Microsoft Looks to Undercut
CRM Rivals on Pricing"> Microsofts CRM announcements are further validation that the on-demand model is here to stay. "Some might perceive this as a Salesforce/Microsoft duke out, but Salesforce has been offering on-demand solutions for eight years," Gianforte said. "Salesforce already has a strong global partner channel; its partners know the ins and outs of on-demand apps. It will be interesting to see if Microsofts partners make the shift to selling, customizing, and hosting on-demand apps. Its a very different business model." Mike Snyder, principal of Sonoma Partners, a Chicago-based consultancy that built a business around integrating and customizing Microsofts CRM products, is of a different mindset than Benioff."Salesforce has been growing, but I dont think they are super profitable, if at all," Snyder said. "If they dont change their pricing, they will lose customers on price; if they dont, they are charging twice as much as Microsoft. If they do [cut prices], theyre going to cut into their profitability." He said Microsofts pricing for CRM Live is in line with its strategy across the board. "Microsofts business model has very low pricingnot just CRM, everything. They price everything low," he said. That strategy may not pay off for partners, who will have to be more creative to wring profits out of CRM Live. With the new Live service, partners in the Microsoft Dynamics CRM ecosystem will be compensated on a recurring basis, not the one-time basis that they are with recurring licenses. Partners selling on-demand services will receive 10 percent of the yearly SAAS subscription revenue for each customer for which they are deemed the partner of record. During 2008, Microsoft is offering partners a special incentive of 15 percent of the SAAS subscription revenue for that year. Given that partners currently receive 30 percent of annual (on premise) license revenues, the incentive might seem necessary. Mitch Cannady, founder and president of Spinnaker Network Solutions, a Microsoft CRM reseller based in Irvine, Calif., said the recurring revenue model will be good for his company and that an on-demand option will only bring more business his way. But, he said, there are some partners who will have a different reaction. "Whats going to be the challenge for most partners is going to be changing [their] business model. They are going to have to be more innovative," said Cannady. "Going from a one-time 30 percent versus a recurring revenue model with 10 percent over the life of the customer, thats whats going to be the most challenging [to figure out]how we pay our sales people, how we pay our service people." For Cannady, the answer to selling Dynamics CRM Live is in launching an entire new sales division focused on selling on-demand services only. "The way in which our sales people sell today is by large implementation; those people would overcomplicate a CRM Live customer," he said. "Those [customers] would be smaller, more worried about configuration versus customization. So the people we have, we need to be more inventive. A lot of partners would originally lean toward the 30 percent [business model] but thats very short sighted." "We are looking to do this in a more generous fashion than most on demand [vendors]; most have a one-and-done model. We intend to have more of an annuity model," said Brad Wilson, general manager of Dynamics CRM for the Microsoft Business Solutions Business Group. "[Partners] will get paid on an ongoing basis. Relative to software margins, they will break even [in] year two or three. If they keep the customers on an ongoing basis, theyll do better. [Partners] feel the license part of this accounts for a very small part of an overall project; on demand only takes away 10 to 15 percent of overall [project], so partners can do more deals quickly." Check out eWEEK.coms for the latest news, reviews and analysis about productivity and business solutions.
From Snyders perspective, Microsofts Live pricing is fantastic. Snyder said his primary competitor in sales deals is Salesforce.com, and that Microsofts pricing will indeed have an impact on the market.