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Interest in Microsoft CRM spikes, but on-demand will wait

While the new version of Microsoft's CRM 3.0 application has been welcomed by many, those interested in a multi-tenant model will have to wait for the next release.

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It's been one month since the release of Microsoft Dynamics CRM 3.0, and the much-anticipated application is quickly making headway in the market.

"We've upgraded four clients so far," said Ryan Toenies, CRM practice manager with Inetium, a Microsoft partner based in Minneapolis. "We've had two customers who signed on since the product launch, and there are some more customers who have been sitting on the fence [waiting for 3.0]."

Microsoft was expected to significantly shake up the CRM market with its entrance in early 2003, and while Redmond generated plenty of buzz and claimed some early customer wins, it never generated quite the splash that some predicted. According to Boston-based AMR Research Inc., in 2005 Germany's SAP AG was expected to ship $1.7 billion worth of CRM software while Microsoft was expected to ship $232 million. @17303

In fact, Oracle Corp. has been the company that has shaken up CRM with its acquisition of PeopleSoft Inc. and its pending acquisition of Siebel Systems Inc. But Microsoft's second release (the company upgraded to CRM 1.2 and then, after a couple of delays, skipped over 2.0 and released 3.0 in December) is expected to change that. Microsoft currently has 5,500 CRM users and has grown its customer base 100% per year, according to Brad Wilson, general manager for Microsoft CRM. Companies that were waiting for the new version are now getting serious about moving to Microsoft.

"The interest in 3.0 is very strong," said Mike Pazak, vice president of business solutions for Avanade, a Microsoft partner in Seattle. "A number of customers came back to us who elected to wait when we were still working with the 1.2 product. They liked so many of the new features they've come back."

In fact, because Microsoft offered the 3.0 product to existing 1.2 customers first, Pazak said he had customers who implemented 1.2 hoping to get early access to 3.0.

The Missouri House of Representatives started with Microsoft CRM 1.2 a year ago. It has been beta testing version 3.0 since November and so far the results are good, said Richard Christman, deputy director of IT systems. The Missouri House uses the system for constituent management, providing representatives a database of registered voters and allowing them to track issues for their constituents and do target mailings.

"There was a lot less customization than I expected," Christman said. The Missouri House had to change some of the names in the fields to reflect the type of work state representatives do, but for the most part the prebuilt workflows worked fine, he added.

"As with any new product, there were some technical issues, but it's smoother than I expected," Christman said.

Beta testing the 1.2 product with about a dozen people before rolling out 3.0 probably helped, he added. Currently, the system is in place in about 100 representative offices, with more than one user in each -- totaling close to 400 by the time the rollout is complete.

Microsoft Dynamics CRM 3.0 features tight integration with its Outlook e-mail application, allowing people already comfortable working with that application to make a smooth transition. That was an important factor at the Missouri House of Representatives, where the users are mostly politicians and there is a great deal of tradition and inertia that can hamper adoption, Christman said, but so far adoption has gone well. @17301

Dynamics 3.0 also features marketing resource management, campaign and list management, easier customization and a mobile client. Microsoft also rolled out new pricing for the application, allowing partners to charge their customers on a per-use basis. However, those looking for multi-tenancy -- running multiple instances of the application for different businesses on one server -- will have to wait for the next CRM release, code named Titan. Hosted CRM providers Salesforce.com, NetSuite Inc., RightNow Technologies and Salesnet Inc., have succeeded in the CRM market by providing a multi-tenant hosted application in their own data centers, providing economies of scale thus reducing startup costs and easing implementation. In version 3.0 Microsoft has left the hosting responsibilities up to its partners, and the application isn't built for a multi-tenant environment.

"For one of their partners to do this, they still have to set up one server for each customer. It's only cost effective for a certain size customer," said Rob Bois, analyst with AMR, noting that Microsoft's latest version will probably claim some customers who would have considered hosted CRM otherwise. "[Microsoft] might be thinking beyond CRM, but who knows at this point. They're missing a big opportunity."

Both Inetium and Avanade are considering offering a hosted option, but insist that their customers are more in the enterprise market and prefer the on-premise application. The Missouri House of Representatives would probably never go with a hosted application due to privacy concerns, Christman said.

Microsoft is not alone among established CRM vendors planning a hosted, multi-tenant application, also known as Software as a Service (SaaS). Germany's SAP AG has been hinting at its own SaaS application for several months. Meanwhile, Siebel Systems Inc., which has built out an SaaS application with Siebel OnDemand, is in the process of being acquired by Oracle Corp. While Oracle has promised to continue improving Siebel OnDemand, it has helped to create additional chaos in the SaaS CRM market.

And while Microsoft brings with it a formidable balance sheet and development team, the other SaaS providers are touting their experience.

"Of course, it's Microsoft and you always have to keep your eye on them, but we have a huge lead. It's not like they can play catch up overnight," said Mini Peris, senior director of product management for NetSuite. "They still have a long way to go before they deliver integration with back-office systems in an on-demand environment even if they have tackled multi-tenancy."

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