On February 25th, Microsoft announced its plans to enter the CRM market with its own CRM applications
suite. This announcement is a major departure from the strategy it has followed over the past five years, namely,
providing infrastructure-level software to CRM application vendors such as FrontRange, Onyx, PeopleSoft, Pivotal,
SalesLogix, SAP, Siebel, and others.
MS CRM represents a baseline set of CRM capabilities
designed to provide marketing, sales, and support functionality for the small and midsize business. MS CRM will
closely resemble Microsoft Outlook, and will integrate with other Microsoft desktop and server applications such
as Word, Excel, and SQL Server. The objective here is to leverage Microsoft’s presence on the desktop and to offer
a familiar user interface to the small business user.
MS CRM will integrate with the back-office applications provided by Microsoft’s Great Plains
division, and will be sold by authorized Microsoft Great Plains channel partners. Cost per seat pricing was not
announced as of this publication, but is expected to position MS CRM roughly midway between opportunity management
and SFA products such as ACT! and GoldMine at the low end, and the FrontRange Office Suite and SalesLogix at the
mid-market. Availability of MS CRM is planned for Q4 of this year.
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Microsoft’s entry into the CRM market represents not only a significant threat, but also the
biggest opportunity that vendors, systems integrators, and end-users with the technical capability, financial resources,
and vision to adapt to Microsoft’s long-term CRM architecture have likely seen for a long time.
Changing the Rules
Microsoft’s announcement marks a significant departure from its previous role as a provider of infrastructure software, and signals what Aberdeen research indicates will become a sea change in the CRM industry.
Microsoft has established a significant presence in CRM over the past five years, but has deliberately
kept a low profile by supplying the infrastructure software – operating systems, database software, and browser
technologies – that underpins a majority of the CRM applications in production today.
Microsoft’s acquisition of Great Plains Software signaled the company’s intent to move into the
applications market – a significant move for Microsoft and one that went largely unnoticed and uncontested in the
industry. This acquisition, coupled with Microsoft’s continued focus on and investment in .NET, .NET My Services
(formerly known as Hailstorm), and its Passport authentication system, indicates that Microsoft is going to once
again change the rules of the game.
For example, .NET will fundamentally change the way in which CRM applications access dynamic,
Web-based information and Web services, and MS CRM has been designed to be completely .NET compatible. Further,
Microsoft’s Passport product – another set of .NET-enabled Web services designed to facilitate user verification
and transactions on the Internet – will also enhance the ability of Microsoft and Microsoft MS CRM partners to
manage customer interactions and purchasing transactions.
Threat or Opportunity?
For the small to medium business (SMB) that recognizes the value of optimizing its customer relationships,
Microsoft’s announcement represents nothing but a new opportunity. The SMB and mid-markets continue to be the largest
opportunity in CRM: Many of the companies in this segment, with limited financial and technical resources and often
legitimate concerns about lengthy CRM implementations, have largely relied on cobbled-together or home-grown alternatives
based on Outlook and some Excel spreadsheets.
The opportunity to buy what appears to be a cost-effective system from Microsoft, and one that
closely resembles the Office Suite already on the desktop, will represent an attractive proposition. And, as .NET
technology matures and .NET service offerings become more widespread, the small business owner will have the opportunity
to more effectively leverage the Internet for its marketing, sales, and customer support needs.
A few opinions have already appeared in the trade press, predicting that Microsoft will simply
roll into the CRM market and take the entire bottom half of the market as its own. And that would mean any companies
playing in this segment are history. According to Aberdeen research, however, that viewpoint is shortsighted and
overly simplistic. The real question is whether Microsofts announcement represents a threat or an opportunity.
Aberdeen Conclusions
The real issue here is not whether Microsoft will pose a competitive challenge to established
vendors in CRM, because it clearly will. The real question to ask is, What opportunities
and what new markets are being created by Microsoft’s entry into the market?
The opportunities in providing Web services – in Microsoft’s world, .NET services – are just
now beginning to be understood. A CRM technology or services supplier with the vision to embrace .NET could develop
a core competence augmenting CRM applications (whether its own suite or Microsoft’s) with Web-based services. These
services could provide a steady stream of fresh, qualified leads to MS CRM users, for example, or facilitate the
integration of outsourced back-office application services such as billing to an MS CRM-based customer support
application. 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.
Microsoft is one of the few companies in the market with the presence on the desktop; the financial
and technical resources; and, frankly, the market authority to pull off this type of transition.
In our view, Microsoft’s intent is not to dominate the CRM market: Its real motive is to evolve
its business model and to sustain its historical growth and profitability levels by providing Web services. Microsoft
has already clearly articulated this strategy, and MS CRM (and the .NET and related architectures) back this claim.
The impact of this strategy will eventually be felt in every major business applications market segment, including
CRM, ERP (Enterprise Resource Planning), and e-Business.
CRM represents a beachhead that Microsoft needs to control to accomplish its objective. The other
technologies – .NET/.NET My Services, and Passport – are already in place and are steadily gaining advocates. With
all three legs in place, Microsoft and its partners will steadily change the architecture of CRM, and of many business
applications, to incorporate Web services in what Microsoft hopes will become an industry-standard architecture:
.NET.
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.
Christopher Fletcher manages Aberdeen Group’s Customer Relationship Management (CRM) practice, which provides research and consulting on market strategy, communication, product positioning, and branding for established and emerging CRM technology suppliers.