Microsoft CRM Online Hunts Salesforce.com

The official GA release of Microsoft's CRM Online offering is next week, and with it comes a new chapter in the life of Salesforce.com. To date Salesforce.com has lacked a major competitor that could be seen as a worthy opponent in terms of overall size, price, functionality, and marketing chops. Oracle has the marketing chops, and Siebel On Demand the functionality, but Oracle isn't really going to challenge Salesforce.com on price. Zoho, which just launched a CRM on-demand offering, and various other permutations of both on demand and open source CRM products are able to challenge Salesforce.com on price, and maybe functionality, but Marc Benioff can frankly out-market any of these companies before he gets out of bed in the morning.

Now there's Microsoft Dynamics CRM Online. And the challenges for Salesforce.com can now begin. The goals of CRM Online are to match or beat Salesforce.com in feature/functionality, absolutely beat it in price, and with the combined power of the Microsoft brand and the ubiquitousness of the Outlook user base, seriously challenge Benioff's hype machine on the marketing side. And they definitely have a chance at succeeding in all three.

I'm not going to parse the feature/functionality battle between the two at the individual function level here, but I can offer three main reasons why I think CRM Online needs to be taken seriously as an alternative to Salesforce.com. The first is Microsoft's Outlook UI, known (though not always loved) by hundreds of millions of users. Love it or not, that user experience makes training for CRM Online a non-issue. Salesforce.com is pretty easy to use as well, but using Outlook is, for most desktop users, already intuitive.

Functional advantage #2 for Microsoft is the ability to shift between on-premise and on-demand, and mix and match the two. On-premise support is about customer choice, and lots of customers I know don't want to be locked into on-demand any more than they want to be locked into any other deployment model. There are good business cases for on-demand deployment, and equally good ones for on-premise, and Microsoft CRM wants to support them both, something Salesforce.com simply cannot match.

Functional advantage #3 for Microsoft comes from Office integration. Right now this is an on-premise Office integration to CRM Online, which means that if you want to push sales data into an Excel spreadsheet, that spreadsheet can only reside locally. This is not equivalent to the on-demand integration that Salesforce.com is promising with Google's Apps, but, as I don't believe Google Apps are really ready for prime-time in the enterprise, I think the Office integration direct from the Outlook UI is a better functional advantage than either Salesforce.com's Google Apps support or its own native Office support.

That's the functional side. On the price side, CRM Online wants to seriously undercut Saleforce.com pricing, and is doing so by charging significantly less than Salesforce.com for both basic and premium functionality. At the top end, Microsoft wants $59 per user per month for functionality that would cost a Salesforce.com several hundred dollars per month. (Especially when you include the 20 gigs of storage that Microsoft offers for free, for which users of Salesforce.com would pay dearly for. For a comparison of Salesforce.com premium pricing, look at Ephraim Schwartz's column on the subject.) I think it's going to be largely impossible for Salesforce.com to institute any across-the-board pricing changes to match Microsoft, without watching its stock price collapse. So, on the pricing front, I think Microsoft has Salesforce.com beat cold.

Now for the hype side. That will be hard, as Benioff has proven time and time again. Deals like the Google Apps agreement play well, even if substantively they are a lacking in demonstrable market impact. Regardless, Benioff keeps pulling rabbits like Google out of his hat on a regular basis. But Microsoft has it's much-vaunted market clout, and Brad Wilson, the GM in charge of CRM at Microsoft, is no wall flower either. And, once Microsoft can get its own platform-as-a-service, Office in the cloud story aligned with CRM Online, there's going to be a lot to hype that, under the covers, will be more than just a fortuitous rabbit popping up in a cloud of smoke. A lot more.

A final point. The competition between Microsoft and Salesforce.com won't be head to head at all levels, at least initially. Microsoft CRM Online is not being targeted today at the top tier customer base that Salesforce.com has been after, the challenge to Salesforce.com will come at Salesforce.com's core mid-market, though Microsoft's large SI partners, like EDS, are expected to bring CRM Online to the top tier customer base by hosting it in EDS's data centers. This exclusive focus on the mid-market will likely change as the market shifts its attention to the new CRM on-demand kid on the block.

I've always contended that CRM on demand in general, with all due respect to all its adherents, is more of a commodity play than a strategic value play, particularly for the vast majority of deployments, which are mostly standalone and largely serving a contact management, sales force automation need. In this part of the market, the largest segment by far, Microsoft can and will excel, pun intended, against a Salesforce.com whose focus on a strategic marketing, sales, and pricing model makes it look more and more like it's swimming against an increasingly strong tide. At the higher end of the strategic scale, the future is a little more cloudy, especially as I'm not convinced that Salesforce.com or Microsoft can really claim they know how on-demand CRM will work for these customers.

The hunt for Salesforce.com at Microsoft is on, which of the two contenders returns victorious will be one of the more interesting stories of 2008, and beyond.