Microsoft's New CRM Software Just The Beginning

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Microsoft made good on its threat to expand its enterprise software offerings with a new customer relationship management product, MSCRM, due out by the end of the year.

The target audience for the new product (the small- and medium-sized business market) and the scope of the product (more sales force automation than true customer relationship management) makes it seem as though Microsoft was being honest when it said that “MSCRM is not designed to compete in the enterprise market.”

The fact that the pre-release notes on the product stated that MSCRM won’t compete in the enterprise market is probably true, just like Intuit’s Quickbooks doesn’t compete with Oracle Financials. But Microsoft/Great Plains will compete one day with the Siebels of the world, regardless of what MSCRM can and cannot do.

There are multiple reasons why Microsoft’s expansion into enterprise CRM is inevitable. The first is that Microsoft/Great Plains said as much, though not in as many words. What they told me at the last briefing is that while they don’t compete head to head in the Fortune 500 with the likes of SAP, they do compete with Oracle, JDE and Lawson in the mid-market. This competitive posture requires nothing less than a fully integrated CRM package, particularly for a mid-market that is desperate for CRM functionality.

The second reason is that Microsoft/Great Plains’ current mid-market CRM strategy, which consists of OEMing Siebels’ CRM product, won’t stand the test of time. Why? Siebel isn’t necessarily the right product for the job: This is a monster application that brings together much more functionality than most mid-sized companies can or want to implement.

Siebel 7, the company’s latest version, only exacerbates this problem. This is a high-end product that makes sense as the anchor for enterprise deals that top out at over $700,000 — the average deal size for Siebel’s high-end customers — rather than in the $150,000 range that is more favored by mid-market customers.

Add to that the implementation and maintenance costs of a Siebel CRM deal, and the total cost of ownership for Siebel becomes much too massive for most mid-market companies to handle.

Built-in Integration Key For Mid-market Customers

The third reason is that Microsoft simply can’t compete in the CRM market in the long run using Siebel. Against integrated offerings from Oracle, SAP and PeopleSoft, a Siebel offering promises full employment for the systems integrators needed to tie together Great Plains’ back office functionality to Siebel’s front end.

Microsoft’s mid-market customers want as much built-in integration as possible, and therefore won’t be happy deploying connectors and APIs to hook up functionality that competitors can offer out of the box. And with regard to Lawson, which also OEM’s Siebel, if both Microsoft and Lawson offer the same CRM package, then neither has competitive advantage in one of the hottest sectors in the enterprise software market. Which means that both parties stand to lose.

The final reason why Microsoft/Great Plains has to move upstream is that there’s simply too much money to be had in cutting out Siebel and taking the entire CRM spend from Microsoft/Great Plains’ customers. The economics of this reality are driving acquisitions all over the CRM landscape, and have left Siebel as one of the few best of breed companies standing.

JDE’s history OEMing Siebel argues strongly in favor of a higher-end Great Plains CRM offering. JDE bought CRM package YouCENTRIC last fall and watched CRM sales turn into the hottest part of the balance sheet in a single quarter — YouCENTRIC accounted for 10% of JDE’s license revenues in the most recent quarter — after two years of lackluster Siebel sales.

In the end, I believe that MSCRM won’t be the product to compete with Siebel. But I do believe that a competing product is on its way. Software offerings move inexorably upward in functionality and price, and Microsoft, however slow it has been to move into enterprise software, is as compelled by the realities of the market as any other company. And those realities dictate that the mid-market Great Plains offering be rounded out by a CRM product.

Don’t discount MSCRM, but don’t think Microsoft’s CRM party is already over. In reality, it’s hardly just begun.