Friday, December 16, 2005

Microsoft lags in offering CRM on-demand

Last week, Microsoft announced delivery of version 3.0 of its Dynamics CRM 3.0. It also announced a change in its licensing to allow partners to offer the CRM package on a hosted subscription basis.

Microsoft's move with CRM is consistent with its recent push into software as a service, but its announcements show how difficult it will be for Microsoft to make the transition to services. Microsoft's whole business model is built around selling software licenses.

The first problem is that Microsoft CRM has not been, to this point, a strong offering. Earlier versions had limited functionality, and Microsoft was slow to enhance the product. Computerworld describes the problems that one company faced with the product:
Door maker Designer Doors Inc. bought and deployed Microsoft CRM several years ago but put the software back on the shelf after running into a host of problems. The most painful were synchronization glitches that kept the software's features from being available to remote workers.

"We had put a lot of effort into making this our centerpiece for sales and marketing," said Michael Kruger, information systems manager at the River Falls, Wis.-based company. "It's been expensive for us to find work-arounds."
Not a great foundation for Microsoft's push into business software delivered as a service.

The second problem is that Microsoft does not host its CRM system, as on-demand leaders and RightNow do. Consistent with its business model generally, Microsoft depends on partners to sell and host its CRM offering. But its hard to see how Microsoft will be able to scale its on-demand services if it has to depend on partners, most of which are small regional players.

Third, Microsoft's partners appear to be pricing the CRM offering at over $100 per user per month. The last time I checked, was offering seats for well under $100. On that basis alone, Microsoft's offering is a non-starter.

The reason that Microsoft's offering is not price competitive is that it is built with a single tenant architecture. Each new customer needs a separate installation of the system, on a separate server, with a separate database, adding significantly to the cost. A multi-tenant architecture, as offered by the most successful on-demand providers, has a radically lower cost structure, allowing the vendor to on-board new customers quickly.

Furthermore, its hard to see how a Microsoft partner can afford to sell CRM on-demand to under 10 users, if it has to build a separate server for each sale. Microsoft's natural sweet spot is small businesses. But if partners can't afford to sell to the smallest prospects, how will they be successful? In contrast, and RightNow can sell a five user deal as cost-effectively as they can sell as 50 or 100 user deal.

Microsoft does plan to rebuild its CRM offering around a multi-tenant architecture, but its projected ship date is sometime in 2007. Microsoft is already late to the software on-demand dance, and its product development schedule shows just how far behind it is.

Computerworld has more.

Related posts
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Another false start for Microsoft's business apps
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Reorg highlights troubles at Microsoft Business Solutions
Is Microsoft dying?
Microsoft eats more humble pie in enterprise software business
Microsoft: selling enterprise software is a "humbling experience"
Software on demand: attacking the cost structure of business systems

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