Will A Big Fish's Splash Cause Minnows' Flush Out Of The CRM Pond? Part Two: Challenges and User Recommendations

Event Summary

On January 21, Microsoft Business Solutions (MBS), a division of Microsoft Corporation (NASDAQ: MSFT), announced the long awaited North American general availability of Microsoft Business Solutions Customer Relationship Management (Microsoft CRM).

Coincidentally or not, on January 23, Applix, Inc., (NASDAQ: APLX), a global provider of analytic and CRM business solutions, announced the sale of its CRM part of the business to Platinum Equity, LLC (www.peh.com) a global organization specializing in the acquisition and strategic operation of technology companies.

Successful implementation of both these announcements present challenges to their respective companies.

This is Part Two of a two-part note.

Part One presented the details of these announcements and began a discussion of the Market Impact.

Challenges to Applix

Still, running away from one challenge may bring about other challenges in another still fragmented and morphing market. Applix has to act fast given already a strong competition from Business Product Management (BPM)-like products coming from many directions such as best-of-breed BPM vendors (e.g., Longview, Cartesis, Comshare, etc.), business modeling players (i.e. IDS Scheer), workflow management vendors (e.g., Filenet and Staffware), enterprise application integration (EAI)/middleware providers (e.g., IBM, Tibco, SeeBeyond, and Vitria), pure BPM startups (e.g., Intalio, Fuego, and Savvion), traditional analytics providers (e.g., SAS, MicroStrategy, Business Objects, Cognos and Hyperion) and many large enterprise vendors' (e.g., SAP, PeopleSoft and Oracle) intrusion into the BPM arena, in the manner they have done with the CRM or Supply Chain Management (SCM).

Also, some may doubt Applix' success in the possibly burgeoning BPM market that still represents a morphing and confusing landscape, as its decision to abandon the once also prosperous CRM space and suddenly re-focus on BPM may be regarded as a not quite deliberate move, but rather as a sudden act of taking another plunge. From this vantage point, its expansion into CRM several years ago might now be considered as hasty and opportunistic (the company admits that the initially seemingly good idea of marrying CRM and analytics has never materialized). Given the idea has still been purported (see CRM Analytics Brings More Profitability) and given some vendors' success to cross-sell real-time analytics to e.g. capture and analyze customer interaction from multiple channels, such as Siebel, PeopleSoft, E.piphany, and Pivotal, one is to wonder what was behind Applix' CRM failure, and how it will manage to successfully go on. Maybe its chance will be in simplifying enterprises' mazes of information by providing effective metrics and accompanying processes to make informed, real-time decisions, but achieving this will be no easy feat for anyone (see Why CRM Is So Hard and What To Do About It: Data is key to making CRM work).

Challenges to Microsoft

Having said all the above, Microsoft's foray into the CRM arena will not be a bed of roses either, despite its indisputably large marketing muscle and R&D investment, its strong channel, attractive pricing policies, and the aura and experience within the market segment. First of all, MBS has been swamped with soul-searching issues of handling multiple disparate product lines, some of which already have native CRM capabilities that overlap those of Microsoft CRM. While the Microsoft CRM product's delay was not a train smash matter, and has not changed almost anything for buyers from a product perspective, it does reinforce the concern that the market has voiced about the parent Microsoft's experience in the enterprise applications market. The question remains how efficiently MBS will continue to provide CRM functionality as part of the single-database integrated Navision, Great Plains, Solomon and Axapta products, and whether the envisioned integrated products' delivery dates in the second half of 2003 will also be delayed like in the case of Microsoft CRM's delay.

Further, MBS is not yet exactly a uniformly global company, as its product offerings and channel strategy may differ notably within different markets. Not many customers can still integrate or use interchangeably MBS' Great Plains, Solomon, Axapta and Navision product lines. Thus, while MBS gets distracted by its efforts to provide a clear and concise product roadmap for partners and prospects, as to neutralize significant overlaps in the applications and a hefty cost to maintain and enhance the products, other vendors will use that time to perfect their functional differentiations. Many competitors have already come up with their products' Outlook integration (which is current Microsoft CRM strong selling feature) in addition to their compatibility with other email clients and server platforms, and now have time to further established their expertise in some vertical industries.

Additionally, the experience of penetrating the desktop market can by no means be replicated in the case of the CRM market, given the different nature and complexity of the product groups (i.e., mere technology vs. business process enhancement products). While small enterprises desire products and services designed, priced and delivered from vendors that understand their needs and are focused in that regard, Microsoft would definitely not be the only one that fits the picture. However, the functional, process, and integration requirements of a small-to-mid-market company can be just as sophisticated as those of a large enterprise, particularly if it is a multinational entity.

Thus, MBS is both a threat and an opportunity for the most nimble vendors, given its entry and impending array of seminars nationwide will additionally bolster the market's awareness of the need for CRM applications (i.e., provide the educational impact'). Given Microsoft's late entry and still immature and unproven features without industry-specific versions and limited support for mobile (offline) users, such mid-market CRM vendors as Onyx, Pivotal, Kana, and E.piphany as well as many mid-market Microsoft-centric ERP vendors with native CRM capabilities(e.g., Epicor, Best Software, Frontstep, Made2Manage, SYSPRO, Lilly Software, ACCPAC, Exact Software, etc) might have thereby acquired another life extension. They now have time to redefine their value proposition, especially given that some have recently secured new funds and/or found solace in a partnership with IBM that has been motivating them to provide cross-platform solutions.

Also, in addition to steep learning curves for some traditional accounting VARs to now master CRM sales, support and implementation, some VARs might be in a quandary to justify selling a Microsoft CRM, or MBS products at a low price with minimal consulting and integration scope (due to fairly simple initial functionality), if they could be tempted to sell more substantial and complex products. Since for smaller VARs it may not always be viable to sell Microsoft business software much of the time, there might be some convert VARs itching to work with the likes of SAP or IBM.

Some VARs that serve both MBS and Best Software (i.e., its mature SalesLogix CRM product) might not be impressed with still immature and insufficient Microsoft CRM functionality to neglect SalesLogix' seasoned functionality and flexibility, as proven with its large existing customer base. They are also wary that the Microsoft CRM's touted lower Total Cost of Ownership (TCO) due to the native integration to the Microsoft technology pile and the rest of the MBS product portfolio, all founded on the .NET framework, might be annulled as businesses will also need either Windows 2000 or Windows NT Server software, as well as the SQL Server 2000 database and Microsoft Exchange and Active Directory in order to use the e-mail and messaging functions, and none of the last three products' price tag is included in the above inexpensive price for the CRM product license.

Impact on Higher-end ERP Market

While Microsoft will likely curb its desire to compete in the higher-end of the enterprise market for quite some time to come, major players in the market will not be seriously affected anyway, given the newcomer product's functional inferiority, lower scalability, and the lack of support for multiple platforms. The fact remains that the product will not appeal to companies that need more complex CRM capabilities or must manage customer relationships through diverse lines of business (LOBs). These customers would most likely require extensive customization, for example building workflow managed processes to align sales teams by territory, product line or campaign.

Moreover, the enterprises that have integration needs outside of the Microsoft environment, have complex sales and call-center service business practices, or need advanced CRM functions such as product configuration, content management, personalization and relationship optimization, will have to look at more sophisticated offerings. Microsoft has not garnered sufficient experience in the enterprise level business application market, and has not developed a strong mind-share among the C-level executives (decision makers) at the larger corporations, either. Therefore the extent to which the product can be regarded as a true enterprise strategic suite like in the case of Oracle, PeopleSoft or SAP, versus essentially an extended desktop system, remains dubious.

In addition to the likes of SAP, Oracle, Siebel, PeopleSoft and J.D. Edwards, which are still far above MBS' radar screen, endangered exceptions though might be the vendors with established integration with back-office systems that also feature strong functionality in certain manufacturing industries and/or a cross-platform support (see some examples in Mid-Market ERP Vendors Doing CRM & SCM In A DIY Fashion, Best Software To Hold Competition At Bay and ACCPAC -- Being Much More Than Meets The Eye ).

Still, no one should be too relaxed, as MBS will breathe their necks down, sooner or later, given the chances that the giant will remain content for long with the current capabilities are very slim. Microsoft plans to incrementally add product catalogs, sales quotes, pricing, marketing encyclopedia, pipeline management, forecasting, sales contracts, and CTI (computer telephone integration) functionality. Also, future releases will feature a customer portal to provide access to the knowledge base, Frequently Asked Questions (FAQ), visibility into open customer call inquiries, and a storefront that provides order visibility through integration with MBS' products.

Thus, the competition from Microsoft is likely to immediately affect the prominent players in the lower-end of the market, including FrontRange (the GoldMine product), Best Software (the ACT! and SalesLogix products), Epicor Software (the Clientele product), Multiactive Software (the Maximizer Enterprise products), Interface Software, NetLedger, and some of the existing Outlook-based CRM providers like Oncontact Software, Multiactive Software, and WorldTrak, as well as hosted providers Salesforce.com or UpShot.

Furthermore, all the above-mentioned will be affected in the long run, as new functionality and product maturity should make Microsoft CRM more amenable to the higher-end of the market segment opportunities. Over time and with these features in place, the product might appeal to the more sophisticated prospects as well. The ultimate success of Microsoft CRM will be judged by its follow-up releases, which should extend into marketing and filed service functionalities and into integration with MBS' multiple ERP product lines.

User Recommendations

Small and medium size North American businesses using MBS back office applications and smaller organizations using Microsoft desktop and office applications that have simple CRM product needs (simple sales & marketing activities like opportunity management and forecasting, and basic customer service activities) should evaluate the above CRM functional enhancements as a way to add value to their existing applications although bearing in mind that other vendors currently offer mature products.

However, small businesses with less than 150 employees should wait until the end of 2003 in North America if they require tight integration with MBS' back-office products and industry-specific focus. For the same features, the rest of the world should wait until 2004 or they should evaluate other products at this stage. Also, bear in mind that the first release of Microsoft CRM will not provide tight call-center integration, campaign management, customer portals, offline support for mobile users (customer service and marketing employees) or permit significant application customization, and it should not be short-listed by larger or more complex enterprises, with support for email applications other than Outlook, and with multiple-platform and strong scalability requirements.

The product will not be of much use to companies that must manage customer relationships through diverse lines of business (LOBs) with diverse processes at this stage. Moreover, the enterprises that have integration needs outside of the Microsoft environment (i.e., database, OS platform, middleware), have complex sales and call-center service business practices, or need advanced CRM functions such as product configuration, content management, personalization and relationship optimization, will have to look at more sophisticated offerings mentioned earlier. Small office/home office (SOHO) businesses may want to consider the Standard edition as a lightweight sales and content management application, but not as a full-fledged CRM product, given it does not support email campaigns, workflow, opportunity management, or integration to back office.

On a more general note, CRM Vendors' domain expertise pertinent to industry-specific business processes (e.g., claims processing for insurance companies, service provisioning for telecommunications, billing for utilities) has been a key success factor (KSF) of application implementation and reducing upfront need for application customization. The enterprises should therefore challenge vendors to demonstrate breadth and depth of their vertical expertise and to demonstrate support for vertical business processes and rules through both product functionality and underlying technology. Candidate solutions should also offer tangible ROI and tight alignment with business objectives, as well as ease of implementation and integration, especially with any back-office systems in place.

On the other hand, Applix's CRM customers should not panic, but should keep a close eye on Platinum's commitment to make the soon to be renamed product a pure-CRM prominent player. Platinum Equity has a notable history in acquiring and managing technology-based companies and product lines, and it has so far ensured that its customers are supported with ongoing maintenance for the long term. Given Applix iCRM above credentials, one is to expect the history to be repeated.

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