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Partners tackle new Microsoft CRM

With new features and optional on-demand delivery, Microsoft's new CRM package prompts partners to reassess their best prospects.

The good news for Microsoft's applications channel partners is that they've had plenty of time to prepare for the arrival of the company's new customer relationship management package.

The hard part is that the release will force those same companies to radically shift their strategies in marketing and supporting the software.

When Microsoft announced the many new aspects of its upcoming CRM 3.0 offering on Tuesday, it became clear that the software giant has been working to facilitate a significant leap forward in the applications' features and delivery models. For instance, in addition to addressing the perceived shortcomings of its existing CRM package, by adding previously absent marketing automation tools, Microsoft also announced that the software will be made available as a fully hosted on-demand service.

Since Microsoft first introduced its CRM software in January 2003, the company's channel partners--specifically mid-market and small business specialists--have represented the firm's primary method of reaching customers. In turn, the resellers and systems integrators selling the package have taken advantage of the missing pieces in the software by creating customized applications and patches that work with the CRM tools.

"CRM isn't a product you install and it's done. That's where the partner opportunity really is."
--Allison Watson, VP, Microsoft's Partner Sales and Marketing Group

Now that Microsoft is preparing to deliver its upgraded CRM system, with arrival scheduled for sometime during the fourth quarter of 2005, the company's channel partners are faced with the challenge of finding new ways to create revenue around the software, as well as the prospect that the hosted version will cut significantly into the installation and service fees they charge to get customers up and running on the applications.

According to Allison Watson, vice president of Microsoft's Partner Sales and Marketing Group, the loss of some customer-service opportunities for channel partners will be outweighed by the wider appeal of applications that address many of the shortcomings its resellers had reported. Watson also said that creating the on-demand version of the CRM package is another concession to Microsoft's partners' demands.

"If anything, I'd say partners have been asking us for that innovation," Watson said, referring to hosted.

Much of the role for Microsoft's CRM channel, Watson said, will be in helping customers adapt their business processes and the software to work well together.

"The opportunity for partners is often about workflow," she said. "It's not just an installation. CRM isn't a product you install and it's done. That's where the partner opportunity really is."

Watson said she believes there will still be plenty of customers who want someone to install the software on site, as well as those who will choose the hosted route. In either scenario, she believes Microsoft's channel will benefit sufficiently from new sales to stay focused on marketing the product.

"The partner can sell it, regardless," she said.

Industry watchers agreed that if Microsoft is able to generate interest and subsequent sales with the improved CRM offering, resellers won't have much to complain about. However, the software maker's partners are indeed being forced to consider new ways to create additional revenue around the products, said Liz Herbert, an analyst with Forrester Research.

Herbert said that many Microsoft partners already have been looking at new ways to sell add-ons to the applications that the software maker hasn't offered or isn't likely to address.

"Microsoft resellers are definitely looking forward to this release and looking at new ways to customize, and considering the benefit of new functions versus worrying about selling complex customization," said Herbert. "Yet, as Microsoft beefs up its capabilities, partners will have to become more sophisticated as the existing patches that address gaps in the solution are being made obsolete."

As a result, Herbert said, Microsoft CRM partners will be forced to create smarter add-ons, such as in the case of one firm that has created software designed to link the applications with Research In Motion's BlackBerry wireless devices. Building those types of functional applications will also create more easily marketable revenue opportunities than work around CRM integration might have, she said.

For Yacov Wrocherinsky, chief executive of New York-based Infinity Info Systems, a reseller of Microsoft CRM, the potential benefits of the new system outweigh any loss in the customization work his company has already been performing for its 20 existing accounts. He believes that Microsoft's work to more closely link the applications with its Outlook e-mail software is the sort of improvement that will get large numbers of new clients interested in CRM 3.0 and offset any potential hiccup in Infinity's current business.

"Of course there is a challenge as a partner with creating new services whenever a product is updated significantly," said Wrocherinsky. "But we know that Microsoft has so many other products that they can leverage, and as they keep integrating the products with CRM, it will become an easier decision for customers to stay in their family."

Wrocherinsky said that despite the fact that Microsoft still has work to do in maturing its CRM applications and offering functionality comparable to products that have been on the market longer than it has been in the business, he believes the company's biggest obstacle remains in convincing first-time CRM buyers to adopt its long-term applications vision.

"Microsoft doesn't want to play catch up. They came into the CRM space relatively late, so they've had to double investment in order to try and become a leader," said Wrocherinsky. "Their biggest challenge is still found in educating customers on value of CRM, and that's where we as partners can continue to help them out the most."

CNET News.com's Ina Fried contributed to this report.