Will A Big Fish's Splash Cause Minnows' Flush Out Of The CRM Pond?

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). The product's availability happens almost 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 delivery date had meanwhile taken even a slight setback, given it was initially anticipated for the end of 2002 and given the date was maintained and publicized as late as during the Stampede conference for value added resellers (VARs) last fall (see Microsoft Lays Enforced-Concrete Foundation For Its Business Solutions), only to be subsequently (and somewhat embarrassingly) postponed in the nick of time, and justified by the apparent need to perform additional testing and quality assurance (QA).

Given the magnitude that Microsoft has placed on the CRM product introduction, it was indeed much wiser to take some negative publicity for a slight delay (it was a first release product rather a long-needed upgrade with key enhancements anyway) rather than to deliver a product that would be half-baked for the market. The latest press release virtually confirms that the product's functionality does not lack the previously touted features.

This is Part One of a two-part note.

Part Two will continue to discuss the Market Impact and will make User Recommendations.

Microsoft CRM

Featuring a familiar and intuitive user interface, and accessible through Microsoft Outlook and as a browser-based application, Microsoft CRM is devised to enable small and medium enterprises (SMEs) to devise their CRM strategies and to thereby build lasting and more profitable customer relationships through increased sales effectiveness and consistent customer service, as the product offers an up-to-the-minute view of interactions from initial lead through lifetime customer history. To that end, sales teams have integrated, up-to-date information, facilitating better work in team environments, increasing efficiency and ultimately improving the customer experience, whereas customer service employees are armed with a solution that helps meet a greater number of service agreements and provides higher customer satisfaction.

Microsoft touts that the product is designed for rapid deployment, ease of use, and integration with Microsoft Office and MBS' back-office solutions (although the latter only gradually in the future, starting with the integration to MBS Great Plains product expected by the end of Q1 2003). Consequently, the solution should enable businesses to take advantage of technology and related services that were previously reserved for large enterprises with big IT budgets only. Microsoft CRM is also the first Microsoft business application built on the Microsoft .NET infrastructure, supposedly facilitating a simpler connection of disparate systems and enhancing integration with external Web services such as credit checking, analytics and marketing automation services that extend the core functionality of the solution. The flexibility built into Microsoft CRM reportedly allows mid-market businesses to determine the degree to which they want to automate and share information across their organizations.

The product comes in two flavors: 1) Microsoft CRM Professional Edition, which enables more complex CRM functionality including work-flow rules, customization and back-office integration with enterprise resource planning (ERP) systems via Microsoft BizTalk server, and 2) Microsoft CRM Standard Edition, which provides a range of basic CRM functionality for a stand-alone CRM environment without extensive business automation and integration requirements. Both will reportedly be distributed and implemented by Microsoft Business Solutions CRM-certified reselling partners. Microsoft CRM Standard Edition will also soon be available to reselling partners in North America through a key distributor, Ingram Micro Inc., while additional distributors will be announced over the next few months.

Microsoft CRM is available for purchase in North America only for the time being. Estimated retail pricing for Microsoft CRM ranges from $395 per user, plus $995 for the service or sales servers for the Standard Edition, to $1,295 per user, plus $1,990 for the service and sales servers for the Professional Suite Edition. The product is available as an on-premise solution or as a hosted solution through select resellers. The North American version of Microsoft CRM is not available for purchase outside the US and Canada at this time, but localized versions of Microsoft CRM for the Europe and Middle East, Asia-Pacific and Latin America markets are reportedly being developed and are scheduled for release in the second half of 2003, with the support for English, Danish, Dutch, French, German, Italian and Spanish languages, and multiple currencies.

Applix Acquisition By Platinum Equity

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. Under the agreement, Platinum Equity is acquiring Applix's CRM business, related intellectual property and approximately 1,000 customers. On one hand, the transaction should supposedly allow Applix to focus all of its resources on its recently reestablished core business in the reportedly rapidly growing Business Performance Management (BPM) market, while; on the other hand, it should enable Platinum Equity to immediately increase its presence and customer base in the CRM market.

Applix's iCRM suite is a web-based collaborative solution that optimizes and integrates local and disparate operations for marketing, sales, customer service, partner management, quality assurance, help desks and internal IT organizations. To that end, it includes Applix iHelpdesk, Applix iSales, and Applix iService components, all based on the company's iEnterprise platform, which provides a multi-tier, scalable architecture featuring an object-oriented, eXtensible Markup Language (XML)-compliant "Developer's Studio" development environment, a central data schema for all Applix iCRM modules, a wizard-driven business rule generator, and Applix Weblink 2000, an e-business extension that can easily deploy applications to employees, customers and partners via browser-based clients and wireless devices.

Total consideration for the transaction was approximately $8.75 million, consisting of $5.75 million in cash and the assumption of approximately $3 million in net liabilities by Platinum Equity. A portion of the sale has closed, while the sale of the Germany operations is expected to close in approximately 4 to 6 weeks, pending receipt of German antitrust approval. At the first closing $4.25 million was reportedly paid and a $1.5 million payment is due at the closing of the German portion of the transaction. First Albany Corporation acted as financial advisor to Applix in connection with this transaction.

Market Impact

The CRM market remains both the land of opportunity but with many treacherous patches of quicksand for those that are not certain about their charter in the field. One should not question Microsoft's rationale to intrude the CRM market given its MBS division's product arsenal and the ongoing biggest R&D investment within the applications market, and given its attempts to leverage the abundant SME arena, where CRM awareness and penetration is possibly far less than 10% in the lower end of the spectrum. Moreover, Microsoft has long sowed its seeds in this market segment that will have likely standardized on its technical infrastructure, evidenced by over 90 million Outlook and over 250 million Office users.

Also, since Microsoft has long earned strong brand recognition and accompanying user loyalty within the small business market segment with its other desktop and office networking applications, one should expect firms with less than 150 users to at least readily consider (if not adopt straight away) Microsoft's simple, Outlook-centric CRM software. These markets are at the early stages of adoption, which creates large opportunities for aspiring CRM vendors that approach the markets with the right products and messages.

These customers have been loath to deploy mutilated' large-enterprise CRM solutions at somewhat discount prices but also with no modifications clause and a plethora of disabled functional features. On the other hand, nifty mid-market CRM products without the integration to the already installed ERP systems have not cut muster either, given the payment and shipment transactional history should also be an inherent part of the customer relationship management, which are impossible to handle without direct integration between, e.g., CRM sales automation or contact management modules with traditional accounts receivable, accounts payable and inventory management core-ERP modules.

The Microsoft CRM product initially focuses on two intrinsic CRM modules sales and service automation/management while the third part and parcel' module, marketing automation, is slated for future releases. To that end, the Professional Edition functionality includes basic contact management (i.e., interaction and opportunity aspects) as part of Sales Force Automation (SFA), simple e-mail based marketing campaign tools, and call management (customer service ticket queues) with a basic customer service knowledge base, content authoring and approval workflow. These features are what the targeted customers likely need at this stage, and Microsoft CRM might change the landscape for CRM among conservative manufacturing SMEs that have so far been dismissive of either over-functional, too rigid and highly priced products on one side, or of inadequate inexpensive products on the other hand. Therefore, an affordable, straightforward out-of-the-box application with minimal implementation risk and innate integration to Outlook, web browsers, and Microsoft Exchange server will likely strike a chord with this market segment.

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 (e.g., crating 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 technology could become a stronger selling point than the mere functionality.

Applix, however, may exemplify the other side of the CRM medal, as some smaller pure CRM vendors have been hard pressed to survive owing to the combined effect of CRM users' disenchantment with the products' hardly ever materialized benefits, after a hasty infatuation with its touted silver bullet' mantra (which once also happened to its older sibling ERP's users), compounded with the tight IT budgets due to the worldwide economic recovery delay and with Microsoft's entry into already crowded place.

Although many mid-market pure-CRM solutions have been maturing and improving, they must continue to facilitate integration with back-end systems, given the increasing awareness of this need for full-fledged benefits of CRM. Further, they must also provide the differentiation through verifiable return on investment (ROI) metrics, and indispensable features and functions germane to selected industry verticals. Despite these niche vendors' attempts to overcome these challenges, many will continue to struggle to avoid insolvency, while the luckier ones that have some attractive point solutions (e.g., partner relationship management (PRM) or portal solutions) that large enterprise vendors would gladly incorporate will become acquisition targets.

The seriousness of these vendors' predicament might be well depicted by the Applix' departure, given the vendor had a solid CRM product breadth and technology foundation, a good implementation track record with nearly 1,000 satisfied customers, and some notable endorsements from ERP vendors that have been remiss in delivering their own CRM offerings (see SSA GT Beefs Up BPCS V8 Through Partnerships' Spree and Geac Trying Its Luck in Partnering). Many pure-CRM players that cannot boast the above traits should do their own math and analyze the raison d'etre' of their independent existence within the CRM battleground.

To that end, this might have been the right move for Applix, given its analytic market origins, and given the additional cash influx from the sale the lighter' Applix will now leverage to bolster its BPM capabilities and to accelerate its plans to bring additional analytic applications to market. In 2002, the vendor launched many applications for interactive planning and service analytics, such as the initial release of Applix Interactive Planning product, which manages a company's budget and financial planning process. When it runs on the Applix Integra platform, users should be able to construct a real-time planning, budgeting, forecasting and business modeling suite that should provide financial analysts with some clout in managing the business and financial tradeoff decisions all companies must continually make.

Integra is built on a foundation of Applix iTM1, the renowned real-time Online Analytical Processing (OLAP) business intelligence (BI) engine that Applix acquired in 1996, on which many third-party analytic applications are also based (for more information, see Applix Still Shows a Presence in the OLAP Market). Consequently, Applix' choice of the BPM alley is logical, especially with the growth rates that competitors in this space have been boasting lately, which can be partly attributable to the current climate that urges the Security and Exchange Commission (SEC) financial reporting compliance and makes the BPM a low-hanging fruit area.

This concludes Part One of a two-part note.

Part Two will continue the Market Impact, including discussion of the Challenges both Microsoft and Applix face and making User Recommendations.

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