Leading CRM providers claim that for Microsoft to be successful in the growing area of hosted sales and customer support applications would require the software giant to turn its business model upside down.
Speaking to ZDNet UK this week, Jim Steele, head of worldwide operations for on-demand CRM company Salesforce.com said that although it never pays to ignore a well-funded rival, Microsoft was more of a threat to traditional players.
"You never dismiss Microsoft but really they are stealing a bigger share of the traditional on-premises market while we are building a whole new market," he said.
Steele's comments follow earlier remarks made by the chief executive of rival CRM provider RightNow Technologies. Speaking exclusively to ZDNet UK, the company's chief executive Greg Gianforte argued that Microsoft would have to fundamentally alter its business model to compete effectively in the hosted-CRM space.
"They have a lot of resources but the structural impediment they have is that at its heart, this on-demand model is about eliminating infrastructure -- Microsoft's core business is selling infrastructure. To really embrace this model, Microsoft has got to be prepared to cannibalise its core business," he said.
The market for hosted CRM software has grown dramatically over the last year with Salesforce.com and RightNow Technologies announcing highly profitable IPOs and record customer growth.
In October Salesforce.com announced it had added some 85,000 individual subscribers to its online customer information system, an 85 percent increase since this time last year. RightNow also reported a 78 percent jump in third-quarter revenue and announced it had recruited around 26 public sector customers in the UK alone.
Microsoft doesn't have a hosted CRM offering of its own but does offer the service via some 90 certified partners.
But RightNow's Gianforte claimed that the main reason the application service provider model failed to gain acceptance in its first incarnation during the late nineties was precisely because software companies weren't hosting the software themselves.
"Any company that uses a third party to host, such as Microsoft, SAP, PeopleSoft -- you can just list all the dinosaurs -- they have failed the litmus test because they are not really believers. Until they re-write their applications from scratch and use it as a primary go-to-market they really haven't embraced this model," he said
However Microsoft hasn't completely ruled out the idea of launching its own service eventually.
"As it does for all its products, Microsoft continuously monitors CRM market conditions, and the fact that it decided against developing a hosted model of Microsoft CRM doesn't mean it won't investigate this option if market conditions were to change in the future," said a Microsoft spokesperson.
Microsoft launched its CRM product in January this year and claims to have around 110 customers in the UK. The company also cites figures from analyst AMR Research which has predicted Microsoft CRM will feature amongst the top five CRM products by 2006.