Microsoft Aims Low With Dynamics Live CRM Pricing

Microsoft (Nasdaq: MSFT) tipped its hand just a little bit more about its forthcoming on-demand CRM initiatives at its Worldwide Partner Conference now underway in Denver.

It has released its subscription fees -- a schedule that suggests it is gearing up for a price war with primary competitor Salesforce.com (NYSE: CRM). It also demoed new preconfigured vertical templates in the public sector and manufacturing industries, and announced new strategies to further engage its partners in penetrating the market.

An on-demand application, Microsoft Dynamics Live CRM will be operated and managed by Microsoft within its data centers. It will use the same code base as the on-premise and partner-hosted versions of Microsoft Dynamics CRM, thus allowing them to migrate to different venues when necessary -- a strategy similar to the hybrid approach to on-demand that Siebel introduced a few years ago.

Benefits of Flexibility

This flexibility is becoming increasingly important to firms, especially when they project the total costs of using on-demand for more than the first few years, Richard Smith, vice president and CRM practice director for Green Beacon Solutions, told CRM Buyer.

"What most people don't realize about hosted applications is that once you've made that investment, it is hard to get off," he remarked. "While it may not make that big of a difference to a company when it starts out with 20 employees using [a system] -- five years and 50 more employees later, the company could well decide it is cheaper for it to own its license in-house. Transitioning without a vendor-approved plan in place, though, can be problematic and costly.

It is this sore spot -- the total cost of ownership of on-demand -- that Microsoft is targeting. The price for Microsoft Dynamics Live CRM Professional will be US$44 per user per month, according to information released at the Worldwide Partner conference. During 2008, a promotional price of $39 per user per month will be offered.

Microsoft Dynamics Live CRM Professional includes full-suite CRM through Microsoft Outlook and browser clients, a workflow powered by Windows Workflow Foundation, and rich configuration and extensibility capabilities.

Microsoft Dynamics Live CRM Enterprise will be available at $59 per user per month. Live CRM Enterprise will offer the same capabilities as Professional, as well as offline data synchronization.

"We are aiming to be more flexible -- more generous than competing products in the space," Brad Wilson, general manager of Microsoft Dynamics CRM, told CRM Buyer.

Partner Engagement

Microsoft also announced a new revenue-sharing model for its partners.

In the new Live model, partners will be compensated on a recurring basis instead of a one-time basis. Each year, they will receive 10 percent of the yearly subscription revenue for each of their customers. During 2008, the partners will receive 15 percent of the Software as a Service (SaaS) subscription revenue for that year.

A partner at a competing vendor might receive 10 percent of the contract value -- and that's it. "We are offering recurring compensation to keep partners motivated to retain customers," Wilson said.

Microsoft is also giving customers a sneak preview of Microsoft Dynamics Live CRM this quarter through the remainder of 2007. It is offering the professional version of the service free to customers during the early access period, after which normal service fees will apply. Customer sign-up will be offered through Microsoft Dynamics CRM's network of certified partners.

Companies will be using the early access period as a sales and research-gathering exercise in preparation for Live CRM's debut, Mike Snyder, head of Sonoma Partners, told CRM Buyer.

Features he predicts they will like include the addition of Windows Workflow Foundation, which he considers a much more robust tool. "Also, the interface has become easier to use."

The price points won't need for a sales pitch, he remarked. "You could say the pricing is the iconic feature -- it is very aggressive, less than half of what other firms charge."

However, the idea that Microsoft can compete solely on price in this space is one that Bruce Francis, vice president of corporate strategy for Salesforce.com doesn't buy. "Lower list prices is a strategy for a company that doesn't understand on-demand and has an inferior product," he told CRM Buyer.

Salesforce.com does have the incumbent's advantage -- in spades -- for a number of reasons that include its platform expansion, customization capabilities, and generally very advanced feature set.

However, on-demand users are beginning to put price at the top of their buying criteria now that the Software as a Service model is moving to maturity, Smith said. In other words, it is no longer seen as a short-term experiment but as a permanent solution.

"The price point is a fairly competitive move," he said. "I think that Salesforce.com and other vendors will be forced to react at some point."