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Microsoft previews next-generation CRM

The software giant takes the wraps off its new customer relationship management system.

Microsoft released details of the long-awaited update to its customer relationship management software on Tuesday, adding a slew of new tools and making the system available via the on-demand applications delivery model.

The unveiling of the new applications set, which will be known as Microsoft CRM 3.0, is being made in conjunction with the software giant's Tech Ed 2005 conference in Europe and its Worldwide Partner Conference 2005 in the United States, both of which are being held later this week.

Though the package has been given the 3.0 product designation, the applications are only the second major release of Microsoft's CRM applications to come to market. Microsoft introduced its first CRM system in January 2003 and has repeatedly delayed the release of its new version since that time.

"The traditional hosted model says, 'You will rent from me forever,' and I think that people want some more flexibility than that."
--Brad Wilson, general manager of CRM, Microsoft

In February, Microsoft shelved plans to release an expanded version of the software, saying it needed until the end of the year to finish updating the program. The CRM package is scheduled to go into production during the fourth quarter and to reach most customers in early 2006, but Microsoft partners will begin testing applications in July.

According to Brad Wilson, general manager of CRM for Microsoft, the company wanted to hold the updated software's release until the company could make significant functional additions to the applications and offer the package as an on-demand service. In addition to building tighter links between the CRM tools and its Office package of desktop software, Microsoft was also intently focused on making the system easier to use and faster to install, he said.

"We want to be the easiest-to-use CRM system on the marketplace. Some businesses need really complex stuff, and they might go to someone with a lot more bells and whistles, but we're focusing on small and midsized customers and departments within enterprise companies. Increased ease of use is what those people are asking us for," said Wilson.

Among the functional upgrades promised in the 3.0 package is the introduction of a set of marketing automation tools, an established element of most CRM systems that had been lacking in Microsoft's first attempt at the applications. The software includes tools for managing client lists, tracking advertising and marketing campaigns, and for sorting customer responses to those initiatives.

Other additions pledged in 3.0 include increased support for the development of specialized applications for niche markets to be used with the CRM system. The package also boasts expanded customization alternatives for use with specific business processes. In addition, the offering promises more powerful scheduling tools linked directly to the calendar section of Microsoft's Outlook e-mail software.

Tapping demand for on-demand
Perhaps the most significant addition to Microsoft's CRM package, at least from a competitive standpoint, may be its move to make the tools available as an on-demand offering. The company had previously allowed some of its resellers to market a hosted version of the software whereby the applications were run off-site and accessed online, but the expanded on-demand strategy will offer customers subscription-style pricing for the applications and a version of the tools built with Web-based delivery in mind.

Wilson said Microsoft added on-demand because the company believes its best chance to grow CRM market share is to give customers as many delivery options as possible. He said that small and medium-size businesses in particular are seeking on-demand applications today, but he added that giving customers alternatives will be the industrywide model in the future. Not even those companies interested in hosted software will want to continue to pay subscription fees to license the applications forever, he said.

"We want to encourage a host of models. If you want to rent it you can, or our partners can host it for you, or they can deliver it on premises, and it's all the exact same code," said Wilson. "We want to be agnostic about delivery, and it's good to give people a choice."

The executive said some companies are looking at the monthly subscription pricing model offered by on-demand CRM providers such as Salesforce.com and getting worried that they will be forced to keep paying for those tools forever. He also criticized Salesforce's marketing message, which maintains that all applications will be delivered in the on-demand model someday.

"The traditional hosted model says, 'You will rent from me forever,' and I think that people want some more flexibility than that," Wilson said. "And the notion that this is going to be the only model on the market doesn't seem to make sense to us, based on what we hear from customers. What companies want is flexibility to choose as they go, based on specific needs, and that's what we want to offer them."

Though Microsoft's initial CRM package was designed specifically for small businesses that had never had such applications, Wilson said Microsoft is increasingly dealing with larger customers. The company currently counts more than 5,000 CRM installations, and a growing number of those deals are with midmarket companies and even divisions of large companies, according to the executive.

Though Microsoft isn't aiming specifically for the enterprise sector, where mammoth vendors such as Siebel Systems, SAP and Oracle dominate the market, Wilson said he believes that the expanded CRM package will appeal more to larger companies than its predecessor. In some cases, he said, the applications already have been adopted by customers with Siebel and SAP software in place in the name of getting up and running faster than they might have with those companies' products.

"Everybody in the midmarket segment will need to take a hard look at (CRM 3.0) because this is going to be a really attractive product to those customers," Wilson said. "This will change the way that people compete, because the package has all the desired benefits of the systems on the market today, along with Microsoft's client ecosystem behind it."

The wait is over
The people most attentively awaiting the arrival of the new Microsoft CRM package most likely are the company's channel partners, who will continue to be the most popular source for the tools, according to Wilson.

Ben Holtz, chief executive of Watertown, Mass.-based Green Beacon Solutions is one of the partners anxiously awaiting the arrival of the 3.0 release. He said customer interest in Microsoft CRM has quieted down significantly since the company introduced its first set of applications, despite the fact that he feels those tools have performed well at the two customers his company currently supports on the software. Holtz believes the new release will touch off a second wave of interest in the CRM applications.

"Microsoft CRM has been a little bit frustrating for us. We really thought that we'd be doing more business around it today, but there hasn't been as much interest as we originally expected," Holtz said. "We think they had a solid product to begin with, but hopefully with everything we're hearing about the next version, there will be a great opportunity to get people in to look at it and close more deals."

Industry watchers agreed that the retrenched version of Microsoft CRM should help the company increase its CRM market share, which analysts at AMR Research reported as being roughly 2 percent in 2004. Laurie McCabe, analyst with AMI-Partners said Microsoft is following a calculated plan whereby it got its name into buyers' heads in the CRM market first and then worked to build an applications set that can better compete with other products.

She said the close ties to Microsoft's Office software and the similarity of the CRM system's user interface to Outlook are details that will likely appeal to many potential buyers.

"With CRM 1.0 Microsoft disrupted the CRM market to a certain extent, and now they're trying to bring something much stronger to the table, and that's smart," said McCabe. "The ties to Office are a huge advantage. If you look at what SAP is doing to integrate with Office in the enterprise market with its Mendocino partnership with Microsoft, you get an idea of why this could be so compelling to smaller companies."

Other industry experts observed that the hosted delivery option could be another major catalyst for increasing interest in Microsoft CRM. Liz Herbert, analyst with Forrester Research, said Microsoft should be able to capitalize on increasing demand for hosted applications, especially among small and midsize companies.

"There's a lot of interest in software delivered as services right now. We hear from more companies all the time that are looking at on-demand as their preferred model for software delivery," Herbert said. "This release represents a major improvement. It's not like where we see rapid updates in the hosted space that offer limited improvements. This release will be a difference maker for Microsoft."