Churning up the CRM market
As Microsoft prepares to launch its mid-market CRM product in the UK, rivals and resellers are hoping the giant's clout will have a positive effect, writes Pete Morris.
When Microsoft moves into a new market, companies often tremble like the inhabitants of a western town bracing themselves for the arrival of a fearsome gunslinger.
But those in the CRM space are not worried by the approach of Big Bill Gates and his posse. In fact, many look set to welcome him and Microsoft Business Solutions CRM.
As Microsoft's marketing clout kicks in, many SME customers will seriously consider buying a CRM solution for the first time.
Dale Vile, an analyst at Quocirca, said: "It's an interesting area. Nearly all small businesses use some kind of CRM system, perhaps paper-based, but it has never occurred to them to put a formal system in place. Microsoft will change that."
Microsoft said its CRM product is for businesses with up to 1,000 users, and estimates that less than 15 per cent of that potential market currently is being served by rival products.
"These customers are typically using Microsoft Exchange and have six or seven sales staff. There are great opportunities for the reseller to layer Microsoft CRM on top of Exchange. It's a very gentle upsell," said Vile.
So the launch of Microsoft CRM, backed by the marketing muscle and name recognition that Microsoft will bring to the fragmented SME market, is likely to have a big impact.
Call a specialist
Microsoft has already signed up 1,000 US customers in the year since it launched its CRM over there.
The key, it knows, is in working with the channel at two levels: with system integrators, and with resellers and ASPs that already sell to SMEs and can bring CRM to a wider market.
Microsoft CRM 1.2 launches in the UK at the beginning of January. Dean Carroll, Microsoft Business Solutions business development director, said: "We started the UK programme a year ago, working with 15 experienced system integrators and training them in the product. They, in turn, have been working with their early adopter customers." (See below.)
Carroll admits that the CRM launch is a departure from Microsoft's traditional business, but said that the vendor has a great deal of experience of business processes.
Although Microsoft does not have a background in the CRM arena, it has made strategic acquisitions of specialist vendors like Navision and Great Plains, which have given it a solid platform to build on.
Microsoft CRM, which comes in both Standard and Professional editions, is a modular series of tools built using Microsoft .Net technologies and accessed through Outlook or the web.
The software allows users to access contact and customer account information from a central location, and automates leads routing and escalation.
According to Annette Giardina, CRM director at Aspective, one of the integration partners signed up by Microsoft, her company is looking at Microsoft CRM as a way of getting into the SME market.
"We have not gone for sub-50 user accounts before because the products have not been available," she explained.
Aspective is using Microsoft CRM, combined with specialist applications, to create a CRM solution aimed at mid-range pharmaceutical companies.
"Microsoft has opened up CRM to all resellers," said Giardina. "But CRM is not just about software, it is about processes and people. What Microsoft has done is to make a CRM product that is easy to configure. It has lowered the bar to entry. But resellers have to recognise that it is not for everyone."
There is a potential problem for Microsoft. Although it has put a training and certification programme in place, any resellers can sell the Microsoft CRM product.
This has raised concern that those resellers without the necessary skills might get involved in what is actually a very specialist area of the market, concerned with business processes rather than simply business applications.
"Resellers don't have to be certified, but users will choose to work with those that are," said Giardina.
That is also Microsoft's view. The company believes its CRM certification will have value, and will allow the customer to choose a partner that has experience of the product, and an understanding of business processes.
Ultimately, the success of the implementation will depend on how well resellers understand the way their customers work, and how they can make their business processes more efficient.
For rivals in the low-end SME space, the entry of Microsoft is a mixed blessing. "There are positive elements to Microsoft coming in," said Gerry Carr, marketing manager at CRM vendor Accpac.
"Its marketing money will make people aware of the market and also aware of the products that are already available. The challenge for us is to convince the market that we have better products than Microsoft."
Carr said that trying to crack the low-end CRM market is a major challenge, even for an industry behemoth such as Microsoft.
Don't shoot the reseller
"It is entering the market in a bullish way, but it has to work closely with its channel. Many skilled resellers are concerned that any old dealers will be able to sell CRM products, and that that could end up giving CRM a bad name," he said.
The nightmare scenario for Microsoft, according to Carr, is that in a couple of years time resellers will get the blame for a raft of failed CRM implementations.
Craig Sullivan, director of product development at application service provider NetSuite, maintained that a wider question that users need to consider is whether going the Microsoft CRM route ties them too tightly into Microsoft's operating systems and applications.
"Its dominance is on the desktop and it is trying to build products and devices to maintain that dominance. Microsoft CRM ensures that users will keep having to upgrade to new versions of Microsoft operating systems," he said.
Once Microsoft has an SME tied into its CRM product, it can control when the user has to upgrade, according to Sullivan.
One of the reasons that so many CRM vendors - even those that have traditionally sold to much larger users - are so prickly about Microsoft's imminent entry into the mid-range is that they have their eyes on the same market sector.
Andy Kellett, senior analyst at Butler Group, said: "The big CRM vendors have been talking for a while about going after the mid-market. But we don't believe that large CRM vendors understand the SME market. You can't just cut down bigger products."
Kellett believes the big CRM vendors face a dilemma. "They need to come down to the mid-market because enterprise sales are not there. Enterprise customers are not committing to buying new products," he said.
This is partly because of general economic concerns and partly because of publicity about failed customer implementations and poor return on investment for large CRM/ERP projects.
There are figures showing that up to 80 per cent of these projects failed in some way, but Kellett insisted that this is often the fault of unrealistic customer expectations rather than of the solution used.
"People's views of what they can achieve with their project are often exaggerated," he said.
Whatever the reason, the enterprise CRM market has stalled, making the mid-range the place to be.
Microsoft's arrival into the arena raises issues for a number of vendors, not least Siebel, which has always gone after a much higher CRM market than the one targeted by Microsoft.
"Siebel and Microsoft are so far apart that they are not a worry to each other," said Kellett. "But at the high end the market is drying up."
For this reason Siebel, in partnership with IBM, has announced that it is going after the mid-market too, with Siebel CRM OnDemand, which uses an ASP model. Siebel rivals have seen the move as a defensive one, designed to tackle the arrival of Microsoft CRM.
Speaking at the OnDemand launch earlier this year, chief executive Tom Siebel said: "IBM and Siebel have a long-standing partnership delivering CRM solutions. Now we are bringing proven CRM to a new class of users."
Microsoft hit back, saying that Siebel's product was "aimed at the enterprise and had limited customers in the SME space".
Microsoft and Siebel seem to be moving closer together as they try to grab mid-market customers. This is likely to muddy the water between the two companies, which have a long-standing relationship.
Microsoft is Siebel's largest development partner; it developed salesforce automation for the Microsoft platform, and so would want to continue to co-operate.
Earlier this year, Neil Morgan, Siebel's European marketing vice-president, said: "We agree to compete [with Microsoft] at the low-end but we're really focused on the enterprise."
Many of Microsoft's development partners also have a commitment to Siebel.
Giardina said: "Microsoft has made clear that it is not competing at the high end of the market against Siebel. We are a Siebel partner and will continue to be. It has a great product for the high end."
Resellers are interested in Microsoft CRM precisely because it can reach parts of the market that have never been reached before. To a far greater extent than the business applications market, being a successful CRM vendor depends heavily on creating development partnerships.
Kellett believes this is an important area for Microsoft. "It will take time to build up these partnerships, but its strategy is not based on selling for only a few months; it is in it for the long haul," he said.
The advantage that Microsoft has, he said, is that it can build its CRM business from the bottom up, bringing its customer base with it.
Part of the problem for Microsoft is that must perform a balancing act to get the product right. Some rival vendors CRN spoke to criticised Microsoft CRM for being too complicated for the SME market, while others claimed that it lacked the functionality users would expect.
Vile said that Microsoft knows who its customers are, and has tailored its CRM product accordingly. It has also found the right space in the market.
"Microsoft CRM will not make a great impact on hard-core business users because it does not have the functionality they need," he said. "Microsoft is in this for the long term and wants to get rivals' integration partners to move across."
Vile added that Microsoft is hoping that its vertical channel partners will help its product mature and deliver localisation and functionality, so that in the future it will be able to match incumbent offerings feature for feature.
So, ultimately, the key to whether Microsoft CRM, and the SME CRM market, succeed depends on how well Microsoft can work with its development partners. Rivals are scathing about its ability to do this.
"History has shown that Microsoft does not care about its development partners. Those partners will just have to work to suit Microsoft," said Carr.
With CRM, the key to success is to have the widest possible range of integration tools, and Microsoft knows it must co-operate with its partners. Many will be suspicious about whether it can do that.
TRAINING AND CERTIFICATION
Microsoft's training and certification programme for resellers and customers is key part of its CRM strategy. The company has joined with two of its leading Certified Technical Education Centres (CTECs) to provide training and certification in the product.
The CRM training consists of a three-course curriculum, covering applications, installation and configuration, and also offers a 'hands-on lab' for customers.
Although the products have not even been launched, Microsoft said that 290 people are going through training. Resellers can obtain certification by getting individual members of staff trained up.
"We are preparing our partners," said Dean Carroll, Microsoft Business Solutions business development director. "We are not just teaching them to install the product. We are working with organisations that are not necessarily from a business processes background."
Bill Walker, commercial director at Xpertise, one of two CTECs doing CRM training (the other one is Pygmalion), insisted that the initial training has gone well.
"The people coming through are resellers with a CRM background and users. Microsoft is the new kid on the block and everyone is very interested," he explained, adding that resellers will benefit from getting certification in the CRM product.
"If they go though the training they have a stamp of approval from Microsoft and will be able to work with the customer more efficiently," he said.
Microsoft is keen to encourage resellers to go through certification, pointing out that certified resellers also get access to white papers and other Microsoft technical support.
Although final partner details have yet to be confirmed, it is also likely that resellers that go through certification will benefit from higher margins.
Earlier this year, Microsoft representatives said that resellers that went through certification would be able to get 20 to 30 per cent margin on CRM sales, helping them to deal with the typically longer sales cycles that business process solutions involve, and would be able to collaborate with other partners on sales.
With higher margins for business solutions than for simply selling business applications, it may prove to be financially worthwhile for resellers to invest in these new skills.
At present just two Microsoft CTECs are providing the CRM training, and initial partners are being fully subsidised by Microsoft.
But Walker maintained that other CTECs, of which Microsoft has more than 40 in the UK, could become involved in providing training if the demand is there. "It depends how big this product is," he said.
From January, when Microsoft CRM launches, training and certification will be open to all resellers. The two-day course is priced at about £700.
CONTACTS:
Accpac (020) 8622 3033
www.accpac.com
Aspective (01784) 410 420
www.aspective.com
Butler Group (01482) 586 149
www.butlergroup.com
Microsoft (0870) 601 0100
www.microsoft.com/uk
NetSuite (001) 650 627 1000
www.netsuite.com
Quocirca (01753) 754 838
www.quocirca.com
Xpertise (0845) 757 3888
www.xpertise.co.uk