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Analyst sees possibilities, pitfalls for Microsoft's CRM bid

No one is making a bigger splash in the CRM market these days than Microsoft — and it hasn't even released its software. The Redmond, Wash., giant's foray into CRM has created the most buzz

How many versions of its CRM software will Microsoft need to release before it gets things right?

It may take as many as three versions for Microsoft to get it to the point where it is really singing. Existing players have been through this process and won some users. They've gotten feedback and refined their products over time. When you start as a new entrant you simply don't have that experience. Even though Microsoft has existing assets of Great Plains and [recently acquired] Navision that have CRM capabilities, when you launch a CRM suite, not just a sum of parts, it's going to take several iterations to get it right. What's the biggest challenge for Microsoft CRM in being successful out of the gate?

First off, they need to build a good application. The infrastructure for the application with .NET is more or less irrelevant. Across Ovum we see it as only a step or two ahead of J2EE. When it comes down to users, we don't see it mattering all that much. What matters is your ability to write a decent CRM application that has the right mix of required capabilities. It has to have the usability customers are looking for while not being grossly overloaded with functionality that may get in the way. Siebel, for instance, is still seen by many as too complex. The other element will be Microsoft's ability to spend whatever it takes to stay committed and make the applications work. This is one market where you can spend your way in. Do you feel that Microsoft will be content to compete on the low-to-mid end of the CRM market?

There are a number of companies you could buy cheaply right now, such as Kana. If you try to move up, you face Siebel more directly. Microsoft will face Siebel's mid-market products eventually, I would think. I would say leave your options open to them. There's every opportunity to go after Siebel at some point. But Microsoft doesn't have a big track record in creating new applications for a specific market like this. Salesforce.com is having some success competing with Siebel, but it's a radically different option being an ASP that sells a service. This [service provider model] appeals to a lot of mid-market companies looking to lower integration and overhead costs. So you feel there is a sizable opportunity for Microsoft at the mid-market level?

I think there is an opportunity, but Microsoft might be going about it in the wrong way. They should be offering an integrated CRM and back-office package, which they are very conspicuously not doing. It would be good if you could split up such a package, but more likely companies will want a mix of the two. One of the biggest problems you'll ever have in CRM is combining the front- and back-office systems so that they can talk to each other and you can get sensible data throughout. This makes it easier to do tasks such as tracking customer orders. Because Microsoft has two back-office systems, it hasn't gone that route, which could be a big mistake. They should be able to say: 'Here's an integrated suite, you can buy the bits and pieces that you want.' Do you think Microsoft's pricing model looks promising?

Bear in mind that while the price of the software may be low, you're still going to spend money implementing it. You're pricing at the Office suite price level and that's pretty smart. The proof will be in how much it costs to integrate.

FOR MORE INFORMATION:

Microsoft releases packaging, pricing for CRM suite

Get early user reaction to Microsoft's CRM software

Will Microsoft CRM appeal more to businesses already working with CRM applications or to firms that perhaps haven't considered CRM in the past?

I think it's in the second group. They need to convince people that they can create a powerful application that delivers the real benefits of CRM and still doesn't carry a huge price tag. Increasingly you want to be able to use analytic capabilities to target marketing and find out less obvious customer preferences. Microsoft is pretty good at bringing sophisticated analysis tools to the lower end of the market. They should be good at it, but it is hard to do it cost effectively. Do you see the 'one-stop enterprise applications shop' angle as a big selling point for Microsoft?

I don't think it is that big of a deal. The Office applications are no big deal. The one real positive thing is the integration with Outlook, since contact management is the heart of many CRM systems. It's still not the winning factor though.

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