Microsoft CRM to Salesforce.com: It's Lunchtime

Microsoft unveiled pricing at its Worldwide Partner Conference today for its on-demand CRM offering, and in the process sent an absolutely clear message that, from now on, basic on-demand CRM is all about price.

With a range of offerings priced from $44 per user per month to $59 per user per month for a "professional" version, Microsoft has set the bar significantly lower for its CRM on-demand package than market-leader Salesforce.com, which "starts" its professional pricing at $65 per user per month. Do the math, that's a lot of Benioff-bucks that Microsoft expects to head to Redmond instead.

Of course, Salesforce.com is being coy, telling Reuters that the battle won't be on price alone. But what else is there in a commodity market but price? Sure, there's more to Salesforce.com than mere commodity functionality -- like all those must-have add-ons that are enriching AppExchange partners and the customers who are using them? I'm still having trouble finding that rich core of AppExchange apps that are driving new sales of Salesforce.com: AppExchange is still not big enough and important enough to provide Benioff any appreciable cover now that Microsoft is playing low-ball with on-demand CRM. It's for this and other reasons that I think Salesforce.com is the next Siebel.

Meanwhile, Microsoft has a rather interesting value-prop for the mid-market companies that -- despite Benioff's best efforts -- still make up the core of Salesforce.com's customer base. Take CRM on-demand from Microsoft, and Microsoft will provide integration to a pretty good set of back office ERP systems -- Dynamics AX, GP, and NAV, to be precise. That deep integration is what will truly make long-term, stable customers for Microsoft, and Salesforce.com's inability to offer a similar back-office suite makes its offering look even weaker.

Finally, there's the Microsoft partner model to contend with: Microsoft is offering a very sweet 10 percent margin to its CRM on-demand partners, which pretty much guarantees that they being trying to be in every deal they can find. That new, and potentially enormous, competitive front is going to further drive up Salesforce.com's already high cost of sales and further complicate Salesforce.com's profitability picture. Up until now, Salesforce.com has had really no legitimate competition. Now they have to go toe-to-toe with the ultimate competitor, Microsoft, and it ain't going to be pretty.

And this is hardly the only bad news that Salesforce.com is facing. Don't think that SAP and Oracle are just sitting on the sidelines watching. 2007 will end with more big news in on-demand CRM, and none of it will be good for Salesforce.com. With today's and other announcements to come, I think 2008 promises to be the real year of on-demand CRM: It's Salesforce.com's market to lose, and, unless something changes dramatically in their favor, lose it they will.