Scala and Microsoft Become (Not So) Strange CRM Bedfellows

Event Summary

During these days of frenetic mergers and acquisitions in the enterprise applications arena, there still seems to be a place for some co-opetitive alliances too. Namely, at the end of July, Scala Business Solutions (ASE: SCALA), an Amsterdam, the Netherlands-based provider of collaborative enterprise software for mid-size enterprises and subsidiaries of global corporations, announced it has signed a letter of intent with Microsoft Corporation (NASDAQ: MSFT), the largest software provider in the world, to extend Microsoft Business Solutions CRM (Microsoft CRM) software and integrate it with its iScala Collaborative ERP system. The agreement is expected to be final in September.

Both companies will work together on developing Microsoft CRM for commercial release by Scala as iScala CRM, a new product that Scala will offer to its global customers as part of its iScala ERP product as an integrated solution for the enterprise. With iScala CRM, Scala will try to leverage the proven capabilities of its ERP offering with functionality such as multi-currency capability, international tax calculations (e.g., value added tax (VAT)) and business intelligence (BI) that should meet the needs of Scala's customers doing business in over 140 countries.

Scala believes iScala CRM will allow it to address growing customer demand for more business functionality. To that end, the vendor plans to integrate the CRM functions with iScala Collaborative ERP by the end of 2003, while the integration with sales orders, stock control, and service management should follow in 2004. Scala expects its new offering to appeal to many of its existing customers; initially, it will be offered in key European markets including Russia, as well as Chinathe markets where Scala has traditionally been strong and has a leading market presence.

By 2005, Scala expects iScala CRM to contribute an additional 20 percent to its annual revenue. In addition, this new offering should enable Scala to offer iScala CRM in some vertical industries where the iScala product is especially strong, such as construction equipment, pharmaceuticals, and food and beverage. As part of its market preparation, Scala has established a go-to-market team from across the company, including product development and management, sales and marketing, and support resources. The team will be working closely with Microsoft's CRM team and key Scala customers in the lead-up to the product's commercial release.

However, this alliance should likely render rather questionable Scala's collaborative partner agreement with CRM software provider Ascent Technology, which was just announced in February. The agreement was seen to enable Scala's partners and customers to take advantage of a completely integrated solution for the enterprise, combining Ascent's applications for CRM with Scala's Collaborative ERP platform, and over twenty joint customers have already been using the integrated solution. However, Microsoft CRM will likely get a "right of way" due to Ascent's limited presence outside Europe, and limited number of its enterprise applications partners for prepackaged integration arrangements.

Further demonstrating its commitment to Microsoft's technology stack, at the beginning of July, Scala and its partner Decision Support Panel (DSP) have demonstrated how easy it is to use a web services-based solution to seamlessly integrate the iScala Collaborative ERP system with Microsoft Office System applications. Scala claims its customers can work in any Microsoft Office 2003 applicationsuch as Word, Outlook, Access, or Exceland interact with information from their iScala application without having to login to the iScala system. The iScala/Office integration thus enables Scala customers to easily complete routine tasks more quickly. The integrated solution was publicly demonstrated for the first time by Scala and DSP at Microsoft Tech-Ed Europe 2003, the premier technical training event for Microsoft-based products and technologies, in Barcelona, Spain. The integrated solution is based on standard Extensible Markup Language (XML) templates and iScala Managers that act as web services to exchange information between the ERP database and a Microsoft Office document.

The iScala/Office integration is part of Scala's strong and long-term technology cooperation with Microsoft, and it gives users the ability to employ a "one source" approach to organize information, readily access that information, manage documents, and enable efficient collaboration all in a familiar, Microsoft Office-integrated environment. According to Scala, XML technology and web services architecture is at the core of the iScala Collaborative ERP system, so it was easy to develop the integration between Microsoft's front office products and Scala's back office solution.

This is part one of a three-part note.

Part two will complete the discussion of the market impact.

Part three will cover challenges and make user recommendations.

Market Impact

This CRM alliance, like many alliances in the enterprise IT sector in the past, has merits of mutual benefits, particularly in the short to medium term, but it also comes with typical questions of longevity due to the fickle motives of the participants that compete in other enterprise application areas. The market has been well aware of the magnitude that Microsoft has placed on its CRM product introduction, whose general availability happened in January, about a year after the initial announcement of Microsoft's own CRM product intent (see Microsoft Throws .NET At SMEs, With CRM As Bait), and almost a half year after the more fleshed-out Microsoft CRM strategy blueprint (see Microsoft Paints CRM Landscape On Lately A 'Still Nature' Business Applications Scenery). The product's launch date had even taken a slight setback, given it was initially anticipated for the end of 2002 and justified by the apparent need to perform additional testing and quality assurance (QA) due to a relatively low number of companies that had performed beta-testing. Nevertheless, since the release 1.0 at the beginning of 2003 (see Microsoft Convergence 2003 portrayed an Enterprise Solutions crossroad!), Microsoft CRM has shown a notable uptake by quickly reaching the several hundred customers mark and showing solid functionality that has so far attracted about 1,300 partners to sign up, all already surpassing the benchmarks achieved during a three-year long prior partnership with Siebel Systems.

Microsoft CRM

The Microsoft CRM product initially focuses on two intrinsic CRM modulessales force automation (SFA) and service automation/managementwhile the third "part and parcel" module, marketing automation, is slated for future releases, together with broader e-business functionality featured within field service, mobility, and portals.

To that end, its current Professional Edition functionality includes basic contact management (i.e., interaction and opportunity aspects) as part of SFA, basic e-mail based marketing campaign tools, and call management (customer service ticket queues) with a basic customer service knowledge base and content authoring and approval workflow. These features are what the targeted customers likely need at this stage, and Microsoft CRM might change the sentiment about CRM among conservative manufacturing SMEs that have so far been dismissive of either over-functional, too rigid, and highly priced products on the one hand, or of inadequate, inexpensive products on the other hand. Thus, an affordable, straightforward, out-of-the-box application with minimal implementation risk and innate integration to Outlook, Internet Explorer (IE), and Microsoft Exchange server will likely strike a chord with this market segment. Both the browser-based and Outlook-based user interfaces have the same functionality and the appearance, allowing users to easily switch from online to offline mode as required, and without a need to learn a different interface for an "unplugged," on-the-road version.

Another notable feature would be .NET SmartTag technology, which should allow users to easily incorporate structured and unstructured information, or information from multiple systems, into a single document. In other words, creating requests for quotes (RFQs), dunning letters, purchase orders, and other common business documents should be rendered simple. It is very likely that the embedded .NET framework and its notion of a next-frontier integration technology could become a stronger selling point than the mere functionality, as it allows MS CRM to go far beyond what most other CRM systems provide in terms of support for products and inventory. Namely, the product features the ability to store multiple price lists, information on units of measure (UOM) and item master detail, while other CRM systems are concerned primarily with the customer records and transactions. Eventually, MS CRM will provide automatic bidirectional synchronization with the Microsoft Business Solutions (MBS) Great Plains system and the other enterprise products within its MBS portfolio.

The next release of Microsoft CRM, version 1.2, which is slated for the end of 2003, will supposedly support nine languages in total, will feature stronger reporting capabilities based on Crystal Decisions' Crystal Enterprise 9 product and improved setup and development capabilities. The integration with the MBS Solomon 5.0, 5.5, and MBS Great Plains 7.5 back office applications should be there too. Down the road, Microsoft plans to unify all its CRM products in the fold, i.e., Microsoft CRM, MBS Navision, and MBS Axapta's sales and marketing modules (used mostly in Europe) into a single product, but there is no clear date in sight for this unification.

However, until Microsoft fully integrates it with its multiple ERP products, MS CRM will remain merely a CRM product with a compelling interface and an enhancements roadmap. Further, given Microsoft's proverbial prominence within and huge benefits from the "law of big numbers" and the "economy of scale" (i.e., selling products with high-volume and low-interaction sales), the Microsoft executives are unlikely to be terribly moved by the MS CRM takeoff so far compared to, for example, the MS Office products' volumes, which have typically amounted to hundreds of thousands and a million licenses during similar timeframes.

This concludes part one of a three-part note.

Part two will complete the market impact.

Part three will cover challenges and make user recommendations.

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