Live or Online, It's Microsoft CRM

Earlier today, Microsoft removed the beta moniker of CRM Online, which is now officially available for enterprise on-premises, partner or Microsoft hosting. Should Salesforce.com kiss the ground and die? Not yet, but "What, Me Worry?" shouldn't be the attitude. CRM Online is to SAAS (software as a service) what TCP/IP or browser integration was to Windows. To skip directly to that topic, go to subhead "Pricing."

Methinks it's no coincidence that the announcement comes a day before Microsoft officially unveils Live Mesh. If nothing else, they use the same data center infrastructure.

I delayed my analysis until after the announcement so that I could speak with Brad Wilson, general manager of Microsoft Dynamics CRM. A scheduling conflict prevented a phone briefing yesterday. He and I spoke this morning. For this analysis, I am dividing our conversation into subtopics: plurality, pricing, partners and plausibility.

Plurality
Microsoft's approach to hosted customer relationship management, as will be the case for similar Exchange, SharePoint and other Microsoft application/server services, is one code base everywhere.

"We're not locked out of any part of the market," Wilson said, referring to the single code base. The concept is "choice," whether software is deployed by the enterprise or hosted on-premises by a third party or even Microsoft.

"We have a single development model. It's the same intellectual property for a partner to develop and deploy. It's a write-once, run-many model from a partner perspective" that covers the entire market, he said.

Hosted providers like Salesforce.com can make no such claims. There is one model, a single choice. "We're going to address the entire market, not just software as a service," Wilson emphasized.

My question: How much choice do customers really want? Software isn't toothpaste. IT organizations don't make decisions based on tartar control or teeth whitening ingredients. They have business objectives and logistical problems to solve.

The big problem is mobility. Work forces are increasingly mobile, and often access data on multiple devices. There is increasing need for informational access anytime, anywhere and on anything. That's the CRM solution Salesforce.com provided that Microsoft couldn't. Microsoft partner-hosted solutions didn't offer enough to compete with that model. Salesforce boasts more than 38,000 companies using its service, or about 1 million subscribers.

What Wilson should have said and would never have even if I had asked (and I didn't): CRM Online offers the choices most customers would prefer over Microsoft partner solutions. On-premises delivery lets enterprises get the benefits of apps hosted anytime, anywhere on anything while maintaining control of the data. Microsoft's hosted offering trumps Salesforce.com in name and size.

Pricing
Microsoft's own pricing is quite aggressive. The package comparable to Salesforce.com CRM Professional costs $44 per user, per month but only $39 for a limited time. Storage is an impressive 5GB, compared with Salesforce.com's 1GB of storage and $65 per user per month

"We give you five times [the] storage, we give you two times [the] objective identities and it's about a third cheaper," Wilson said. He also accused hosted CRM vendors of diminishing unforeseen charges, pledging that CRM Online customers "would not get nickeled and dimed by hidden charges."

How can Microsoft offer so much for so much less? Bundling. Microsoft is applying to software services the strategy used with Windows. I make no ethical judgment. It's a business strategy, albeit an aggressive one that differs from that of many other technology companies.

With Windows, Microsoft bundled in for free technologies that other companies sold separately. My favorite example is Windows Media Player 9, which Microsoft spent $500 million developing. RealNetworks also had a media player, for which it made research and development investments; people paid for RealPlayer. But Microsoft gave away WMP for free. The product's purpose was to sell more copies of Windows. Apple does something similar with iLife, the R&D costs of which are absorbed as part of Mac OS X development.

CRM Online foreshadows a similar bundling approach to SAAS, but bundled off services infrastructure rather than an operating system. The bundling approach is similar, but applied to different platforms.

Microsoft's service platform lets Wilson differently view R&D than, say, Salesforce.com. "I can amortize that across my entire product line," he explained.

Single-service providers must bear all the cost and infrastructure burdens. "I'm not just an online provider," Wilson said. "We're not building CRM data centers, we're snapping into existing Microsoft data centers."

Microsoft competitors should take a long, hard look at what this strategy means for them. The approach also emphasizes one of the major reasons Microsoft wants to buy Yahoo: its highly efficient data centers. From that SAAS platform foundation, Microsoft can build out more services for less. Google's free-supported-by-ads services would remain tough competition. But mass extinction is one outcome for the Salesforce.coms of the world.

Partners
I'll say what Wilson wouldn't: Microsoft-hosted CRM means big-time channel conflict. Right now, about 1,500 partners offer hosted Microsoft CRM worldwide. If they couldn't compete with Salesforce.com, how can they do better against Microsoft?

Wilson would say that if partners offered "bits on the box, that will be commoditized." They have to add more to compete. "Our partners today don't just shuffle bits in your direction. There's not much business in that. The high market game is offering repeatable solutions you can offer people."

I don't buy the idea that the majority of Microsoft CRM partners do that. If they are doing so well, then why does Microsoft have to compete with them against Salesforce.com? Then there are the lucrative partner incentives, which smack of putting salve on channel conflict wounds.

"We're paying 10 percent of the subscription to our partners," Wilson said. "We'll pay that [on] an ongoing basis as long as you're the partner of record." Why would Microsoft give away so much revenue if not for channel conflict?

In the long term, with Microsoft offering a tidy, competing product, I would bet against the success of hosted partner services.

Plausibility
Microsoft's size and dominance might make CRM Online seem like a Salesforce.com killer. That's no certainty. Intuit is good example of why. Microsoft introduced Small Business Accounting at a lower price than Intuit's QuickBooks, backed by aggressive channel programs. There's even a fairly full-featured Accounting Express version downloadable for free. Given Microsoft's aggressive channel efforts and supposed synergies with Office, the now renamed Office Accounting has gained little real market share against QuickBooks.

Customer loyalty, switching costs and an existing application ecosystem will work against CRM Online as it did with Office Accounting. What will matter more is Microsoft's broader services bundling strategy. CRM Online is merely the first of these services.

Small things matter in marketing, and it's good that Microsoft cleared up the branding.

"We launched as CRM Live 21 months ago. At the time there was no Live brand," Wilson said.

Unless my memory is faulty, there was a Live brand. Microsoft launched the Office and Windows Live brands in November 2005. Microsoft announced CRM Live in summer 2006.

In October 2007, Microsoft rebranded Office services to Live and Online. The original Online brand covered services for businesses with 5,000 or more employees.

Wilson said at one time, Microsoft looked at having separate Live and Online CRM brands, but opted for the single brand after Microsoft changed its Online brand to include services to smaller businesses.