Microsoft Announces CRM Live

The dynamics app leaves partners questioning on-demand opportunities.

At its worldwide partner Conference in Boston July 11-13, Microsoft made what CEO Steve Ballmer referred to as the single most inevitable announcement in the history of Microsoft: Dynamics CRM Live, Microsofts answer to software as a service in the business applications world.

Dynamics CRM Live, due in the second quarter of next year, is good news for customers, particularly in the small-business sector, where Microsoft is initially targeting the customer relationship management service. However, there are still questions remaining for the companys massive partner channel, such as where the opportunities are as an on-demand partner with Microsoft and how the on-demand pricing model will affect partner revenues.

"The critical element is pricing," said Herve Pluche, president and CEO of Neocase Software, in San Francisco. Neocase develops on-demand customer service software and is a Microsoft partner. "Today, the channel collects back margin in a lump sum. With on demand, there is no lump sum. [Revenue] is recurring. [Partners] dont like that. Its going to be interesting to see what Microsoft says about pricing."

Despite looming questions and rumors, Brad Wilson, general manager of CRM at Microsoft, said its too soon to start talking about pricing.

"Starting next quarter, we will have CRM partners working on a TAP [Technology Adoption Program]," said Wilson. "In Q1 [2007], well broaden that and then start the beta program; in Q2, well move into full production."

With the Redmond, Wash., companys faltering attempts at CRM—Dynamics CRM 1.0 and 2.0 (and some say 3.0)—it just wasnt profitable for a partner to offer a hosted version of the software for companies with fewer than 50 employees because a lack of multitenant capabilities required too much infrastructure. Multitenancy is the practice of putting numerous customers on a single server, which is considered by some to be the hallmark of SAAS (software as a service). With "Titan," the next iteration of Dynamics CRM 3.0, Microsoft is building out multitenant capabilities for its on-premises, on-demand and hosted versions; essentially, they all have the same underlying code, with the data tier rewritten to interpret multiple databases.

At the same time, Microsoft is, for the first time, hosting the Dynamics CRM Live applications in its own data centers for a monthly fee. Previously, Microsoft looked to the channel to provide hosting options for customers.

For NaviSite, the opportunity with on demand lies in building add-ons around the basic software—security features, customizations and integrations to other applications, for example.

"With you can buy and use the basic functionality out of the box, but almost nobody does. We have a staff here that almost all they do is customize Salesforce," said Mike Mazur, vice president of Channel Sales and Alliances at NaviSite, in Andover, Mass. "If we were just strictly selling hosting boxes, I might be a little concerned by this [Dynamics CRM Live]. Its almost like giving away the cell phone to get the minutes."

Indeed, Microsoft is swimming in uncharted waters when it comes to providing opportunities to the channel in an on-demand world. AMR Research analyst Robert Bois pointed out in his July 12 research note, titled "Live, from Boston! Its Microsoft CRM," that few software companies selling predominantly through partners, like Microsoft does, have succeeded in converting to a SAAS model.

"While Microsoft is clearly late to the game, the large partner sales network has made the formulation of a hosted strategy a bit more complex," Bois wrote in the report. "While Microsoft previously offered various tools and pricing models to allow partners to more easily host its Dynamics CRM 3.0 application, few have done so thus far [because of single-tenancy infrastructure costs]."

Bois said partners also point to the tight linkage to Microsoft Outlook as a critical competitive advantage to Dynamics CRM, but "most buyers want servers for both behind the firewall."

During his keynote address at the Worldwide Partner Conference, attended by about 7,000 partners, Microsofts Ballmer went out of his way to make sure partners didnt feel threatened by the Dynamics CRM Live news. For one thing, he introduced a new Live Partner Advisory Council that will allow Microsoft and its partners to work together to figure out ways to bring in the bacon.

Turning SAAS into cash
Ballmers five opportunities for partners to make cash with SAAS
  • Advertising revenue streams
  • Referral fees generation
  • Actually hosting applications
  • Reselling access to other partners application services
  • Engineering custom integrations that build on core apps in Office Live Source: eWEEK reporting