Microsoft CRM: Much Ado About Nothing?

Not surprisingly, Microsoft's ambitious dive into the midmarket CRM space is being scrutinized closely by other software vendors, particularly those ISVs whom Microsoft happens to call partners--or partners-turned-competitors in the latest sense. And while few of these players will admit to feeling betrayed by Microsoft for jumping into their markets, they are girding for the challenge and doling out some tough talk.

"Yes, we're in the teeth of the storm now with Microsoft," says Ron Verni, president and CEO of Best Software, which makes the popular ACT! and SalesLogix CRM solutions and is also a Microsoft partner. "I guess it's called co-opetition."

Verni says when his company spoke to Microsoft several years ago, officials there swore they would not get into business applications. Since that time, Microsoft has purchased Great Plains and Navision, giving it entry to the accounting and ERP markets, and is now rolling out version 1.0 of its own CRM salesforce-automation application.

"We prefer they not be in our space, obviously, but we also believe anybody should be able to compete,"Verni says. "Where we draw the line is if they start using their operating system and database monopolies for any unfair competition."

Big red flags to that effect, Verni explains, would be tight integration and bundling of Microsoft applications into Windows, for example.

Other ISVs take some comfort in Microsoft's lukewarm success, thus far, in ratcheting up Great Plains' market share as an indication of how well its CRM play will fare. Part of Microsoft's problem is in understanding the business-apps market, they argue, which is about building a loyal channel of VARs who have domain expertise and proven ability to customize.

"Great Plains and Navision have lost momentum because Microsoft has not coddled that channel as it had back when they were independent companies," says David Hood, president and CEO of AccPac, a business-applications subsidiary of Computer Associates.

Two years ago, Hood says he abruptly halted his treadmill workout as the TV blared news of Microsoft's Great Plains acquisition, delivering "quite a shock." But today he believes Microsoft has failed to fulfill its threat. "They keep changing the rules, licensing and margins on their partners," he says. "And if you want to make friends with the channel, you can't take cash out of their pocket."

Many CRM vendors are counting on their genre's highly customized, complex nature to continue driving their own sales as customers seek out best-of-breed products. Customers aren't keen to lock into Microsoft to get their CRM package, they claim, or spend all that money on licenses--MS-CRM requires deployment of everything from Windows and BizTalk Server to Active Directory and SQL Server.

"What SMB implements Active Directory? And BizTalk Server? That's hardly a standard," Hood says.

To provide a better mix of platform options for their customers, vendors such as AccPac and Best Software have broadened their support for OSs such as Linux.

Bo Manning, president and CEO of CRM player Pivotal Software, says Microsoft has been "forthcoming and collaborative" with information related to its apps products. Nonetheless, he gives the company little chance of attaining market dominance.

"If you look back over the past 25 years at the software industry, there has not been a single example in which a large technology foundation company like an IBM, Microsoft or Sun has ever been remotely successful in the business-applications market," Manning says. "The name of the game in databases and OSs is volume, selling in quantities of millions. With business apps, the characteristics are different. It's customer-centric, with lots of customization and integration."

All agree that there's one big upside to Microsoft's getting into CRM: The Redmond marketing machine is raising the overall profile of the applications category. Companies that didn't know what CRM was, now do.

"Hey, Microsoft is out there spending millions of dollars with our channel partners, telling them that you need CRM," Hood says. "But they don't have the product yet, and it's a version 1.0, so we can take advantage."