As Microsoft Corp. prepares to enter the CRM market many question how successful the company's first efforts will be. One thing is, however, clear. Mid-market CRM vendors are watching the Redmond giant very carefully.
That's why some were surprised to see one of Microsoft's CRM competitors publicly evangelize the software giant's .NET architecture.
Top executives from mid-market CRM specialists FrontRange Solutions Inc., Colorado Springs, Colo., joined Microsoft on stage at the recent DCI Conference in Boston. FrontRange CEO Patrick Bultema detailed his company's next generation CRM package, code-named Orion, which is being built on .NET technology. The presentation came during a keynote speech by Dan'l Lewin, Microsoft's vice president for .NET business development.
Yet, after the FrontRange team walked off stage, Lewin highlighted the first product the Redmond, Wash.-based software maker is building on .NET internally, Microsoft CRM. Since the software is aimed at the mid-market space currently occupied by FrontRange, the relationship between the two companies is muddled to say the least.
"Microsoft is our greatest ally and potentially our greatest competitive threat," said Bultema in an interview less than two weeks after the DCI show. "[Microsoft] is committed to both efforts, but all they want in the end is growth. [CEO] Steve Balmer doesn't need to care who wins, whether it is MS CRM or FrontRange."
Bultema said it will take years before Microsoft's CRM offering approaches the maturity of his own company's package and that functionality may not be on par until the product's third or fourth point release. He added that the fate of .NET, an architecture designed around XML to deliver next generation Web services, is far more crucial to Microsoft's big picture.
"They're a $25 billion company and $300 million of that is tied up in CRM through the Great Plains division," he said. "You tell me if infrastructure is more important to the company than CRM is."
Bultema thinks that Microsoft wants to hedge its bets in the nascent arena for mid-market CRM, defined by FrontRange as companies with less than 5000 employees. He estimates penetration levels for CRM in the sector at less than 5%.
Another challenge Bultema sees in Microsoft's future is a need to create channel-oriented sales models. Most companies serving the middle market operate through value added resellers (VARs). The CEO said this has been a major stumbling block for CRM providers attempting to reach down from the enterprise sector, including market leader Siebel Systems Inc.
Some industry watchers feel that FrontRange's relationship with Microsoft could head in another direction altogether. Scott Nelson, analyst for researcher Gartner Group, Stamford, Conn., said that acquisition is a real possibility.
"The consensus among consultants and analysts is that Microsoft won't build its CRM holdings, but that it will buy them," he said. "FrontRange is a great candidate for acquisition because it operates in the same segment of the CRM market that Microsoft wants to be in."
Microsoft officials have said in the past that the firm may look to make additional buy-outs in the space but have declined to name specific companies. The firm snapped up two organizations in the last year to bulk up its CRM presence, Great Plains Software Inc. and Navision.
Bultema didn't rule out the possibility that FrontRange could be acquired at some point but said he currently has no plans to sell.
Nelson said FrontRange may be an attractive acquisition target for Microsoft because it would cost less than other mid-market vendors such as Onyx Software Corp. and Pivotal Corp.
"It might work out well for both parties involved," he said. "FrontRange faces increasing competition but remains landlocked in the mid-tier without the money to move up. Microsoft gets a bigger channel presence and recognized technology."
Nelson said Microsoft's long-term goal may be to serve as a one source provider of enterprise applications for small and medium-sized companies, offering CRM, enterprise resource planning (ERP), and .NET-based Web services.
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