Microsoft makes public its initial CRM plans, but what's next?

Now that Microsoft has officially announced it will enter the low-end CRM market, analysts and partners are wondering if the Redmond giant will be content to stay there. Is CRM expansion and a possible acquisition its next move?

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Microsoft Corp. is jumping into the market for customer relationship management software with a new product aimed at the small business arena. Industry experts believe the move will trigger substantial growth in the burgeoning low-end sector and may indicate that CRM industry consolidation is right around the corner.

Redmond, Wash.-based Microsoft is counting on the idea that close ties to its ubiquitous Office products will help to rapidly grow the number of small businesses, typically identified as companies with 100 employees or less, interested in deploying CRM.

Among the specific tools that the CRM offering will include are bCentral Customer Manager, an online lead management service for small businesses, Great Plains Siebel Front Office, a co-branded offering for upper midmarket and medium enterprise customers, eEnterprise Field Service for mid-sized customers in the high-tech industry, and Solomon Service Series for medium-market customers in the HVAC and construction industries.

Slated to debut sometime during the fourth quarter of 2002, the applications also mark the first product Microsoft will release on its .NET platform. The .NET architecture is Microsoft's XML Web services platform aimed at letting applications communicate and share data over the Internet, regardless of operating system, device or programming language.

The much-anticipated arrival of Microsoft on the CRM landscape is sure to heat up competition among companies already targeting the small-to-medium sized market, such as FrontRange Solutions Inc. and Interact Commerce Corp., formerly SalesLogix, but larger CRM vendors already partnered with the software giant are claiming the move doesn't threaten other established players. Some analysts agree -- at least for now.

"If you look at the amount of revenue that is currently generated in the small business area of the market it's not a sizeable amount, but we've been projecting that this is an area where there's going to be a lot of expansion," said Tom Topolinski, vice president of worldwide software applications at Gartner Dataquest. "Microsoft knows this and using .NET as a delivery vehicle they should be able to penetrate the low-end fairly successfully."

Topolinski estimates that the small business arena currently accounts for roughly 2% of the overall CRM market but said Microsoft's presence should help to fuel significant growth over the next several years.

"It's a no frills application, we're talking basic functionality, but it's going to be low cost and the Siebels and Onyx Softwares of the world aren't prepared to sell into this space," he said. "It will stack up well against what's already on the market already."

The analyst also believes that tight integration to Microsoft's Office products and its Great Plains software, that already targets small-to-medium sized companies, will drive sales. But Topolinski warns that the basic nature of the first iteration of Microsoft's CRM software won't fit the needs of every business as some companies wait for greater customization functionality, likely to show up in later releases.

A threat to CRM partners?

Officials at least one of Microsoft's existing partners in the CRM space, Onyx Software Corp., Bellevue Wash., indicated that the firm's entrance to the market doesn't threaten their company's business. However, Onyx is already being mentioned as a company Microsoft may pursue through acquisition if it decides to move up into the enterprise sector.

"We know they'll make a lot of noise at the small end of the market, but we don't think they want to compete with companies like ourselves," said Eben Frankenberg, executive vice president at Onyx. "Microsoft will, of course, invest in growing its products but just how long it takes them to move into the mid-market remains to be seen."

Frankenberg points out that Microsoft already sells some Siebel Systems Inc. products through its Great Plains venture and says that Onyx has been reassured by the company that it there are no intentions to compete for customers in the near future.

A possible acquisition

Analyst Topolinski is firmly among the ranks of industry watchers who believe that consolidation is a certainty for the CRM market in the near future and indicated that the arrival of Microsoft would likely have an impact as the market shakes out. He doesn't feel current enterprise players view Microsoft as a threat in the near term but that the industry at large is well aware that the Redmond giant is rarely satisfied to control a small part of any market it operates in.

"As Microsoft evolves its product into a more robust offering, as they become more comfortable with the customized aspect of this market, it's likely that they will make at least one aggressive acquisition to serve the mid-sized enterprise market," Topolinski said. "This is an entry point for them."

The analyst said he believes this further development may happen sometime around the 2003-2004 timeframe but refused to speculate on which companies may likely be targeted for acquisition.

As one of the companies already being rumored as a possibly attractive buyout opportunity for Microsoft, Onyx is busy putting a positive spin on the announcement. But when repeatedly faced with the question of whether a buyout could happen down the road, even company executives have to take an open-ended view of the future.

"Well, nobody ever knows who Microsoft will try to buy next," Frankenberg joked.

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