Can Microsoft deliver on CRM?

newsanalysis Microsoft will have an impact on the customer relationship management market. But how important will its role be?
Written by Simon Marshall, Contributor
news analysis Microsoft will have an impact on the customer relationship management market. But how important will its role be?

Microsoft’s newly-discovered desire to become the CRM software supplier of choice for SMEs has, let’s face it, been greeted with more than a hint of scepticism.

OK, so Microsoft practically owns the desktop OS, word processing and email markets but that doesn’t mean it’s any good at CRM applications, right? Well, guess what. Even though it’s undoubtedly still finding its feet, Microsoft is soon going to be one of the biggest CRM players there is.

“We think Microsoft will become a very important player in the CRM market,” says Jim Davies, research analyst at Gartner. “We estimate it will be one of the top five providers within the next two years.”

The opportunity for Microsoft in the relatively untapped SME market speaks for itself. The Redmond software giant has about 30,000 existing Great Plains customers and about the same number of firms using Navision, yet around 80 per cent of these companies don’t have a full CRM solution, providing a great cross-sell opportunity. The biggest problem for Microsoft is in taking advantage of it.

“Microsoft has got to demonstrate that it has mid-market reach and service delivery capabilities,” says Nick Hewson, managing director of CRM consultancy Hewson Consulting. “Its biggest challenge is to deliver this channel, otherwise it’s going to go nowhere, because it only has partners in the technical sense, not the business sense.”

Microsoft is aware that its channel strategy needs to mature further. Because it plans to give SMEs access through their usual Office software supplier, it has taken steps to complement its channel’s knowledge of technical concerns with business CRM issues.

“We’ve been working with hundreds of resellers who are interested, keen and are taking their Microsoft CRM exams,” says Michala Alexander, Microsoft’s CRM product manager. She plans a three-pronged approach to market, pulling in existing Microsoft-based computer, business solutions and infrastructure resellers.

In fact, it’s in the infrastructure department that Microsoft’s CRM plans have been seen as yet another way to lock-in cash-strapped SMEs. Alexander admits that its CRM will only work on a Microsoft infrastructure but says there are ways to maximise the investment for those that don’t already have it.

“It will work on our Small Business Server 2003, which is a lot cheaper than pulling-in a full Microsoft infrastructure,” she advocates, explaining that partnerships with Avaya and Genesys, for example, could offer further choice in functionality.

Nevertheless SMEs, without the appropriate infrastructure, are going to be forced to buy it if they would like the familiarity of Microsoft software in their CRM operation. This could involve purchasing Microsoft Exchange and Active Directory Servers, as well as some Service Packs, to plug possible gaps.

“Most SMEs are already using a Microsoft infrastructure but not all of them will be aware of the heavy (investment) requirements for CRM,” says Gartner’s Davies.

The alternative is to adopt the hosted CRM model, which could minimise this potential outlay. During January, Aspective became the first U.K. ASP to offer Microsoft CRM under its SmartCRM service. Others will follow. Microsoft sees the hosted model as an opportunity for SMEs to ‘try-before-they-buy', and expects an increase in its popularity. It has been implementing its CRM solution in the U.S. for some months and so experience gained there could help European firms that wish to keep it in-house.

But SMEs will question whether this first version of the software is fundamentally worth their money, however it is being supplied.

“Reports from end users indicate that it might be a little unstable,” says Davies. “(Also) marketing automation, field sales and customer self-service capabilities are missing.”

This means potential buyers will have to be satisfied with basic contact management until version two rectifies this later this year with a possible November release date.

“What it’s got is quite good but it just does not cut it as a marketing or contact centre solution--it’s not terribly functional as it stands,” agrees Nick Hewson. However, along with expected improvements in version two, he does see third party software developers improving this picture over the next two to three years. For example, Minneapolis, Minnesota-based Axonom has already developed a marketing module for the platform. This sort of input from developers could also help tailor what is currently a very horizontal-looking solution to specific vertical segments.

“Microsoft also has a lot of back-end capability through its Great Plains software,” adds Hewson. “So it needs to develop a front-to-back solution, because a lot of SMEs will want to go one-stop-shopping when they buy.”

Indeed, Microsoft already has plans on the drawing board to cater for this trend through its so-called ‘Project Green’ announced last autumn, which intends to add solutions such as ERP into its .Net web services framework. The idea is that businesses can then simply pull whatever modules they want into their system. But, again, users will have to wait because Project Green is linked with the expected Longhorn Windows upgrade slated for 2005.

One thing’s for sure: Microsoft will focus on the fledgling SME market and has no plans to raid the high-end corporate market with its CRM solution, other than to meet specific departmental demands. It reckons that only around 10 per cent of the SME market has a CRM solution, compared with most corporates, making it an immature opportunity and a potential battlefield. Recently, SAP acquired TopManage, and PeopleSoft bought JD Edwards in order to strengthen their credentials.

Competition from Microsoft could feasibly be so stiff that other providers are obliged to carve out their own niche, possibly in specific verticals or with J2EE solutions, for example. However, in the short-term, Microsoft’s market entry seems to be good news for everyone, offering choice to the SME and a boost to the market for its competitors as its marketing dollars stimulate the whole sector.

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