In-Depth

Dynamics CRM: How Microsoft Is Stepping Up to Salesforce.com

Microsoft may be an underdog in the crowded CRM software field, but with a new GM in the Dynamics CRM business, the company seems poised to take on Oracle, SAP and CRM giant Salesforce.com.

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One year after Microsoft released its most significant upgrade of Dynamics CRM to date, the company is redoubling its efforts to gain share in the cutthroat competitive market of customer relationship management (CRM) software.

Microsoft this quarter will release a significant upgrade to Dynamics CRM 2011, called Q2 Service Update. In addition to running on non-Microsoft-based mobile devices and supporting browsers other than Internet Explorer for the first time, Dynamics CRM will become even more social with support for activity feeds, status updates and the ability to "like" content.

These new features are clearly the latest frontal assault to market-leader Salesforce.com Inc., which for the past year has made social networking and support for mobile devices a cornerstone of its CRM platform (see "Salesforce.com and the Enterprise Social Revolution").

Getting past -- or even close to -- Salesforce.com's dominance will be no easy task for Microsoft. According to market research firm IDC, Microsoft generated an estimated $214 million in revenues from its Dynamics CRM product in 2010 (the researcher has not yet released its 2011 stats). By comparison, Salesforce.com, Oracle Corp. and SAP AG all took in more than $1 billion in CRM revenues. But it's Salesforce.com that's giving Microsoft and its partners headaches. Last year, Salesforce.com's revenues were $2.27 billion, up 37 percent, and the company has forecast revenues will increase 30 percent this year to nearly $3 billion.

"There's no doubt that, having a master marketer like Marc Benioff and the kind of budget he throws at marketing, Microsoft has been completely outgunned," says Joshua Greenbaum, principal analyst of Enterprise Applications Consulting in Berkeley, Calif. "But it's not for lack of a product capability as much as for a lack of commitment at a high level for the company to actually put that kind of effort to actually make Dynamics CRM as successful as it could be."

Despite its underdog status, Dynamics CRM appears to be enjoying more success than it has in the past, thanks to competitive pricing and a feature set in the online product that's on par with Salesforce.com's comparable CRM feature set. Take Larry Betz, founder of Portland, Ore.-based Gateway Solutions, which was acquired in February by Armanino McKenna LLC.

Betz was offering CRM products from both Salesforce.com and Microsoft, but more recently has found the Dynamics CRM product more appealing to customers. "It was tough to sell Salesforce.com at $125 a user when we had a comparable Microsoft CRM offering at $44," says Betz, who has assumed the role of managing director of CRM at San Ramon, Calif.-based Armanino McKenna. "We were able to knock down some pretty substantial deals in the northwest and that got us as a priority partner with Microsoft."

"When you say Oracle, I think of a trapped Siebel customer base -- lots and lots of Siebel deployments where I think you've got a lot of companies that are disappointed they couldn't get their users to use it. So the value hasn't been revealed."

Dennis Michalis, General Manager for Dynamics CRM, Microsoft

New Leadership
In addition to the new features coming in the Q2 Service Update, Microsoft has put a fresh face on its Dynamics CRM go-to-market strategy. Now leading the charge is Dennis Michalis, the new general manager for Dynamics CRM, who replaced longtime GM Brad Wilson.

Michalis comes to Microsoft after recent stints at Deloitte Consulting and Infor Global Solutions, where he was corporate senior vice president and chief of staff. His role in tapping Microsoft to bring .NET and Windows Azure to the Infor platform piqued Michalis' desire to join the Redmond team.

The recruitment process dates back to 2010, when Michalis was working with then Group Presidents Bob Muglia and Stephen Elop to port Infor to .NET and Windows Azure. "We went into deep [proof of concept] cycles to understand how we could actually do this," Michalis recalls. More recently he got to know Kirill Tatarinov, president of the Microsoft Business Solutions Division (BSD), and BSD Corporate Vice President Michael Park.

"I firmly felt this visceral reaction when I met with executives of the now-formulated Dynamics team," Michalis says. "I got deeper into what potential there is, certainly the vibrancy of the CRM market, the channel partner ecosystem, the ISV ecosystem, the way the global SIs are waking up to CRM as a main-stage transformative technology. All of that resonated with me pretty deeply."

In a late February meeting with Michalis in New York leading up to last month's Convergence 2012 conference in Houston, the new Dynamics CRM chief appeared confident and ready for battle. Michalis is steadfastly unbowed by the momentum driving Salesforce.com, Oracle and SAP -- which are showing no signs of ceding share in the market -- as well as dozens of smaller players taking aim as well.

"Look at their acquisition pattern, the disparate platforms, the disparate codebases and their statement for complete integration, and I would challenge that," Michalis says of Salesforce.com. "I'd say that's a dangerous line to walk to lead both the partner ecosystem as well as a customer base who's expecting that line to be walked and toed very tightly. It's very expensive."

Michalis is no kinder in his assessment of Oracle or SAP. "When you say Oracle, I think of a trapped Siebel customer base -- lots and lots of Siebel deployments where I think you've got a lot of companies that are disappointed they couldn't get their users to use it," he says. "So the value hasn't been revealed."

That said, Michalis is not oblivious to Oracle's success in the market. "They're aggressive. They're a fighter. We don't hold our head in the sand about them being a non-issue at all," he says. "I would say they're right up there as a big, big concern. We've got plenty of wins against them, though, so we're kind of invigorated by recent patterns."

SAP, he argues, has given little emphasis to its CRM business, instead focusing on HANA, the company's in-memory database platform that provides real-time data analysis.

"I think they're trying to strike a chord and resonate to the market that says they're investing in a faster way to get to information," he says. "I sit back and just look at what we can provide from a SQL perspective, and the speed and the investment that's going on there in Microsoft's world. To me, it's a non-issue. The enterprises of the world are going to get the same kind of speed out of everybody. They don't talk about CRM. I think they've got it; they've got a lot of shelfware. My sense more is CRM has been a sweetener for enterprise customers to take on more raw breadth of SAP, but I don't think the value has been realized."

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Winning with Integration
Yet for all the competitive rhetoric, there's no getting around the fact that Microsoft's CRM business pales in comparison to its three rivals. But Greenbaum says Microsoft doesn't have to focus on catching up to Salesforce.com in market share. "It's not a zero-sum game," he says. "I don't think Microsoft, in order to succeed, needs to make Salesforce fail."

Nevertheless, Greenbaum says Microsoft can't ignore the areas where Salesforce.com is trying to expand, notably social media on the user experience side or Force.com on the platform side. "Microsoft needs to build out those two edges much more succinctly," Greenbaum says. "Right now the story of Windows Azure plus Dynamics CRM is not well understood -- they're not leveraging their Platform as a Service the way Salesforce is, and I think that's a strategic opportunity that Microsoft could leverage more."

Michalis believes that enterprises are shifting to a more centralized view of CRM rather than the historic norm of more distributed deployments of different vendors' solutions. That, Michalis believes, bodes well for Microsoft and its partners, as the company tightly integrates Dymamics CRM with SQL Server, SharePoint and the rest of the Dynamics ERP suite.

"There are some big, big decisions being made, whereas before it may have been a peripheral thing to help sales force productivity," Michalis says. "Some of the largest companies in the world will still see pockets of traditional CRM flare up in departments and divisions because they need tools to run their business and they have the autonomy do to that, but you're seeing very substantial enterprise engagement now."

Indeed, enterprises are looking to reduce the costs of their CRM deployments while gaining a more holistic view of their customer relationships, notes Mary Wardley, IDC program manager for CRM and enterprise applications.

Consequently, with the release of Dynamics CRM 2011 last year and its model of offering cloud and on-premises parity, Microsoft appears to be gaining share, Wardley says. "The latest release of Microsoft Dynamics has moved Microsoft into improved competitive positioning within the CRM applications market, particularly against Salesforce.com's solution and the [Software as a Service] products from Oracle," Wardley notes. "Some customers switching from competitive products to Microsoft have experienced significant cost savings and are able to leverage their core internal Microsoft skills."

Microsoft's emphasis of giving customers the choice of deploying Dynamics CRM in the cloud, on-premises or with a combination of both is also resonating with customers. Since the release of Dynamics CRM 2011 last year, some 60 percent of new deployments are online, says David Pennington, Microsoft director of CRM product marketing.

"There's a large portion of customers choosing to go online because of the clear benefits from operational budgets versus capital expense," Pennington says. "Because we have symmetry between our on-premises and online offerings, they feel that they want to consume this technology. For us, we don't mind. It's really just the choice of the customer, but we've seen a greater percentage choosing online."

Armanino McKenna is seeing 50 percent growth of its Dynamics CRM Online offering. Two years ago, Dynamics CRM Online accounted for 10 percent of its CRM business, and now it's up to 60 percent, says Scott Mangelson, Armanino McKenna CRM practice leader.

Overall the partner's Dynamics CRM business is growing as well, Mangelson says. "There's a certain place where Microsoft fits well within the customer base, and it's definitely growing," he says.

Despite that strong uptick in online deployments, which include proof of concepts, there's a strong contingency of customers who are steadfast in their desire to run Dynamics CRM on-premises, notably in vertical industries such as public sector and financial services.

"They want on-premises," Michalis says. "Whether it be for control, security, their own strategic bets, the way they want to portray their infrastructure. That 40 percent is a pretty robust 40 percent."

"It was tough to sell salesforce.com at $125 a user when we had a comparable Microsoft CRM offering at $44."

Larry Betz, Managing Director of CRM, Armanino McKenna LLC

Accelerated Upgrades
With the apparent shift to the cloud, Microsoft will move to a more-frequent incremental upgrade cycle, Michalis says. "I don't think it ever will be the world that it used to be, in terms of 'wait three years for one big drop,'" he says, allowing for exceptions such as new releases of Office, Windows, SharePoint and SQL Server.

"Yes, there will be a future version of CRM, if you think about the on-premises deployment that is CRM Server 2013, or whatever the name ends up being -- that's something that will happen," says Craig Dewar, director of product management for Dynamics CRM at Microsoft.

Moreover, Microsoft is also gunning to get another update of Dynamics CRM 2011 out by the end of this year. Dewar says the next release update, code-named "R9," will offer even further improved social-networking support and tighter integration with applications running in the Windows Azure Marketplace.

But look for Microsoft to fire on all cylinders when it comes to enhancing the social capabilities of Dynamics CRM, according to Dewar.

"The current social release is focused on productivity for internal teams and sales, service and marketing," he says, referring to the upcoming Q2 release. "The next place you'll see us increase our investments in social are in social customer service, so the binding of things that appear in Twitter and Facebook into actual service cases inside of CRM is one of the scenarios for that. There are a lot of different investments going on for our next set of releases across the next year in the area of social. We're just getting started."

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