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Live CRM: Can Microsoft Pull it Off?

• By Keith Ward
• July 12, 2007

But it faces significant obstacles in its foray into on-demand customer relationship management (CRM) software. How well it clears those hurdles could determine whether Live CRM is another Live Search, which can't seem to make market share headway against Google, or SharePoint, which quickly became a major player in the collaboration software space.

Microsoft is no stranger to CRM. Its own product, Microsoft Dynamics CRM, was released in December 2005 and is currently on version 3.0. But moving into the on-demand world was a necessity for Microsoft, according to analyst Chris Alliegro of Directions on Microsoft, an independent company that tracks the software Goliath.

"There was a certain class of customer that wanted a hosted [CRM] offering instead of hosting onsite," Alliegro explained.

Those customers had only non-Microsoft options, beginning with Salesforce.com, which leads the on-demand CRM market.

"They had a strong sales competitor [in Salesforce.com], and didn't have anything to compete with them," Alliegro said. "They had to answer that."

That answer comes in two flavors: Microsoft Dynamics Live CRM Professional, at a price of $44 per user per month; and Microsoft Dynamics Live CRM Enterprise, which adds offline data synchronization, at $59 per user per month.

It's a price significantly below Salesforce.com's rate, and cheap enough that Alliegro wonders if Microsoft can sustain it. "Can Microsoft even be profitable at that price point? They'll learn a lot in the next several months." Salesforce.com's rates are typically between $125-$195 per user per month.

In response, Salesforce.com says that you get what you pay for. In a blog entry on the Redmond Channel Partner Web site, Senior Editor Lee Pender points to a quote from Salesforce.com CEO Marc Benioff disparaging Microsoft's Wal-Mart-esque pricing:

"'These "new" prices are their market prices today -- there is no difference. When you have an inferior product you have to have an inferior price. That is why Zune is priced below iPod. And why Windows CE is priced below BlackBerry. And why Microsoft CRM is priced below Salesforce.com.'"

The other reason, of course, is that it makes good business sense to undersell a competitor when introducing a new product to market. Although Microsoft may not be a direct threat to its business model now, Salesforce.com well knows that when Microsoft decides to enter a new arena, it is prepared for a long-haul effort. As Alliegro notes, "Microsoft has proven willing to run an unprofitable business for a very long time to unseat competitors. They can afford to be unprofitable."

Maybe so, but Microsoft may find it has a long way to go to catch up to Salesforce.com. Dynamics CRM is currently in its second version (Microsoft skipped version 2, and went right to version 3); Salesforce.com, on the other hand, is on the 22nd generation of its software. That's a lot of expertise to make up.

That may be why Kendall Collins, vice-president of marketing for Salesforce.com, dismisses Microsoft as a competitor. In a phone interview, Collins said: "I would characterize Microsoft as a nonfactor in the on-demand business application market right now. They have made announcements about CRM, but we haven't seen traction from Microsoft."

Collins also questioned Microsoft's readiness to enter this new realm.

"Customers are confused about the Microsoft offerings. It can be very hard to scale, be IT-ready and handle the volume of transactions" that come with on-demand CRM, Collins said.

He compared that with Salesforce.com's track record. "We're saying we've got Cisco out there with 15,000 [Salesforce.com] users. On a daily basis, our customers are doing 90 million transactions. There's a whole other universe out there."

Alliegro agreed, but also believes that Salesforce.com would be making a mistake to treat Microsoft lightly.

"I think Microsoft's CRM product in general is a threat [to Salesforce.com] right now," Alliegro said. "They compete today, going after the same set of customers. Microsoft from day one won't have the smooth operation that Saleforce.com has, but if they're committed to it, they'll get there."

And, at least at first, Microsoft will have a different measure of success, Alliegro said.

"In terms of the number of sold seats for a hosted CRM solution, Salesforce.com is the leader in online hosted CRM. But if [Live CRM] has the net effect of slowing the growth of Salesforce.com, and doesn't lose too much money, [Microsoft] will consider it a winner."

In the long-term, though, no company -- not even Microsoft -- can continue to fund a money-losing product indefinitely. If Microsoft doesn't figure out what makes Salesforce.com so successful -- and apply it to Live CRM -- it could be a painful leap into an empty concrete pool.