In-Depth

Microsoft Plays the Underdog Role in CRM

A dominant player in many categories of enterprise software, Microsoft is the scrappy little guy in a CRM market filled with big-name vendors. But the company is looking to scare its more established competitors by offering IT a set of enhanced applications.

Perhaps the best words to describe Microsoft's progress in the customer relationship management (CRM) market are slow and uneven. The company released the first version of its Dynamics CRM line in January 2003. Since then, the company has been consistently trying to increase its market presence with only varying degrees of success.

Currently, Microsoft lags behind the largest CRM vendors in market share but is nevertheless a top-tier -- somewhere in the top five -- CRM player. The company would like to improve its standing, and Dynamics CRM 2011, which was announced in February 2010 and delivered a year later, represents perhaps its most noteworthy effort.

"Microsoft has put a lot of thought into the latest release and has included features that should help it become a much more formidable force in the CRM space than it has been in the past," notes Joshua Greenbaum, a principal at Enterprise Applications Consulting.

The new release includes some compelling features. The suite meshes well with sibling solutions; in addition, Redmond priced the system aggressively. Dynamics CRM 2011 also provides customers with desired flexibility by running either on-premises or in the cloud.

However, there are also some limitations. It's unclear just how much development effort customers will be willing to put into Dynamics CRM. There are questions about how well the system scales and whether or not it matches the features found in enterprise CRM products from market giants Oracle Corp. and SAP AG. Vertical market expertise is another area where competitors trump Microsoft. So, while the new Microsoft release has some potential, how much of a boost it will bring to the company's CRM market position remains an open question.

Catering to Its Base
Initially, Dynamics CRM lacked the functionality needed to be a viable option for most businesses. That perception began to change with the delivery of Microsoft Dynamics 3.0, which was released in December 2005.

"To date, the Dynamics line has appealed mainly to Microsoft shops," says Denis Pombriant, managing principal at Beagle Research Group LLC.

For instance, Data Reduction Systems Corp., which is based in Union, N.J., provides specialized data storage, archival and retrieval solutions to businesses, with an emphasis on serving pharmaceutical companies. The corporation, which has been in business for 25 years and has about 170 employees, wanted to move away from Excel spreadsheets to a more integrated, more functional way of tracking its sales leads. In 2006, Data Reduction Systems did a quick survey of the market and opted for a cloud-based CRM solution from Salesforce.com Inc., which is quite popular among small and midsize businesses.

Even though the installation went smoothly, the product did not gain much traction among employees. "The Salesforce.com system was difficult to use; managers had to constantly prod our salespeople to enter and update their information," says Marc Chester, vice president of business development at Data Reduction Systems. Employees found the UI cumbersome, accessing data difficult and creating reports tedious.

Because few employees relied on the system, a search for an alternative began in 2009, and Microsoft Dynamics CRM quickly emerged as the leading contender. Data Reduction Systems employees work with Microsoft Outlook, the company relies heavily on Microsoft Office and the firm has been increasing its use of SharePoint. So, in the spring of 2009, the company deployed Dynamics CRM 4.0, which Microsoft had launched in December 2007.

"By going with Dynamics CRM, it became much easier for us to integrate our CRM information with our other business applications," notes Chester.

A focus on serving existing customers has paid off for Microsoft in the CRM market. "Microsoft now has more than 1 million CRM users, which only a handful of vendors can say," says William Band, vice president and principal analyst at Forrester Research Inc.

Yet the Redmond juggernaut thirsts for more. Historically, the Microsoft Dynamics CRM line has struggled for attention within the multibillion-dollar enterprise. In fact, observers have questioned the supplier's interest in the CRM market. The product line was lumped in the Business Solutions Group, which was responsible for integrating various acquired enterprise resource planning and financial systems, as well as building a homegrown CRM system. Though the group had been experiencing double-digit growth, the industry Goliath stopped breaking out the group's financial numbers in 2007. Some observers speculated that the move was made to cover up the business unit's declining performance. The move buttressed the perception that the Dynamics CRM line was a stepchild in the company's product family.

Tatarinov Takes Charge
However, such impressions seem to be changing, and Dynamics CRM seems to be generating more buzz within the company. For instance, after previously being a few rungs down in the management hierarchy, Dynamics boss Kirill Tatarinov began reporting directly to Microsoft CEO Steve Ballmer in October 2010.

Microsoft also seems to have realized it has a few self-serving reasons to broaden the reach of Dynamics CRM. For one, it's a "pull-through" product, one capable of generating ancillary sales of SharePoint, Outlook, SQL Server and other Microsoft offerings. "Every dollar of a Dynamics CRM sale generates from $3 to $9 in additional software revenue for Microsoft," says Enterprise Applications Consulting's Greenbaum.

The product has also become an important element in the Microsoft Windows Azure cloud-platform story. As evidence, the cloud version of the Dynamics CRM was delivered several weeks before the on-premises solution debuted. "While SQL Server, SharePoint, Communications Server, Windows Server and other pieces of the stack will have a big play in Windows Azure, the customer working in innovative new Windows Azure apps will most likely be directly interfacing with a piece of Dynamics AX [the Microsoft ERP suite] or Dynamics CRM," Greenbaum adds. "That makes Dynamics essential to Windows Azure, and vice versa."

Easing the Salesperson's Duties
Consequently, Microsoft seems to have put a lot of time, effort, thought and energy into the latest release. Integration with other Microsoft products again emerged as a key theme with Dynamics CRM 2011. The product works with Microsoft Outlook 2010 -- a rewritten, rather than retooled, version of the e-mail interface -- which was designed to be more lightweight and flexible (such as supporting mobile access and the Apple OS) than its predecessors. "One problem with CRM systems has been trying to get busy people to take the time to enter important sales information," says Rob Helm, managing VP at research firm Directions on Microsoft. With the Outlook integration, that process should become simpler. The company also enhanced the CRM system so that it works better on mobile devices, such as smartphones, which are often salespeople's primary information systems.

In addition, Microsoft boosted the reporting capabilities of Dynamics CRM, with guided business processes, inline business intelligence (BI) to help monitor performance and manage goals, and real-time dashboards. "Microsoft is trying to drive business intelligence directly into applications," Helm says. Traditionally, analytics resided outside the core CRM application, so users had to invoke it manually; this design inhibited its acceptance. With Dynamics CRM 2011, BI functions automatically pop up on user screens.

Microsoft also emphasized low pricing with the new release. Forrester's Band says that the Microsoft CRM solution had been selling for about $35 per user per month, while competitive products have been in the $80 to $100 range. With the release of Dynamics 2010, Microsoft dropped pricing to $34 per user -- although that price is available to customers for only a limited time.

Salesforce.com in the Crosshairs?
Microsoft is clearly trying to entice its traditional base, small and midsize companies, to at least try -- and ideally to adopt -- its product. The strategy makes sense: "There are still a lot of small and medium businesses that track sales information in databases and spreadsheets," Band says.

If Microsoft is successful in this quest, which vendor will suffer the biggest blow? "We're seeing Microsoft go head-to-head with Salesforce.com recently more than in the past," Band says. This change seems to be part of a master corporate plan rather than simple happenstance.

In order to grow its revenue and keep its shareholders happy, Salesforce.com, which passed the $2 billion sales mark in 2011, has been branching out into new areas, with application development a prime focus. The company's Force.com suite consists of four elements (Appforce, Siteforce, VMforce and ISVforce) that have been designed to help enterprises build business applications.

In fact, the vendor claims that third parties have delivered more than 185,000 Force.com apps. Saleforce.com's Chatter tools additionally include functions needed to develop enterprise social-networking applications. Throughout its history, Microsoft has been a leading supplier of application-development tools.

"To protect its application-development tools business, Microsoft needs to box Salesforce.com into a small corner," notes Directions on Microsoft's Helm.

Microsoft does have a few weapons in this battle. With annual revenue of more than $62 billion, the company is more than 30 times larger than Salesforce.com. "The per-user pricing illustrates how Microsoft can leverage its large size to gain additional share in the CRM market," explains Band.

Also, the vendor offers businesses more flexibility in deploying their CRM systems than Salesforce.com does. While Salesforce.com has focused solely on cloud-based apps, Microsoft enables customers to deploy their applications on-premises, in the cloud or with a mix of both.

However, there are limitations with the Microsoft solution. "Dynamics CRM has not made much headway into the enterprise market," notes Beagle Research Group's Pombriant. The company has won some customers in that segment, such as Mitsubishi Caterpillar Forklift Europe BV, but is generally viewed as lagging well behind Oracle and SAP, which cater to large conglomerates. One perception is that the Microsoft product doesn't scale as well as those solutions; to counter that image, the Redmond supplier claims that its CRM system now delivers sub-second response times to 150,000 concurrent users.

Going Vertical
Microsoft has not done well in developing vertical market expertise in industries, such as health care, pharmaceuticals and finance, where salespeople work with specific types of information. "Microsoft has relied on its partners to develop the features needed for various vertical markets," notes Forrester's Band. "While that strategy has worked well with other products, little vertical development has been done with its CRM system."

The Microsoft hodgepodge of product families may also come to haunt it. Users and resellers can now choose to develop in Dynamics CRM, SharePoint and Windows Azure, among others. "Microsoft has to make it clear to users and resellers why they should invest their development time and dollars in Dynamics CRM rather than alternatives like SharePoint," notes Directions on Microsoft's Helm.

Throughout its history, Microsoft has taken a few lumps when entering a new market, learned from its mistakes and eventually emerged as a clear market leader. Observers think that the vendor has taken the first two steps in the process and are much more bullish on the potential of Dynamics CRM than they had been in the past.

Whether the vendor gains market share remains to be seen, but Microsoft appears to have shaken up the market. In his keynote speech at his company's Dreamforce conference, Marc Benioff, Salesforce.com chairman and CEO, spent a lot of time bashing Microsoft.

"Moving forward, I'm not sure how much more success Microsoft will have in the CRM market than it has had in the past," concludes Band. "But in the latest release, it did a good job of addressing its limitations -- and it has certainly captured its competitors' attention."

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