Resources > APICS Magazine > July/August 2004 > It’s Good to be King
It’s Good to be King
As viability trumps functionality in midmarket CRM, Microsoft’s strategy looks increasingly powerful
By Marty Weil
Is Microsoft’s customer relationship management (CRM) offering really suited to small and midsized manufacturers? Are there functional gaps in the offering that might give Microsoft serious pause? Laura Preslan, research director for CRM at AMR Research, answers these questions like an experienced politician. “Yes and no,” she says.
“Microsoft CRM is geared towards the small and midsized company, but it doesn’t have any vertical functionality now,” explains Preslan. “That’s where it becomes slightly less useful for a manufacturing company. Yet when you look at the way CRM tools are being implemented in manufacturing companies today, most of them don’t have a lot of manufacturing-centric processes from the sales perspective. Of course they want to have entry-to-order possibilities and be able to look into inventory for available-to-promise metrics, so there is integration into the back office. But there aren’t a lot of specific sales or marketing processes that need to change, so from that perspective it is well suited to the small and midsized manufacturer.”
She adds the caveat that companies do have to ensure the solution is integrated into any non-Microsoft enterprise resources planning (ERP) tools that are in their systems.
Preslan notes the real difference between lower-end and higher-end CRM packages is deep functionality, and it is becoming less of a factor in the small and midmarket competition. There’s much less functionality in Microsoft CRM than in Siebel or SAP; but most of the extra functionality in those packages isn’t used by companies today.
“For example,” says Preslan, “Siebel has functionality A through X; PeopleSoft has functionality A through M; and Microsoft has functionality A through D. But people are really only using A through F, so there are only a few small functional holes in Microsoft CRM, and companies are confident that Microsoft will fill those gaps over time.”
The bottom line is that functionality is no longer the paramount factor in CRM implementations. “That feature/function battle is pretty much dead when you’re talking about midmarket manufacturing or midmarket companies in general,” says Preslan.
Will you be here tomorrow?
With functionality relegated to the second tier of selection factors, one might think that the battleground is in the pricing arena—but that would be wrong.
Preslan says the higher-end packages have an average user cost of approximately $1,500 to $2,000 per user.
“There have been significant discounts over the last few years as software license deals continue to shrink,” she says. The list price of CRM tools such as Siebel, SAP, or PeopleSoft is $5,000 to $7,000 per user, but once the deals are completed the actual cost is $1,500 to $2,000 per user.
Microsoft CRM is $1,295 per user for the sales and service module; salesforce.com is $1,500 per user; and the other midmarket tools are around $1,000 per user. So there is not much difference from a price perspective.
“There’s an additional savings with Microsoft CRM because the first year of maintenance is included in the licensing cost, so Microsoft does come out underneath, but it’s not enough of a savings for price to be the leading factor,” Preslan notes.
According to a recent AMR survey, the leading factor now is viability:
From 1998 to 2000, selection conversations revolved mostly around functionality. Vendor viability was often more of an afterthought in the selection process, appearing at the very end of a 30-page Request for Proposal (RFP). Today, viability is a major factor—often the major factor …
“CRM players like Pivotal, Onyx, and SalesLogix are seeing their revenues steadily going down, and all three are in danger of becoming maintenance revenue streams as alternatives like Microsoft CRM push from the bottom and companies like salesforce.com come in from the hosted perspective,” says Preslan. So viability becomes increasingly important, especially in the midmarket.
This trend really comes to the forefront as the revenue of these smaller companies drops below the $100 million mark—that is the level that distinguishes small CRM vendors from medium-sized CRM vendors. “At that size, a CRM company is an acquisition target,” Preslan says.
Sapping the competition
The Microsoft CRM value proposition includes the following:
- Improve business productivity by helping salespeople and customer service representatives perform their jobs more effectively.
- Keep total ownership costs low through design that ensures maximum flexibility within an affordable budget.
- Integrate data with other financial and business management applications to give businesses a more complete view of customers and customer interaction.
- Extend easily to enable developers to build Web services or industry-focused applications for specific deployments to help realize positive business impact.
Microsoft CRM’s basic value proposition is not radically different from other software giants, such as SAP, whose recent incorporation of SoftBrand’s Fourth Shift functionality into its BusinessOne suite is also targeting the small and midsized market.
“SAP’s offering has many of the same value propositions as Microsoft, but they don’t have Outlook integration,” says Preslan. “You can’t beat the Outlook integration. When you walk down the halls of a company and look at what salespeople are using, they’re not using SAP, Navision, or Exacta—they’re sitting there using Outlook.”
Accordingly, Preslan believes that the CRM tool that most closely resembles Outlook is the tool that’s going to win on the desktop. User adoption issues have plagued sales force automation implementations from the very beginning. The fact that Microsoft CRM looks like Outlook is the kind of low-level functionality that is driving high user adoption levels—and that is how return on investment (ROI) is achieved from CRM investments.
SAP also doesn’t have Microsoft’s extended partner channel. The way companies are buying Microsoft CRM isn’t by calling up Microsoft, but rather by consulting with the Microsoft partner that implemented Outlook for them. They exploit that close relationship—and that is a serious barrier to other vendors trying to sell their products to these companies.
While some analysts have compared, somewhat disdainfully, Microsoft’s ubiquity in the software market to that of Wal-Mart’s in the retail sector, Preslan notes a very important difference. “Microsoft supports its partner ecosystem,” she says. “It relies on its partners to build specific functionality onto their basic platform to meet the needs of those customers requiring this modification. Microsoft is essentially collaborative with its partners, while Wal-Mart is known for being dictatorial to their partners.”
Small chinks in the armor
While Microsoft CRM has gained tremendous momentum in making its foray into the small- and medium-sized market, a number of soft spots have appeared to provide opportunity or entry to competitors.
The “buggy code” reputation. AMR’s survey was taken after the release of Microsoft CRM 1.0. In it, those companies that ultimately chose alternative products, frequently referenced Microsoft’s reputation for coming out with new products that have problems in the initial release as a reason for selecting an alternative product. “Many Microsoft users have come to expect that you have to wait until version 3 of a product until everything is fixed,” says Preslan.
Lack of deep vertical domain knowledge. For companies like The Conair Group (Pittsburgh, Pennsylvania), a leading manufacturer of auxiliary equipment for the plastics industry, a feeling that larger companies have a “one size fits all” approach that doesn’t understand the nuances of their business leads them to smaller, highly-specialized providers. (Conair had experience with Baan ERP, evaluated SAP CRM, and categorized Microsoft with these large players.) In Conair’s case, they chose BigMachines because they were specifically tailored to manufacturing companies. “Their niche aligned with what we did,” says James Lundquist, e-sales manager at Conair. “We really didn’t look at Microsoft—we saw the overall company as being too large for our needs.”
Big fish, small fish. The flip side of the viability advantage is that some small and midsized companies feel they are small-fries in Microsoft’s ocean—and won’t get the attention they feel they need or deserve. “I was concerned that Microsoft was too big and does so much that we wouldn’t even be visible on their radar screen,” says Robert Allbright, business development manager for the Americas at Austin, Texas-based JMJ Associates, Ltd. His concern was echoed by Conair’s Lundquist. JMJ selected salesforce.com over Microsoft CRM.
A viable alternative. JMJ’s selection of salesforce.com points to a Microsoft CRM competitor who meets the viability standard, integrates with Microsoft Outlook, Word, and Excel, and provides a hosted alternative for those companies looking to outsource their CRM. “With salesforce.com there was no need for our IT guys to be involved,” says Allbright. “The level of convenience and accessibility the system provides is tremendously valuable.”
CRM for the world
Many think the CRM market is fully penetrated by existing vendors—but this is a myth. Recent AMR research has shown that only 47 percent of small- and medium-sized businesses have purchased CRM systems, and this figure does not include the 800,000 companies that have annual revenues of less than $10 million.
This defines a market of huge untapped potential—and perhaps one of the ways to tap it is through Microsoft Office. There are 100 million users of Microsoft Office, and all of them are fair game for Microsoft components such as CRM.
“Whenever Microsoft jumps into a market space, it marks the commoditization of that functionality,” says Preslan. “It marks a maturity point, as if they say, ‘The product may not have enough functionality to appeal to large companies, but it has enough to make it interesting to the midmarket.’ This approach adopted by Microsoft makes CRM more widely available.”
The Microsoft partners with ERP tools that don’t have CRM functionality are buying into the .NET architecture and using Microsoft CRM as their CRM system.
“They’ve created an interesting and effective symbiotic partner ecosystem,” concludes Preslan. “It’s good for Microsoft, good for their partners, and good for users—who get integration out of the box.”
Marty Weil is an independent journalist based in Charlotte, North Carolina. He can be reached via e-mail at marty@weilmarcom.com.