoft Dynamics CRM.

GAINING GROUND. Microsoft hasn't decided on pricing yet. But it currently charges partners that host its CRM software $24.95 per user per month. Given that Microsoft will have to run datacenters to host the service, the price should be somewhat north of that.

And the move complements Microsoft's earlier announcements to increasingly Webify its offerings (see BusinessWeek.com, 11/2/06, "Why Microsoft Is Going 'Live'"). Last November, Microsoft Chairman William H. Gates III announced plans to offer more programs over the Web. These are applications that could run on the Web alone, but become more powerful running alongside programs on a PC.

Back then, it was clear that Microsoft was trying to catch rivals such as Google (GOOG) that had sprinted ahead on the consumer Web. Now, it's hoping Live software will help it gain ground with business customers.


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