Microsoft Paints CRM Landscape On Lately A ‘Still Nature’ Business Applications Scenery

Microsoft Paints CRM Landscape On Lately A 'Still Nature' Business Applications Scenery
P.J. Jakovljevic - August 15, 2002

Event Summary

On July 11, Microsoft Corporation (NASDAQ: MSFT), the largest software company in the world, fleshed out the contents of its recently pre-launched Microsoft Customer Relationship Management (Microsoft CRM) offerings for the mid-market, together with an indication of pricing. Earlier this year, the company indicated that it planned to deliver a CRM solution specifically aimed at medium-sized organizations (see Microsoft Throws .NET At SMEs, With CRM As Bait), having already made strides in this prospective and underserved area of business application software, with the April 2001 consummation of purchase of former Great Plains Software at the end of 2000 (see Microsoft And Great Plains - A Friendship That Turned Into A Marriage) and a recent announcement of purchase of Navision Software (see Microsoft 'The Great' Poised To Conquer Mid-Market, Once and Again).

The presentation featured David Thacher, general manager of customer relationship management (CRM) at Microsoft Business Solutions (MBS), the new name for the combined Microsoft division, which includes Microsoft Great Plains, Microsoft bCentral, and Navision a/s businesses. Thacher spoke about the upcoming release of Microsoft Customer Relationship Management (Microsoft CRM), a solution developed for mid-market businesses. He also explained Microsoft's overall CRM strategy, its value proposition, Microsoft's ongoing support for partners and resellers, the strength of the MBS channel, and the increasingly important role of Web services in the CRM industry. Thacher pointed out that .NET facilitates the easy connection of systems and enhances solutions with external Web services such as credit checking, analytics and marketing automation services that extend the core functionality of Microsoft CRM.

This is Part One of a two-part event note on Microsoft CRM. Part Two will discuss the Challenges faced by Microsoft and make User Recommendations.

Microsoft CRM

The Microsoft CRM demonstration focused on the solution's tight integration to Outlook and Microsoft Business Solutions' business applications, and attempted to show how easily customers can use and customize the solution. Microsoft CRM complements (and possibly overlaps with) a plethora of Microsoft's other CRM offerings for small and medium-sized businesses, including bCentral Customer Manager and DealerPoint, Microsoft iCommunicate, Microsoft Great Plains eEnterprise Field Service, Microsoft Great Plains Solomon Field Service and Great Plains Siebel Front Office. Likely the most prominent amongst these would be Microsoft Great Plains' CRM functional offering, provided by an interface with Siebel Systems and called Great Plains Siebel Front Office (SFO). It was aimed mostly at companies that were existing users of Great Plains' enterprise systems, such as Solomon or eEnterprise, and it provided field service, and lead and contact management with an element of connectivity to those back-office systems.

Microsoft CRM solution will be used as a standalone product or integrated with Microsoft Business Solutions' Microsoft Great Plains business applications: Dynamics, Solomon and eEnterprise and eventually Navision Attain and Axapta. Its expected availability in North America is in the fourth quarter of 2002 (it will be available for beta test from August), while the availability outside of North America will be phased and is expected to begin in the first quarter of 2003. It will be sold and implemented through MBS' reselling partner channel, and partners and Microsoft Great Plains' award-winning customer support team will provide support.

The solution will be available on-premise or as a hosted solution through select partners. The software will be accessible either through a browser or through Outlook, and 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.

Microsoft CRM will have a straightforward yet flexible licensing model that allows companies to purchase what works best for them. They may choose among Sales, Service or Suite licensing at Standard or Professional levels of functionality. The main difference between the two levels is that the Professional edition will offer more elements of workflow and integration with back-office applications than the Standard package. The capabilities have been designed specifically with small organizations in mind, from 25 to 500 employees, having 15 to 150 concurrent CRM users. Microsoft CRM carries a pricing model designed to encourage companies that previously considered CRM systems unaffordable to start systems and expand them as their businesses grow. Pricing for Microsoft CRM ranges from US$395 per user plus US$995 for the server for the Standard Sales level to US$1,295 per user plus US$1,990 for the server at the Professional Suite level.

Earlier Related Announcements

Earlier in June, as a part of rounding out of its CRM strategy, then Microsoft Great Plains Business Solutions and Crystal Decisions Inc., a privately held provider of information management systems, announced that Crystal Decisions will provide the reporting, analysis and information delivery capabilities within Microsoft CRM. The new OEM and reseller agreement will give Microsoft CRM customers access to Crystal Enterprise to gain insight into their customer data, identify high-value opportunities, predict short- and long-term revenue, and distribute information across their organization for better decision-making. Crystal Enterprise enables businesses to access data from virtually any data source or application, analyze it, create a report, and share the information with employees, customers and partners.

Tightly integrated with Microsoft CRM, Crystal Enterprise should deliver insight into customer data through a combination of operational and analytic reports, enabling companies to understand what is happening in their customer base and why. The agreement includes an OEM component through which a version of Crystal Enterprise, called Crystal Enterprise for Microsoft CRM, would be installed by default at no additional cost, providing customers with the ability to view, filter, print and export 125 predefined reports. The agreement also includes a worldwide reseller component through which Microsoft will resell enhanced Crystal Enterprise for Microsoft CRM licenses (for customers seeking to customize existing reports or create new reports), Crystal Reports Standard (with a custom data driver for Microsoft CRM), and other Crystal Decisions offerings, such as training and support, through its value-added reseller channel.

Also on July 11, Microsoft announced that it has completed the acquisition of Navision Software a/s as a result of the successful close of the tender offer. Microsoft expects to purchase Navision's shares for approximately US$1.45 billion in stock and cash. Including the purchase of Great Plains in 2001, Microsoft has forked out more than $2.5 billion to become a major player in the SME applications market.

As a result of the acquisition, originally announced on May 7, 2002, Navision will become part of Microsoft Business Solutions, which will be led by Doug Burgum, senior vice president of Microsoft and former chairman and CEO of Great Plains. Navision co-CEOs Jesper Balser and Preben Damgaard will remain with Microsoft Business Solutions. Balser will become director of global strategy, and Damgaard will become director of Europe, Middle East and Africa (EMEA) operations. The EMEA operations will be based out of Navision's corporate headquarters in Vedbaek, Denmark. MBS will continue to develop, market and support Navision's business applications. These applications — Microsoft Navision Axapta, Microsoft Navision Attain, Microsoft Navision C5 and Microsoft Navision XAL — join the portfolio of products currently offered by Microsoft Business Solutions. The MBS' focus going forward will likely be on rationalizing and defining the future of its product portfolio and value-added reseller (VAR) partner network.

Market Impact

Belittle Microsoft's abilities at your peril. Although the Microsoft CRM product will not have all the bells-and-whistles of some incumbent CRM products any time soon, that will likely happen some time down the track. Those who laughed at the early releases of MS Word or Excel will now have real trouble finding widespread use of the then stalwart word processor and spreadsheet products WordPerfect and Lotus 1-2-3.

It is a no-brainer that Microsoft is getting quite serious about the enterprise applications market; evidenced by its MBS division (just by the sheer magnitude of these acquisitions' costs, let alone by the ongoing biggest R&D investment within the applications market), and by its attempts to cultivate the fertile small enterprises ground, where CRM penetration is far less than 10%. Moreover, Microsoft has long sowed its seeds in this market segment that will have likely standardized on Microsoft infrastructure, evidenced by over 90 million Outlook and over 250 million MS Office users (excluding the pirated copies).

Also, since Microsoft has long earned strong brand equity 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 100 users to readily adopt 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 solutions at discount prices or with no modifications clause and a plethora of disabled functional features.

The MS CRM product's functionality includes basic contact management (interaction and opportunity) 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. An affordable, no-frills out-of-the-box application with minimal implementation risk and innate integration to MS Outlook, web browsers, and MS Exchange will likely strike a chord with this market segment.

Possibly most important to note is that this is the first Microsoft .NET framework-based product proving that .NET is for real. It gives legitimacy to the platform and to the concept of Web services, which many may still consider to be hype and a strategy in flux. This perception may be alleviated as indicated by a sort of a recent race in acceptance of .NET by other smaller Microsoft-centric business application vendors. A spate of recent announcements of the first .NET-based products delivery or of just public embracement of .NET speaks in that regard, Frontstep, Best Software (now SalesLogix' parent), Made2Manage, Epicor Software, and Scala being only a few.

It appears that Microsoft intends to build a common foundation framework on top of .NET that will serve as an integration platform for vanilla' application components stemming from MBS, which will then be enhanced vertically or in any other way by third-party vendors. Even though the product is currently positioned as an add-on to Microsoft Great Plains products (and eventually for Navision), its Web Services-based architecture and embedded BizTalk Server might render it connective with other applications (even with competitive accounting products like QuickBooks and DacEasy), and it will also be sold as a stand-alone application, all increasing the opportunity.

Impact on Competition

Although Microsoft will try to downplay (and possibly even initially curb) its desire to compete in the higher-end of the enterprise market for the time being, major players in the market cannot rest completely at ease. The fact that after the initial announcement of Microsoft CRM, many mid-market CRM and other applications vendors defensively rushed to shrug off any possible ramifications on their future business, might indicate that they are not that indifferent after all. And they should not be, especially those with dwindling resources and without much differentiation traits (e.g., established vertical industry expertise or local geographical leadership), given Microsoft's intention to also deliver soon easy data migration options from competitive product like ACT! and GoldMine.

Look for Microsoft to become an up-and-coming powerhouse in the overall enterprise applications market, not just in the CRM niche. True, to accomplish that feat, Microsoft has yet to concurrently garner sufficient experience in the enterprise level business application market, a vertical industry savoir-faire', and in notable system integration partnerships, and, consequently, it has not developed a strong mind-share among the C-level executives (decision makers) at the larger corporations.

Nonetheless, the chances that the giant will remain content for long with the current capabilities are very slim. With the base product and a strong development and marketing team and MBS' extensive sales channel in place (4,000 partners, with nearly 1,000 trained CRM partners), 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.

The deal with Crystal Decisions would be another move in the right direction to embed business intelligence (BI) tools and reporting capabilities into enterprise applications, and thereby mask their intrinsic complexity. Enterprise applications have always been great repositories for transactional data but have traditionally rarely provided useful actionable information to end users on an exception or any other as needed' basis. While larger enterprises have been solving the conundrum by building extensive data marts and data warehouses and by deploying analytical tools atop of these to provide the advantages of BI to their users, their smaller counterparts have been working around itwith more or less useful report writers, and that is going to change in the future.

It does not take a genius to realize that over time and with these features in place, the Microsoft CRM product might appeal to the more sophisticated prospects as well, as it should offer better 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. Ultimately, due to users familiarity with Microsoft's desktop applications look and feel, user companies might start doing away en masse with traditionally cumbersome user interfaces of enterprise systems in favor of Outlook-like UI's or of Microsoft SharePoint portal, relegating enterprise systems to the less visible infrastructure level.

Consequently, the Siebel/Great Plains partnership will be the first to feel some strain and discomfort although the alliance has been successful, evidenced by over 500 joint customers so far, out of over 1,100 Microsoft Great Plains' CRM customers in total. The reality is that both products will be competing in the same channel partners network sooner or later, rendering the alliance dissolution as a not impossible outcome.

This concludes Part One of a two-part note on Microsoft CRM. Part Two will discuss the challenges faced by Microsoft and make User Recommendations.