Undercutting Salesforce.com: Microsoft Prices CRM On-Demand to Move

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It’s official, Salesforce.com has some competition. Microsoft’s new pricing for its on-demand CRM product is hitting Salesforce.com squarely below the belt. This is a classic “late-to-the-party” ploy that’s been working relatively well for Microsoft since the days of WordPerfect, Lotus 1-2-3, and dBase, among others. If you’re Microsoft, you don’t have to get there first to finish first: market dominion will be yours if you’re priced to put the competition – inevitably a lot smaller and a lot poorer – on the defensive.

A CRM on-demand pricing model that starts at $60 per user per month – and goes down from there – is Microsoft’s first salvo. Microsoft’s other salvos include a built-in Outlook interface, and vertical templates for manufacturing and local government users, as well as a pretty decent compensation plan for the partners who deliver CRM on-demand.

Will this be enough to unseat Salesforce.com as No. 1 in the market? As impossible as that may seem to many, history, for better or worse, is on Microsoft’s side.

In the day, there were few more powerful, and well-established, companies than WordPerfect, Lotus, and Ashton-Tate. They had the hype, they had the bucks, they had the market momentum, and they had, with the exception of WordPerfect, well-known and relatively charismatic CEOs (Mitch Kapor at Lotus, Ed Esber at Ashton-Tate). They also had a strong first or second mover advantage. Importantly, these three companies set down a use case for their software category that was relatively easy for Microsoft to copy.

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By the time Microsoft decided on a frontal attack, these markets were already heading towards commoditization: despite tendencies toward product loyalty, the fact that Microsoft could offer advantageous pricing and bundling quickly started to erode the competition’s market position. And all three former market leaders, and their products, quickly became footnotes in the history of desktop computing.

The commoditization and established use case of Office, and now CRM, remains essential to Microsoft’s abilities to unseat its former adversaries as well as newer ones like Salesforce.com. That gives us some insight into why fighting Google is a little harder for Microsoft: Google is still in its disruptive phase, and the use case for what Google does best is still being established. It’s going to take some time for Google’s advantages to become vulnerable to a commodity play a la Microsoft, which is why Google is still seemingly immune to Microsoft’s efforts.

But commoditization is rampant in the CRM market, and this is why Salesforce.com is going to get spanked by Microsoft CRM on-demand. CRM is a well-established use-case, and on-demand is far from the mysterious hard-sell it was when Salesforce.com was pioneering the market back in the on-demand stone age, circa 1999.

How bad will the spanking be? Among companies that also plan to buy ERP software from Microsoft, the effect will be total: The “killer app” that really cinched Microsoft’s position on the desktop was interoperability: those of us working in a world of multiple word processing, spreadsheet, and database standards flocked like cattle to a salt lick to the single interoperability standard that Microsoft Office presented. As long as everyone used Office, the biggest single desktop headache – format incompatibility – was simply not an issue any more. Microsoft’s ability to seamlessly connect on-demand CRM to its own NAV, AX, and GP ERP products should make for a pretty solid barrier for Salesforce.com and others trying to sell on-demand CRM to those customers.

But outside the home field advantage, Microsoft is going to have a harder time selling its interoperability message to customers using SAP, Oracle, Infor, or other back-office systems. Of course, Salesforce.com isn’t exactly setting records for deep integration with these products either – and it’s clear that the home field advantage for SAP’s and Oracle’s own CRM on-demand will probably make it hard for both Microsoft and Salesforce.com to sell deep back-office integration to these customers.

Nonetheless, Microsoft’s new pricing means that Salesforce.com’s day of reckoning is fast approaching, and that’s before Oracle and SAP fully ramp up their own “get Salesforce.com” strategies. We are never totally doomed to repeat history, especially in the software world. But it’s damn hard some times, and, for Salesforce.com, this is one of those times.