Microsoft Hosted CRM

Gwynne Young
Managing Editor, CRMGuru.com
Member

Posted 11-Jul-2006 10:05 AM

The news is out. Microsoft Dynamics CRM will be a live hosted service in 2007. CRM Live will be introduced in the second quarter, beginning with North America. The company is aiming it at small businesses and will initially be operated out of Microsoft's data centers.

Microsoft won't allow users to run third-party server-side code in its data centers, according to Brad Wilson, general manager of Microsoft Dynamics CRM.

What do you think of the move? How do you see this playing out for Microsoft and its competitors?

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Paul Greenberg
Guru
Member

Posted 11-Jul-2006 12:08 PM

The announcement of Microsoft Dynamic CRM 3.0 On Demand is no particular surprise but raises some interesting quesations.

I have no doubt that Microsoft will release an on-demand version. They have been developing a multitenant architecture under the rubric of Project Titan for months now and said it would emerge from the interior of MS some time in late 2007, so announcement of the on-demand version appearing 2nd Quarter 2007 is along the lines of forecast for Titan's release in any case.

Their model is more interesting than just announcement. They are stating that they will have three versions—on-premise, on-demand and partner-hosted using Microsoft Live data servers as main storage. So they are trying to bridge all the gaps, including the hosted model that failed in the mid and late 90s. In fact, what used to be called Surebridge had a hosted MSCRM 1.0 version shortly after its original release.

Functionally, MS Dynamic CRM 3.0 is a beautiful thing. It's also got the familiar comfy Outlook-looking interface, so it's not hard to figure out the basics. But what I do worry about is the "too late" part of this. Where, in the past, Microsoft could learn from the mistakes of the browser (Netscape), the word processor (Word Perfect) and then take over the market with a massive feature-friendly attack, that doesn't work the same way, anymore. The world of the Web 2.0 or Live Web, as I prefer to call it, has accelerated the rates of success and change at lightspeed (what a clever plug!)- myriads of times faster than in the past. Every day lost in 2006 is like a quarter lost in 1995. While it's commendable and smart that Microsoft is coming out with a version for the web friendly among us, salesforce.com, NetSuite, RightNow aren't going to stop; SAP is investing zillions into Web 2.0 friendly apps along with NetWeaver, and Oracle has a good product with the former Siebel CRM On Demand, now, cleverly, Oracle CRM On Demand.

Think about it. While Microsoft is coming out with on-demand version in mid- to late-2007 (if they aren't VISTA-like in scheduling), salesforce.com is already extending AppExchange platform; NetSuite has fully enabled its version 11.0 suite for desktop-like behavior with AJAX and is being sold by CompUSA; and RightNow is transforming brand to focus around customer experience—heralded with purchase of the incredible sales functionality of SalesNet. Plus there are niche and vertical players galore in the on-demand world who would never have dared compete with Microsoft in the past; plus you can't rule out either SAP, Oracle, Google or Yahoo in this war—no matter how CRMish apps seem to be—or don't seem to be. Remember this is not the world that Microsoft could dominate, anymore.

I'm a big fan of Microsoft and always have been. I love what I've seen with MS Office 2007's beta, and VISTA's future is very interesting to me and Live Messenger works really well. So I have a good deal of faith that they'll put out a good on-demand product. But good just doesn't cut it when you compete for highly volatile and highly demanding customers who know damn well what they want.

Waiting to pounce is a dangerous game, and Microsoft is being forced to play it by faster movers than them. I wish them luck.

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Gwynne Young
Managing Editor, CRMGuru.com
Member

Posted 12-Jul-2006 09:59 AM

These are Forrester Senior Analyst Liz Herbert's initial thoughts on the move:

+ A right move for MSFT—This improves Microsoft's ability to penetrate the SMB space, as well as to better compete with pure-play SaaS vendors like salesforce.com.

+ Enterprises show promise—Although SaaS is often seen as an SMB play, large enterprises are also expressing interest, particularly divisions of companies whose needs are not fully satisfied by the corporate applications or the corporate IT group.

+ Partners need innovation—Microsoft's partners will have difficulty succeeding if they simply offer a hosted version of the vanilla product.

Their opportunities for success will shift to areas like business process consulting, technology add-ons, bundled applications, and deep industry editions.

A new Forrester report finds that 25 percent of large enterprises in North America and Europe are already using SaaS somewhere in IT environment, with the insurance and telco industries showing significant adoption rates of 49 and 42 percent, respectively. More than 2/3 of buyers reported they care most about availability and reliability. To compete in this new world, Microsoft must prove to buyers it can deliver on promises.

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Bob Thompson
Founder, CRMGuru.com
Member

Posted 13-Jul-2006 12:24 PM

In my interview with Brad Wilson, General Manager for Microsoft Dynamics CRM in November 2005, he said Microsoft's on-demand strategy was only via partners.

This might work for specific vertical solutions, but, as I pointed out then to Wilson, the success of Salesforce.com shows that a heavily branded and marketed solution can satisfy a wide variety of generic requirements.

Now, of course, Microsoft plans to jump into the on-demand game with both feet. But Microsoft, like Sage, has to carefully manage its channel partner relationships. Although the party line is that partners will still be in the loop, I think the reality of the on-demand business model is that there is only so much profit to go around. So partners will have to give up any delusions about being the exclusive route to market for Microsoft CRM, and focus on value-added services where the real money is, anyway.

I like the way Microsoft is building its CRM strategy. First fixing the core product (skipping Version 2 and shipping a well-received Version 3) then carefully planning its on-demand launch with multi-tenancy for 2007 with enough lead-time for partners to get on board. On-demand competitors like NetSuite and Salesforce are sure to snipe at the plodding pace. Someday they hope to have the market reach and power that Microsoft already has, and will find out that speed of change inevitably slows with size.

Look no further than SAP to see how a slow-moving but well executing competitor can transform from nowhere to an CRM industry leading role.

The on-demand market is still at an early stage. The full rollout of Microsoft CRM Live will probably take a couple of years (including international options). That's probably the window of opportunity for the on-demand upstarts lead by NetSuite, RightNow and Salesforce, to figure out how to survive and thrive in a market that will include Microsoft, Oracle and SAP.

Game on!

Bob Thompson
Founder, CRMGuru.com

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Gwynne Young
Managing Editor, CRMGuru.com
Member

Posted 13-Jul-2006 04:46 PM

Here's the reaction from Marc Benioff of salesforce.com:

Is it the end of software as we know it?

Just three weeks ago, Bill Gates announced he would leave his day-to-day responsibilities at Microsoft, and turn his title of Chief Software Architect over to Ray Ozzie. Why did he choose Ozzie, a relative newcomer to Microsoft? Ozzie had made his views widely known in his October 28, 2005, memo called, "Services Disruption," where he stated the future would be dominated not by software like that made by Microsoft, but by services offered by companies like Google and salesforce.com who were changing the software game forever by delivering a new paradigm.

Simultaneously, companies like Google and Yahoo have announced intention to compete against Microsoft Exchange by offering a version of consumer email services repurposed for business. Gmail for Domains (http://www.google.com/hosted) and Yahoo Business Email (http://smallbusiness.yahoo.com/email/) are serious competitors to the traditional email server franchise. And, it's not stopping there, as competitors to Microsoft Excel spreadsheets
(http://www.google.com/googlespreadsheets/tour1.html) (www.numsum.com) (www.irows.com), and even those taking on Microsoft Word processing (www.writely.com) (www.writeboard.com) (http://tracker.jot.com/ ) begin to take hold as serious and viable alternatives to Microsoft Office software.

Ozzie was right. Steve Ballmer has publicly fretted that he would not be "out hustled by anyone," but the fact is that Microsoft is being out hustled by everyone.

The world has changed. Everyone and everything is becoming a service.

It was not so long ago that most executives and companies disregarded the movement to software as service, claiming it was limited technically, or isolated to a specific market segment such as small business. Now, everyone agrees that the future of software is no software at all--but rather an industry dominated by tens of thousands of heterogeneous services delivering everything from traditional Office productivity to Verticals to VOIP to ERP and CRM systems. All companies and executives now agree: no software application will remain standing at the end of this widespread transformation. Every market segment, geography, and customer will use these services with all of the rich customization and integration they demand--and much, much more.

Put it all together and what do you have? The Business Web. And The Business Web-- with all of its innovation, creativity, and most important, customer success-won't wait for Microsoft.

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Bob Thompson
Founder, CRMGuru.com
Member

Posted 14-Jul-2006 04:47 PM

Greg Gianforte, CEO of RightNow Technologies, had these comments about Microsoft's entry into the on-demand CRM market.

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Microsoft's embarrassingly late announcement last week of hosted CRM applications comes almost 10 years after today's leading hosted CRM apps were first released and years after businesses began demonstrating preference for the on demand delivery method. Astonishingly, new offerings will still not be available until "sometime in 2007." It seems the speed of business is increasing everywhere except Redmond.

Ultimately the fatal mistake in Microsoft's strategy is that on demand offering will simply be a hosted version of on-premise software. Interestingly SAP, the other late arriver, announced the same mistake with "isolated tenancy" approach earlier this year. Unfortunately for both of them, this approach of simply hosting single-tenant software failed in the late 90's. You would have thought they would have studied this market enough to know this approach will not work and will not scale efficiently. On demand applications must be architected from the ground up specifically for multi-tenancy. I wonder when these firms will actually start re-writing all applications to accommodate this market imperative.

Hosted applications are the future of the software industry because the customer benefits are so compelling. Businesses of all sizes are adopting this delivery model with gusto. In fact over half of RightNow's total business in the past year was completed with firms with over $1B in total revenue. Microsoft has clearly stated target is exclusively SMBs. This fact gives us one more reason why Microsoft's announcement is not relevant for larger enterprises that purchase the bulk of enterprise applications software today.

Greg Gianforte
CEO and Founder
RightNow

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Bob Thompson
Founder, CRMGuru.com
Member

Posted 17-Jul-2006 04:03 PM

SAP's reaction:

As we stated when SAP launched, the on-demand market is still young and we feel that MSFT's recent entry into the on-demand market is an indication that the growth of the hybrid on-demand market—as we said—is just beginning. However, while customers have demonstrated an interest in and a need for on-demand, clearly there is a market need here for BOTH on-demand and on-premise options that are seamless, interoperable and have a non-disruptive path for future growth. MSFT has also adopted the SAP position. The conclusion—on-demand as the only option limits the value customers can derive from CRM and the market—including MSFT—is responding to customer requirements.

We also believe that there is a need to maintain a shared code base across both on-demand and on-premise options and that this will be the standard moving forward. MSFT has also adopted this standard. Two code bases invites disruption, and is a shortcut that other vendors have used to avoid investing in strategic capabilities.

We have proven success across 25 industries and the full suite of business solutions, however, like others in the market, we are seeing market uptake for hybrid "on demand" options, primarily for applications such as sales force automation where customers want to get up and running quickly. For other applications, such as ERP, our experience is that customers continue to manage mission-critical data closely, in-house, and our strategy is to provide options for on-premise and off-premise, hosting, etc., which allow companies to adopt and evolve IT strategy with a longer-term approach over time.

Tony Martinez
VP of SAP Global CRM Business Strategy

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Gwynne Young
Managing Editor, CRMGuru.com
Member

Posted 20-Jul-2006 09:17 AM

Here's the reaction of NetSuite CEO Zach Nelson:

First of all, it is obviously a ringing endorsement of the SaaS. Given that we won't see the product for a year (or more, you now how Microsoft is about dates!), all that demand they created will be fulfilled by products like NetSuite.

The fact that MSFT will be hosting the application is a strategic change. They have always said they would let partners host the solutions. Of course, that was an absurd position and either indicative of naiveté, or just trying to keep partners from feeling cut-out until the moment of truth (i.e., last week).

In short, this change should/could unsettle channel. NetSuite of course, manages its own data center and allows partners to offer our solutions, so the two are not mutually exclusive, but it does take real thought and effort to make it work.

Finally, there is no mention of other Dynamics products becoming a web-native services. SaaS is not a CRM-only phenomenon, and ERP is, in fact, the fast growing segment of the one-demand market. Is the Microsoft SaaS CRM product a tactical effort due to market pressures, or is it a strategic direction for the entire Dynamics product line?