Microsoft Looks to Undercut

 
 
By Renee Boucher Ferguson  |  Posted 2007-07-10
 
 
 

Microsoft Looks to Undercut CRM Rivals on Pricing


Microsofts pricing for its Dynamics Live CRM is undercutting the competition by about half, and partner compensation for on-demand sales is about 20 percent less than it is for annual subscription rates.

The software giant announced the long-awaited product and pricing information for its on-demand customer relationship management offering at its annual Worldwide Partner Conference July 10 in Denver.

But now that its out, the information raises a number of questions, including whether its pricing tactics are enough to take on the SAAS (software as a service) market and its dominant seller, Salesforce.com—or even whether it can make a wave in what is quickly becoming a very large pool of vendors?

Officials with Microsoft, located in Redmond, Wash., said they will offer the Professional version of their Live CRM on-demand service to customers for $44 per user per month, though for all of 2008—when the product is actually available—Microsoft will offer an introductory price of $39 per user per month for the pro version, which offers a full suite of CRM software through Microsoft Outlook and browser clients and customizable workflow through Microsoft Workflow Foundation.

The Live CRM Enterprise edition, which offers all the capabilities of the Professional version as well as offline data synchronization, will be available for $59 per user per month.

Salesforce.com, the gold standard for on demand CRM and the company that Microsoft is working to beat, offers its Professional and Enterprise CRM editions for $65 and $125 per user per month, respectively. The San Francisco company also has a Group Edition that is $10 per user per month.

Salesforce.com CEO Marc Benioff said in an e-mail to eWEEK that Microsofts pricing wont make up for an inferior product.

"These new prices are their market prices today—there is no difference," Benioff said. "When you have an inferior product you have to have an inferior price. That is why Zune is priced below iPod, and why Windows CE is priced below Blackberry, and why Microsoft CRM is priced below Salesforce.com. Microsoft CRM still lacks many of the key features customers demand today, which is why Gartner ranks them below both Salesforce and Siebel on the 2007 Magic Quadrant out last week."

Salesforce.com offers four separate editions of its software: Unlimited, Enterprise, Professional and Group. Unlimited offers pretty much what it says: unlimited access to Salesforc.coms CRM software for sales, service and marketing; customization capabilities; access to AppExchange Salesforce.coms on-demand application marketplace; Salesforce.coms sandbox environment for testing software; access to mobile capabilities; unlimited custom apps, tabs and objects; premier support; more storage; and workflow capabilities. The rest of the editions have some of the Unlimited editions features, but not all, and with a little bit less offered at each descending price point.

Salesforce.coms Enterprise Edition is the only version outside of Unlimited to offer workflow capabilities and offline access.

Greg Gianforte, CEO and founder of RightNow Technologies in Bozeman, Mont., said buyers should look closely at what they are getting for the list price and what add-ons are needed to get a solution that meets their companys needs.

"The Microsoft offering is based on its packaged CRM app, which is a traditional B2B CRM app, with an SFA [sales force automation] contact-records focus, so its likely that their initial targets are SMBs, and the pricing will be attractive to that market," Gianforte said.

"RightNow has taken a different approach in terms of product offerings," he continued. "Were focused on larger global enterprises that are consumer-centric [rather than B2B] and want a CRM solution for multi-channel customer interactions, and were focused on offering vertical solutions that further accelerate the benefits to our customers. RightNow pricing begins at $100 per user per month for a one-year subscription, and we typically dont lose deals because of price."

Gianforte also pointed out that Microsoft and its partners have to make a significant shift to selling, customizing, servicing and hosting applications. "RightNow has offered on-demand solutions for a decade," he said. "You dont just flip a switch and shift from packaged applications to hosted offerings."

Next Page: The on-demand model is here to stay.

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.

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.

"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 pricing—not 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."

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