Microsoft is dropping the price 40 percent on its CRM Live hosting for partners who host—and resell—its customer relationship management software, hoping to drive partner demand in a non-partner space.
The new price, announced Oct. 23 at Microsofts annual Convergence conference, in Copenhagen, is $15 per month per user, dangerously low for competitors, but in a space where few competitors sell to partners.
Microsoft, with a legacy indirect sales force from its on-premises ERP (enterprise resource planning) and CRM software—some of which is already hosted—is in a bind to include its tremendous partner network in its CRM Live, or on-demand, initiative.
"Several Microsoft executives have made the comment that their partner network is their biggest asset, but its also their biggest hurdle when moving into software as a service," said AMR Research analyst Rob Bois. "If they didnt already have a big partner network, they probably wouldnt have used it in SAAS. But given that they have it, they have to figure out how to use it."
On-demand mainstays Salesforce.com and NetSuite currently sell their software through a direct sales channel, although NetSuite is reportedly experimenting with an indirect model, according to Bois. Other niche on-demand software companies such as RightNow Technologies and Workday are selling through direct channels as well. The rationale: Its difficult to sell enterprise-class software through partners, according to a RightNow spokeswoman, because big companies want direct contact with their software vendor. The indirect model, it seems, is more appropriate for the midmarket, where Microsoft traditionally sells its Dynamics software.
Despite the fact that Dynamics is typically sold to small and midsize companies, Microsoft is indeed targeting enterprise users with CRM Live. But its low pricing strategy, one the company has used to enter and dominate a number of markets, could backfire. Microsoft said in July that it would charge $44 per user per month—about half of Salesforce.coms Enterprise pricing.
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"There is a notion that you get what you pay for," said Bois. "Microsofts [customer pricing] is so low that people wont think its enterprise-class CRM, and thats really not true. Microsoft is getting into the enterprise [with CRM]. [Pricing] is a double-edged sword."
Its not features and functionality that win out in CRM deals, its pricing, Bois said. "It really comes down to risk," he said. "There are a lot of companies where CRM will never work, or it will take several times to get it right. So [a competitive] price works. And it still comes down to user adoption, and Microsoft still has the best in class in user adoption."
But the conundrum of the indirect model—and the question of whether it will work in selling enterprise-class on demand software—remains. Microsoft is offering several options for customers to utilize its CRM Live software: on premises, on demand or a combination of both, because the same code base is used across the board. It will also host CRM Live in its own massive data centers—the same ones used to host MSN and Hotmail, two of the worlds top consumer Web sites—or through partners data centers (the ones not used to host MSN and Hotmail). The company has not revealed what it will charge customers for its service, but it would have to be competitive to what partners are offering.
Partners that want to add their own touch to CRM Live will flourish through hosting CRM Live, Microsoft officials said.
"The cutoff point [for determining hosting partners] is really those that are equipped and have some expertise in hosting, and also those that want to build out much broader offerings—hosters building deep vertical applications, or integrating other services and offerings and providing that to the market," said Bryan Nielson, director of worldwide product marketing for Microsoft Dynamics CRM. "Whatever makes sense for partners and customers, thats what we want to support. If we make it affordable and there is value, partners will pick and choose based on their internal expertise."
In Copenhagen, Microsoft is also defining the structure by which partners pay for the right to host its CRM code. Rather than pay a lump sum or money up front, partners pay Microsoft per user, per month—for the prior month. "Microsoft is selling to partners in the same model that they are selling to customers—per user, per month," said Bois. "It may be the key to cracking SAAS for indirect sales."
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