CRM 3.0, stuck in the morass of SoSaaS

Microsoft released the long-promised version 3.0 of its CRM package last week, complete with the option of a hosted version. On-demand CRM vendors took a quick look and collectively heaved a small sigh of relieved indifference. Although an advance on the previous version 1.0, CRM 3.0 is still, in the words of RightNow Technologies' CEO Greg Gianforte, "Too little, too late."

For all its advances, CRM 3.0 remains a classic example of what I've termed SoSaaS — Same old Software, as a Service.The problem for would-be partners is that the economics don't add up In other words, the hosted version is identical to the traditional licensed package, not only at the user interface (which would be excusable) but architecturally too. Even when hosted, each customer requires its own instance — what's called in the trade a single tenant architecture — thus negating virtually all the advantages of the on-demand model. As rival on-demand vendor Salesnet's co-founder and president Jonathan Tang explained to me last week in an email, this creates enormous difficulties for Microsoft partners who are supposed to offer CRM 3.0 as a hosted service: "To do it right, they will have to invest a great deal of resource and effort to build a secure, stable, scalable infrastructure to be on level with the other on demand hosted vendors."

The problem for Microsoft and its would-be partners is that the economics don't add up. A hosted license for MS CRM 3.0 costs partners $24.95 per user per month. On top of that partners have to fund licenses for the required back-end server infrastructure, such as Microsoft SQL Server and Exchange Server, as well as all the additional infrastructure required to provision, secure and manage the software for customers. All this before the partner begins to develop its own vertical industry customizations — which Microsoft hopes will bring the added value that persuades customers to purchase the solution. After adding up all these costs plus an operating margin, what is the likelihood that partners will be in a position to compete with on-demand competitors offering slicker solutions for between $59 and $99 per month?

Most of those competitors, remember, have built their own custom applications from scratch without having to set aside $25 per user per month to pay Microsoft. Nor do they have to pay license fees on infrastructure software (most on-demand vendors have standardized on an open-source software stack). As RightNow's Gianforte says, "Any vendor that's pricing on-demand on the basis of proprietary infrastructure is barking up the wrong tree."

Although CRM 3.0 may be good enough to retain the loyalty of customers with big existing investments in Microsoft infrastructure, the on-demand market is a completely different proposition in which existing infrastructure is irrelevant. Customers don't care what's under the hood, so long as it delivers the service they need at a competitive price. Microsoft CRM can't hope to do that until the next release — promised to be a multi-tenant version — and even then many of the other question marks about a cost-effective, scalable infrastructure will remain. So it seems the general rule I recently cited about version 3.0 heralding a product's maturity doesn't apply in the case of Microsoft CRM. Jumping straight from 1.0 to 3.0 simply masks the truth that, at heart, this is still a hugely compromised version 2.0 product.