A Microsoft-hosted customer relationship management (CRM) service, called CRM Live, will be available in the second quarter of 2007 and will compete with Salesforce.com. Announced in July 2006 at Microsoft's Worldwide Partner Conference, the service will build on the next version of Dynamics CRM, code-named Titan and scheduled for the first half of 2007. The timing of the announcement, one year ahead of availability, could slow the momentum of Salesforce.com as prospective CRM customers may forestall decisions until CRM Live is available. It could also have a similar effect on Microsoft partners offering hosted Dynamics CRM today.

Supporting 'Multitenancy'

Basing the CRM Live service on Dynamics CRM's Titan release allows Microsoft to avoid a barrier faced by service providers using the current version (Dynamics CRM 3.0). Specifically, providers (including Microsoft partners ActiveIS, CRM OnTarget, and Navisite) cannot securely host multiple customers on a single server. Consequently, hosted customers require dedicated server hardware, which carries higher operating costs than consolidating customers on shared hardware and may make it difficult for providers to beat Salesforce.com on a recurring cost-basis.

The Titan release addresses this limitation—a single server will be able to host multiple CRM customers, each with its own secure set of services, resources, and databases. (Microsoft refers to this capability as "multitenancy.") Support for multitenancy should make it easier for Microsoft (and its hosting partners) to offer services that compete with Salesforce.com on price.

Implications

Microsoft's motivation for entering the hosted CRM market is clear: as Salesforce.com has demonstrated, a low-cost onramp to CRM appeals to smaller customers that tend to shy away from complex, on-premise solutions. Microsoft also hopes that basing the hosted CRM service on its CRM product gives it a differentiator—for customers wanting to do so, moving from CRM Live to a self-hosted solution should be relatively straightforward.

Although Microsoft has attempted to position CRM Live as an opportunity for partners, the benefits are less obvious. For example, the company said that partners creating custom Dynamics CRM applications will be able to pitch CRM Live as an additional deployment option—one that could help attract smaller customers. However, such sales could carry a less appealing financial structure than on-premise sales of the Dynamics CRM product (partners would probably collect revenues on an annuity basis versus upfront, for instance). Furthermore, CRM Live will probably cut into on-premise customization and integration services opportunities for partners. Until Microsoft sets pricing for CRM Live, which it has yet to discuss, it will be difficult for partners to gauge the impact to their bottom lines.

Finally, Microsoft's entry in the hosted CRM market will undoubtedly put pressure on partners offering hosted services on Dynamics CRM today. The company's presence will add a formidable competitor to the market and its early announcement could cause prospective customers to hesitate until Microsoft enters the fray.

Resources

The Dynamics CRM home page is www.microsoft.com/dynamics/crm/default.mspx.