Clash of Titans: Microsoft's SaaS Play
Microsoft's next version of CRM software, code-named "Titan," will reveal the company's competitive response to Salesforce.com and its approach to Software as a Service.
- By Scott Bekker
- March 01, 2007
In the first few months of this year, Microsoft distributed "Titan,"
the next version of Microsoft CRM, to 300 early-adopter partners. During
the second quarter, the pre-release code will go to 1,000 partners in
advance of the product's general availability later this year.
Titan is more than simply a new version of Microsoft CRM, although the
release will offer plenty of traditional feature upgrades. More significant
is the fact that the release is one of Microsoft's first practical implementations
of Software as a Service (SaaS), with Microsoft providing hosted CRM directly
to customers who choose that option. That SaaS option is formally called
Dynamics CRM Live.
Dynamics Growing Pains: A Special
Since making its move into business applications,
Microsoft has bought, built and partnered its way to
steadily increasing revenues and market share. Inevitably,
those gains generate conflicts. For Microsoft and many
of its partners, those are the best kind of problems
to have. But for partners specializing in Microsoft's
Dynamics suite, the issues can get particularly sticky.
In this collection of articles, we examine
three of those issues:
Pender covers the increasing conflict between Microsoft
and SAP as both companies dive into the market for small
and midsize businesses to compete for one of the most
desirable untapped customer bases.
Bekker looks at Microsoft CRM's forthcoming "Titan"
release. With the addition of a Software as a Service
delivery option, Microsoft offers new opportunities
for some partner companies, but also raises the possibility
of elbowing others out .
Gibbons Paul explores how the GP, AX, NAV and SL
Dynamics suites are coming together, and what their
gradual integration means for partners.
As they get their hands on the code, some of Microsoft's most involved
partners, such as Invoke Systems, Sonoma Partners LLC, Streamline Solutions
LLC and Genesys Telecommunications Laboratories Inc., have already been
thinking hard about how they will go about making money from Microsoft's
implementation of SaaS and Titan's other new features. At the same time,
Microsoft's approach with hosted CRM-a balancing act of traditional revenue
sources, partner considerations and competitive issues-offers many clues
about how the company may approach SaaS in other markets.
These partners understand the tough challenges Microsoft's new approach
to CRM will bring, but most believe the end result can be positive for
them. "We're pumped," says Mike Snyder, a principal at Sonoma
Partners, a Gold Certified partner based in Chicago. "I know that
it's going to add a lot more people onto the Microsoft platform, and that
can only be good for partners like us."
Titan's Big Changes
Titan's most important new feature by far is the addition of the SaaS
delivery model. Titan will be available in three ways. First, customers
can buy the software to be installed on their premises, which is the traditional
model for Microsoft CRM and the way customers are used to buying Microsoft
software in general. Obviously, this is the model most partners know and
have built their businesses around. In addition, Titan will be available
by being hosted by partners, continuing a delivery model that a handful
of partners began offering in the first half of 2006. Finally, there's
the brand-new option for customers in North America to subscribe directly
with Microsoft for CRM that is hosted by the company at data centers that
it has been building aggressively around the United States.
"Titan is the core underlying bits that will support three business
models for us," says Brad Wilson, Microsoft Dynamics CRM general manager.
"Our existing partners have another way to deploy the technology that
can fit people's buying patterns, fit people's budgets." Key to the new
model is the underlying idea of portability of data, settings and customizations-in
other words, allowing customers to transfer their CRM applications and
data from on-premise to Dynamics CRM Live to partner-hosted and back again-without
Titan introduces several other important new features. It will be the
first release that supports multi-tenancy, in which several organizations
or instances of Microsoft CRM can run on a single server. While that change
is mostly invisible to customers, multi-tenancy has important implications
for hosted CRM providers, including Microsoft.
There are two other key "multis," as Microsoft calls them, in
Titan. The product brings multi-language support on a single server as
well as multi-currency support. These changes will be useful for hosting
providers, especially in Europe, but they will also be a selling point
for multi-national corporations. Meanwhile, Titan adds two new supported
languages, bringing the total to 24. (For comparison, Windows Vista launched
Jan. 30 with support for 19 languages, covering most of the world's major
populations, but will support 99 languages by the end of the year.) Says
Wilson: "Multi-language and multi-currency help more broadly in international
business. Today we're in [more than] 80 countries, and the majority of
our business is international."
Given the recent release of Windows Vista and Microsoft Office 2007 and
given Microsoft CRM's tight integration with both desktop products, a
host of Titan improvements involve bringing Microsoft CRM up to speed
with Windows and Office. Partners say that they're also interested in
workflow enhancements, as Microsoft moves from a workflow engine specific
to Microsoft CRM to the Windows Workflow Foundation.
The Debut of SaaS
Titan will include one of Microsoft's first implementations of Software
as a Service. A major topic over the last few years, SaaS is based on
the idea of having customers rent, rather than buy, software, accessing
it over the Internet rather than installing it on their own systems. With
the naming of Ray Ozzie as Microsoft's chief software architect in June
2006, Microsoft gave Software as a Service a much higher profile both
inside and outside the company. While the company released Windows Live
and Office Live before Microsoft CRM Live, neither previous Live offering
really delivers core Microsoft software on a subscription basis the way
Dynamics CRM Live does. Wilson says that Ozzie and the rest of Microsoft's
cross-organization leadership team on Live services were heavily involved
in the strategy and tactics behind Titan.
Microsoft isn't offering Microsoft CRM Live in a vacuum. When the product
becomes available in North America, it will run up against a well-established
player: Salesforce.com. The San Francisco-based company is a pure-play,
on-demand CRM vendor with more than 556,000 paying subscribers. In comparison,
Microsoft CRM has about 350,000 installed seats. While Salesforce.com
hadn't reported last year's full financial results at RCP's press time,
it had done about $350 million in revenue in the first nine months of
2006, a 61 percent increase over the same period during the previous year.
Salesforce.com is obviously watching Microsoft's entry closely. While
the 8-year-old CRM company's base of installed seats is larger than Microsoft's,
Redmond has budgets and the kind of profile in the broader IT industry
that Salesforce.com can't match.
"[Its] size and [its] scope and [its] ability to go out and tell
[Microsoft's story] is going to fire the flare in the air," says
Bobby Napiltonia, Salesforce.com's senior vice president of worldwide
channels and alliances. "When Microsoft goes and says 'Software as
a Service,' every single person in the world can see it. People are going
to go to the Web, and they're going to see that [Salesforce. com is] an
Napiltonia portrays Microsoft's blended approach, bringing SaaS along
with on-premise and partner-hosted, as confusingly muddied. "I look
at that business model: 'Well, we'll host it, or you can host it or maybe
the partner will do it.' The first thing I do [as a potential customer]
is I start scratching my head," he says. "It's really hard to
do perpetual licensing and renewal and mix that with Software as a Service."
When asked, Microsoft's Wilson declines to confirm whether Salesforce.com's
success drew Microsoft toward offering hosted CRM as one of its first
Live services. Instead, he replies: "The way we look at it is this:
There's definitely a market in CRM for Software as a Service. There's
definitely a market for lower-complexity systems in general."
Wilson portrays the move as motivated by a desire to reach the smallest
businesses. "On the on-premise side, we sell from five seats to 10,000
seats or more. [But] I think the biggest gap in our partner channel coverage
today is in offerings to small business. One thing that Dynamics CRM Live
is going to do for us is to make it very inexpensive for small VARs to
engage with these customers," he says.
Microsoft partners are more willing to discuss the Salesforce.com challenge.
"Right now, I know we're losing customers to Salesforce.com and other
hosted offerings," says Sonoma Partners' Snyder. "Once the Microsoft
platform has a very well-priced and strong-feature-set hosted solution,
I know that a lot of the people that are doing pilots are going to sign
up for CRM Live."
Jason Hunt, chief technical officer at Invoke Systems, a Gold Certified
Partner based in Baltimore, brings the perspective both of a well-connected
partner-company executive and a former Microsoft employee on the CRM team.
Of Microsoft's move into doing its own CRM hosting, Hunt says that, as
a business model, "it totally makes sense. Salesforce.com is [27,000]
customers, [556,000] seats. Microsoft's [seat-per-deployment ratio] is
much higher than that." Microsoft needs CRM Live to get down to those
10-to-20-seat deals, he says. At the moment, "there's an entire small
business market that's been shut out."
Hunt, Snyder and other partners see several openings for new business
that will emerge with Titan's release. Some will be quick hits, some involve
dreaming up new business models and still others depend on the complex
interplay between three different models for delivering CRM. They include:
1. Winning deals with small businesses. This is the most obvious
opportunity and one that's attractive to many partners. "If someone calls
us now from a 10-user organization and they don't have Active Directory,
we know that's going to be a tough sell," Snyder says. The release of
Titan with the Dynamics CRM Live option will give partners an answer for
those customers who can't afford to invest much.
The biggest current question mark: It's unclear how much partners will
be able to make from pointing that business to one of Microsoft's Live
data centers, which will ultimately determine whether referring customers
to Microsoft will be worth a partner's time. Wilson says that Microsoft
is weighing that question carefully and working through the options. "We'll
be giving more details out to people nearer to the Live launch,"
Wilson says. "We're definitely looking at ways to make sure that
partners are being compensated fairly."
Wilson acknowledges that customers can set up CRM on their own, but says
that Microsoft will encourage them to engage with partners: "There's
a lot of business expertise that our partners have that the average customer
hasn't spent a lot of time thinking about," he says. "Even if
the IT is simplified, there's still a lot of room for vertical expertise
and for functional expertise. I would strongly advise all customers to
engage with a partner who can help them successfully land this tool within
In any case, Hunt sees value in spending time with customers who can't
yet afford to spend much money or time on CRM. "Probably quite a
few customers that are certain sizes don't have funding. We have to walk
away from them," Hunt says, but adds: "Some ... will turn out
to be much larger customers long-term. They're start-ups with potential."
2. Testing deployments on Dynamics CRM Live. One way for partners
to quickly take advantage of the new Dynamics CRM Live model will be integrating
it into the sales process. Some partners see the Live offering as a way
to help prospective customers rapidly implement pilot deployments without
synchronizing schedules with IT departments or getting companywide buy-in
for test projects.
Although Dynamics CRM Live has been typically viewed as a small-customer
solution, this approach may apply to bigger companies. "Sometimes
large customers will have a group within their organization that wants
to champion CRM. They recognize the benefits but the company as a whole
may not," Hunt says. He believes that Dynamics CRM will provide an
avenue for that opportunity.
Microsoft's Wilson sees similar opportunities with customers who are committed
to Microsoft CRM but can't make implementation a priority for their IT
departments or shoehorn the projects into infrastructure budgets-yet.
"Sometimes people also might want to try a system for three months,
six months or a year, but eventually they might want to buy it,"
Wilson says. "When they change their minds, our partners have the
ability to say, 'When your people go home, we can pop it into your environment.'
Partners have this ability to use Software as a Service as another way
to engage customers."
3. Upselling to customers. Even with customers who aren't thinking
of their Dynamics CRM Live implementations as temporary, partners will
be keeping a close eye out for hints that those customers are outgrowing
their SaaS models.
"They're going to need services or they're going to outgrow it,"
Snyder says. "As the deployments get bigger, you're going to want
to go on-premise or partner-hosted, and that's where partners like us
will really benefit."
Invoke Systems' Hunt echoes that opinion, saying that his company currently
gets business from former Salesforce.com customers who eventually need
to host their own data for operational or regulatory reasons. Not having
to install software is a great benefit, he says. "But if you ever
get to the point that you have 2,000 users and you don't want to have
someone else hosting, you've got to cut bait," Hunt says.
4. Developing new models. Introduction of the new delivery option
gives partners the chance to get creative and dream big. By concentrating
on business expertise that could be placed on Dynamics Live CRM or be
hosted by a partner in a multi-tenant, scalable environment, they're gaining
opportunities to address small businesses in a variety of industries on
a massive scale.
"It gives Microsoft CRM a lot better chance to chase after verticals,"
Invoke Systems' Hunt says. "That's ultimately how we're going to
make money off of it."
Hunt gives an example of a citizen relationship-management vertical application
that his company is bringing to market for state and local governments.
Invoke Systems has created a government portal based on Microsoft CRM
for citizens and governments to interact on issues such as the locations
of downed trees and similar requests for government services.
"Every city in America, every county in America needs this,"
Hunt says. "The problem is, not all cities are like Seattle or Houston
and have the budgets to afford something like this. What we're excited
about is the fact that now Microsoft CRM is hostable and CRM Live exists.
We can host it on CRM Live or link up with another partner and host it
ourselves. That is something we're aggressively looking at."
Such opportunities are endless, Hunt says. "How many real estate agents
are there in America who could use CRM but can't afford it?"
Salesforce.com Quick Facts
$310 million in 2005
$350 million first 9
months of 2006
Microsoft's Wilson hopes similar thinking can lead to a new category
of partner in the Microsoft channel. "You've got VARs, ISVs, SIs for larger
customers," he says. "One thing I'm actually intrigued by with this is
the potential to have a whole new type of partner with low-end IT skills
but a lot of business savvy: someone with a lot of vertical knowledge
of how to run a flower shop, for example. These kinds of people use their
expertise to configure the system to help a flower shop run. It's kind
of a business-analyst skill."
For Genesys Labs, a Daly City, Calif.-based company owned by Alcatel-Lucent
in Paris, which specializes in customer call center software, the Dynamics
CRM Live option will allow customers more choice, says Karl Holzthum,
senior vice president for channels and alliances.
Genesys Labs offers a software connector from call center systems to
Microsoft CRM. Says Holzthum: "Although Microsoft is initially launching
Microsoft Dynamics CRM Live as a direct SaaS, we're excited that Microsoft
has shown intentions that [it] will be working with partners with value-added
solutions, such as Genesys, to bundle complete solutions to meet enterprise
customer interaction needs. We believe that Microsoft, consistent with
its past strategies, will make these adjustments to open up Microsoft
Dynamics CRM Live in order to leverage its traditional partner ecosystem."
Microsoft CRM Quick Facts
5. Lowering set-up fees for hosted CRM. Many scenarios involve
Microsoft and its partners chasing new customers that might previously
have gone to Salesforce.com (assuming that Microsoft rolls out an acceptable
partner-compensation model). There's one area where Microsoft's and its
partners' interests aren't so clearly aligned: partner-hosted CRM.
A handful of partners jumped on board with Microsoft in mid-2006 to offer
partner-hosted Microsoft CRM. Among them is Streamline Solutions, a Gold
Certified Partner with headquarters in Newport Beach, Calif., which had
one of the first named customers to buy hosted CRM through a Microsoft
For Streamline Solutions President Lance McLean, multi-tenancy offers
clear advantages: "Multi-tenancy will allow us to leverage our hosted
infrastructure better and pass on more competitive prices to our customers.
In the single-tenant world, we have to charge setup fees because they're
sitting on a dedicated box."
According to Wilson, the market opportunity for hosting companies like
Streamline Solutions should expand once Titan is released with its switch
from single-tenancy to multi-tenancy. "By being single-tenant today,
the model skews toward the upper end for us," says Wilson, citing
the higher costs of implementing solutions. "Multi-tenancy gives
you good economies of scale, especially when you're going to provide Software
as a Service for small businesses. You don't want to do a separate server
for every three companies. We think partner-hosted CRM will probably take
off more once [multi-tenant] Titan is here."
Microsoft has assured its hosting partners that Microsoft Dynamics CRM
Live will focus on "vanilla" CRM implementations that will appeal
mostly to small customers. But that's still a potential area of conflict
between Microsoft and its partners. As multi-tenancy allows partners to
more economically host solutions for smaller businesses, they may come
into conflict with Microsoft over that group of customers. At the same
time, Wilson acknowledges that the large enterprises that are the most
lucrative customer set for hosting providers may come knocking on Microsoft's
While Wilson says Microsoft is definitely positioning Microsoft Dynamics
Live as a small-business play, he says, "I can guarantee you that
no matter how I point it at small and midsize businesses, I'll have bigger
customers asking about it. Once we open it up, it'll go where it goes."
The SaaS Big Picture
Even as Dynamics CRM partners explore the new business angles that Titan
uncovers, Microsoft's approach to Dynamics CRM Live provides a case study
in how the company is applying its impulses on Software as a Service into
action in a real market. From the clues Microsoft is leaving in the CRM
space, the company's SaaS strategy appears to include:
1. Adopting a blended approach. The SaaS opportunity is most
evident when a company like Salesforce.com is blazing a Web-delivery-model
trail into a market. Microsoft, however, is not eager to throw away existing
cash flows in installed software to maximize revenues on a pure SaaS delivery.
This reluctance was evident when Ray Ozzie started recasting Microsoft
comments about SaaS as "Software Plus Services" last year. The lesson:
In the case of CRM, Microsoft will try to rake in as much revenue as possible
from on-premise installations and licenses and offer the Dynamics CRM
Live only as a source of additional revenues.
2. Following market leaders. It's noteworthy that Microsoft's
first major business application being offered in a Software as a Service
model isn't spotlighting a brand-new opportunity. Instead, it's following
on an opportunity that Salesforce.com has been delivering on for years
with a business that shows solid year-over-year growth. Whether Microsoft
feels forced to respond, is attracted by the revenues, or both, this landmark
foray into SaaS for Microsoft goes where others have gone. The lesson:
Watch for Microsoft to enter SaaS markets where some other player is already
3. Hauling partners along. The long-term implications of Software
as a Service are cloudy for the Microsoft-partner relationship. However,
in the Dynamics CRM Live case, Microsoft seems to be trying hard to make
room and create opportunities for partners. For such a sea change, it's
disappointing that Microsoft apparently won't fully explain the partner
revenue model until other, more pedestrian pricing details would normally
be released. Still, it's a wrenching set of decisions for Microsoft. The
lesson: As long as Microsoft intends to keep its revenue streams blended,
it must have help from its existing partners.
4. Allowing for some potential channel conflict. Some SaaS-related
channel shakeups will be messy, especially at the edges. As Microsoft
explores new models, some will work, others will not, and Redmond's tactics
will change. The lesson: A fairly minor adjustment for Microsoft can be
a huge deal for a small partner that happened to line up with the wrong
Microsoft initiative. It's not clear yet that partners who committed to
hosting Microsoft CRM are in this boat, but that possibility definitely
5. Opening up new partner opportunities. Partners that have the
best understanding of the technology, Microsoft's strategic objectives
and their markets stand the strongest chance of finding exciting new opportunities
as Microsoft introduces SaaS layers to its existing product delivery mix.
The lesson: Of course, there's always danger in being first. Betting wrong
or too early can lead to trouble (see No. 4). But betting right could
make your company a household name.