Will Microsoft On-Demand Increase On-Demand Demand?

Although not scheduled for release until mid 2007, Microsoft’s July 2006 announcement that it will be offering Microsoft Dynamics CRM on a monthly subscription basis (Microsoft Dynamics CRM Live) will increase the momentum of the on-demand or software-as-a-service (SaaS) delivery channel. Microsoft Dynamics CRM Live will be hosted at Microsoft’s own data centers and accessible via Microsoft products including Internet Explorer and Microsoft Outlook.

While the Microsoft Dynamics Live applications will increase the deployment options available to users, it will also expand the overall market for on-demand software. Microsoft is certainly not shy about marketing the benefits that its initiatives can bring to customers, or trumpeting how its on-demand offerings should benefit all on-demand vendors. In general, Microsoft’s entry into a market enhances the credibility of that market. By actively targeting it, Microsoft should help drive additional on-demand demand.

From Microsoft’s perspective, offering on-demand, subscription-based software will further enhance its well established presence in the small-to-medium-sized business (SMB) market, and serve to attract prospects that wish to utilize Microsoft Dynamics CRM without a substantial up-front commitment. In this sense, it is an ambitious move by Microsoft; however, competitors such as Salesforce.com, Oracle, and SAP already have established on-demand offerings—in Salesforce.com’s case, this is its exclusive delivery channel. So in this respect, Microsoft is on the defensive. Nevertheless, this is not necessarily a zero-sum game and Microsoft’s entry will quite likely attract the attention of organizations that were not previously considering Microsoft or competitive CRM products and serve to increase the overall size of the market.

Since the availability date for Microsoft Dynamics CRM Live is not until the second quarter of 2007 (and when was the last time Microsoft actually met an originally announced availability date?) the market will have plenty of time to react. Although Microsoft may have pre-announced in an effort to cut into the momentum of some of its on-demand competitors, these vendors will likely “thank” Microsoft for endorsing their business model while reminding prospects of their currently available offerings and capabilities. However, as Microsoft is already offering Dynamics CRM on a partner-based hosted basis, those thinking this is a new game for Microsoft may be somewhat naïve; Microsoft has undoubtedly been learning from its partners’ experience and should be able to fine-tune its own hosted offering when Microsoft Dynamics CRM Live really goes live.

From a user perspective, on-demand presents an alternative implementation approach, with predictable per-user costs, to organizations seeking to avoid the up-front commitments of hardware acquisition, software licenses, and IT support resulting from directly acquiring and hosting application software themselves. Still, organizations should not walk blindly into the on-demand world. Although their up-front costs may be reduced, they must also consider the costs associated with ultimately hosting the applications themselves. This will certainly be an option for future Microsoft on-demand users since this is one of the ways it currently offers Microsoft Dynamics CRM. However, this is not an option with Salesforce.com as it only offers its software on an on-demand basis. Prospects should make sure they know their rights to the data they store on any third-party host server, as well as the magnitude of any associated migration costs.

On-demand software certainly has its appeal, especially in the SMB market where minimizing up-front costs is important; however, make sure that any contract you sign does not include prohibitive conversion costs should you later decide to host an application on your own. Organizations attracted to on-demand, third-party hosting by special offers or incentives should negotiate to lock in, or at least limit, renewal costs when the initial term expires.

About the Author

Michael A. Schiff is a principal consultant for MAS Strategies.