Analysis: CRM Is Microsoft's Next Billion-Dollar Baby

FROM CRM Magazine -

Microsoft already claims 7,000 CRM customer accounts and 180,000 CRM users worldwide. The big challenge will be enticing large customers to help the software move beyond its SMB roots.

By Barbara Darrow, CRN July 5, 2006 URL: http://www.informationweek.com/story/showArticle.jhtml?articleID=190300116
Microsoft is banking that its CRM, after a slow start, will become the company's next big money-maker. While it might not hit Office-type numbers any time soon, it could still be the next billion-dollar baby, executives say.

In a series of recent interviews, Microsoft executives repeatedly brought up CRM—the current Microsoft Dynamics CRM 3.0 release shipped late last year--as the next big apps opportunity.
"CRM could easily be the next billion dollar business for Microsoft," said Margo Day, a regional vice president who just moved to that role from her post as vice president of the U.S. Partner Group.

Microsoft, Redmond, Wash., claims 7,000 CRM customer accounts and 180,000 CRM users worldwide.

Partners agree that the latest release, with its tight Outlook integration, has made great strides from its predecessors. They cite, in particular, easier navigation—it takes far fewer clicks to perform common tasks. And, the fact that it looks and acts like Outlook means that sales people, who often refuse to use complicated programs, actually use it, partners said.

Some Microsoft Business Solutions-focused partners still beef that they cannot make the margins they expected on CRM since Microsoft put it into broad distribution two years ago. But even some of those naysayers say it makes a good add-on sale into existing Microsoft ERP and infrastructure accounts.

Microsoft itself estimates that a typical 50-seat CRM deal is worth $153,000. Of that total, $50,000 goes to CRM software, $40,000 for other Microsoft software, $8,000 for ISV software, $50,000 in services and $5,000 in mobility contracts.

And, while Microsoft maintains that its CRM and ERP solutions specifically target the SMB market, the company is getting serious about entrenching them in enterprises as well, if only to surround and link to legacy "big iron" applications from SAP, Siebel, Oracle and others.
Simon Witts, Microsoft corporate vice president of enterprise and partners, is likewise enthusiastic on CRM prospects, both inside and outside the company. "Since 3.0, it's been a different discussion," he noted, saying he used to counsel partners and insiders alike to tout its use in departments and small groups.

Microsoft is now running 10 pilots of Dynamics CRM internally, and that "my goal is to surround Siebel with Microsoft CRM," Witts said.

And he intimated that the enterprise push will get stronger. "In July at our own sales conference, my pitch is CRM everywhere, not just departments. And don't worry about the scale of the customer."

Because Dynamics CRM is available through broad distribution, and can be part of volume Enterprise Agreements (EAs), it is an easy adjunct sale to Office, some partners say.
As part of a broader reorg announced last Wednesday, the CRM development group under David Thacher is moving into Office under vice president Kurt DelBene. MBS vice president Satya Nadella will continue to run the roadmap, according to the company.

Microsoft COO Kevin Turner, who joined the company ten months ago after 20 years with Wal-Mart is also bullish on MBS' overall business applications mission.

MBS posted a loss of $13 million on revenue of $216 million for the third quarter ending March 31, 2006 and represents a tiny portion of the company's overall earnings. But it is a closely watched part of hte company viewed by many as a pivotal piece of the company's future.
Oracle has bought a huge chunk of the business applications market with its PeopleSoft and Siebel Systems buyouts in the past few years. But SAP still dominates the overall market. Both Oracle and SAP are trying to come down into the midmarket from their enterprise positions of strength, while Microsoft is seen moving up from its SMB base.

"I'm super stoked about MBS and where we need to take it," Turner told CRN. He reiterated the mid-market target but with an important addendum: "Certainly I think our ability to scale our ERP system up is something where we're constantly pushing the envelope and I think we'll be able to compete at the high end."