Original URL: http://www.theregister.co.uk/2007/07/13/microsoft_dynamics_crm_partners/

Microsoft details Dynamics Live CRM

Shares risk with partners

By Gavin Clarke

Posted in Applications, 13th July 2007 22:35 GMT

Analysis Two companies are driving coverage of on demand business applications this year. Unfortunately for Salesforce.com, it isn't one of them.

Microsoft and SAP, with their planned Dynamics Live CRM and A1S respectively, are getting attention because they represent a move by the software old guard into a market popularized by Salesforce.com. Not only are they expected to clash with each other, but they'll also skirmish with the young upstart.

They are also getting attention because so little has been disclosed about their planned offerings. Beyond screen shots, SAP has revealed little about what A1S might look like or do. Microsoft this week, though, went some way to explaining Dynamics Live CRM. In doing so, Microsoft put partners in the spotlight and demonstrted just how much work remains to be done by Microsoft in crucial areas.

Microsoft, like SAP, has a large partner ecosystem that it risks losing by moving to a model where software is delivered as a service, direct for download.

Brad Wilson, Dynamics Live CRM general manager, said partners are vital to Dynamics Live CRM because - as in the offline world - they add the vertical customizations to the base product that help attract customers. Wilson's goal is for between a quarter and a third of Microsoft CRM customers to pick Dynamics Live CRM. Competitors are SAP, Oracle, a swath of companies in local markets and - of course - Microsoft's own existing Dynamics and Excel applications.

"There's been a lot of hype in the market place that on demand CRM is done. But there's no magic dust. Our partners can work on things like business flow report analytics, either on demand or on premises," Wilson said at WPC.

Few companies are in as good a position as Microsoft when it comes to the partner ecosystem, given the size of Microsoft's partner army and Microsoft's ability to keep partners onside with technology, financing and other support.

Partners are not only important to the success of Dynamics Live CRM but also in determining Microsoft's future Dynamics Live strategy. James Utlschneider, general manger of Dynamics marketing, said to expect on demand enterprise resource planning (ERP) on the back of Dynamics Live CRM success. "I can't imagine a scenario five years from now where we don't have a Live ERP offering," Utlschneider told The Reg.

In a sign of Microsoft's keenness - some might say desperation - to succeed, the company's devised pricing, programs and remuneration clearly intended to attract partners and build early market share. The $59 and $44 per user, per month list prices announced this week certainly undercut Salesforce.com - Salesforce.com goes lower at $10 per user but requires five-user sign-ups for 12 months.

On the back of this, Microsoft has devised incentives. Rather than the standard 10 per cent kick back on Dynamics CRM Live customer subscriptions, partners will get 15 per cent next year. Customer contracts will last two years, and Microsoft will remunerate partners at the beginning of each year for the first two years of Dynamics Live CRM, rather than monthly as will happen long term.

Partners On Demand

Microsoft is trying to drive business through partners. An early adopter program, which starts in the third quarter of this year and is free of charge until the start of 2008, can only be accessed by signing up through a Microsoft partner.

Microsoft plans a market place to help customers find partners' offerings. The market place, an expansion of Microsoft's existing online partner solution provider networks, will give partners a place to post Dynamics Live CRM customizations and for customers to rate and purchase vendors' products, Microsoft said.

Dynamics Live CRM will be customizable. With partners venturing into new ground, Microsoft is publishing a set of metadata and workflow-driven templates under its Microsoft Permissive License (MPL) to get them started and show what's possible. The first-two templates appeared this week, for manufacturing and the public sector.

For simplicity and reuse of existing Windows skills, Dynamics Live CRM and the onsite Dynamics will share the same code base, while there's integration with Windows, Office and SharePoint through Windows Workflow (WWF). Further integration is planned with the next Office, code-named Office 14. The interface has been re-worked for easier access to data by capitalizing on users' familiarity with Office - icons, for example, will become contextually relevant.

Our Pain is Your Pain

While Microsoft been clear that it cannot make Dynamics Live CRM work properly without partners, it's also clear partners are the canaries in the coal mine in rolling out not just applications but also an underlying platform that's new.

That's a reversal of the Windows and Office story where the platform provider, Microsoft, invested time and money and took the risk to build market share, and then attracted partners. This time around, partners are being asked to share the risk with Microsoft, while Microsoft while takes up to 90 per cent of their revenue on what is - essentially - a growing but relatively unproven market full of hype.

While Microsoft is earnest in going online, on demand is not a proven mass business market outside of Silicon Valley. Microsoft chief executive Steve Ballmer conceded on demand is largely a consumer idea that's yet to see much traction in the enterprise or small and medium business (SMBs). That leaves partners targeting up to a third of the two million customers that Microsoft's business solutions group corporate vice president Tami Reller claimed use Dynamics today.

It'll be partners that have to devise pricing that works to grow this market. While Microsoft's price undercuts Salesforce.com, partners have the freedom to add their mark up.

Six hundred application and service providers are today testing Dynamics Live CRM with prices kicking in at $80 to $90 per user and running up to $150. Microsoft clearly factored this in by pricing so low, but price creep could see partners' offerings lose their competitive advantage against Salesforce.com.

Partners will certainly need to build in margin to absorb the expense in sales, marketing and support of selling on-demand to mid-market customers that was revealed by NetSuite's IPO filing last week. With $29bn in the bank, Microsoft can easily absorb the costs - partners will find it harder unless they build in that margin.

Pain Points as a Service

Price alone, though, won't be enough to convince customers to run their business on Dynamics Live CRM - it'll take useful features and service maturity. And here's the next problem: the unproven and evolutionary nature of Dynamics Live CRM. Microsoft believes it's proven itself running and provisioning large, hosted services like Hotmail and Spaces and delivering onsite applications.

However, important things like Service Level Agreements (SLAs) and whether when rolling out service updates it should update all users or just make it possible to update groups are still up in the air. Wilson called these simple policy decisions, but the reality is these are areas existing providers like Salesforce.com, for example, have - through bitter experience - already sorted.

Microsoft is also departing from the spirit of on demand with a contract that could make repeat business hard for partners. Customers cannot downgrade contracts, only cancel them by paying penalties. That'll make things hard from a customer relations perspective for partners who will inevitably make mistakes in building services that work - or fail.

Technologically ambitious and creative partners risk being frustrated by the limited customization potential in Dynamics Live CRM with risk takers potentially getting in hot water with Microsoft. Partners won't be allowed to deploy server-code on Microsoft servers, making Dynamics Live CRM's customization an interface and workflow thing. While Utlschneider believes this should be enough for most, experience proves that even in the closed source Microsoft world, partners and developers like to fiddle and reverse engineer - a fact that causes friction with Microsoft over the terms and conditions of their license and intellectual property considerations.

Finally, having taken the risks, there's the ever-looming specter of Microsoft. The company has a disposition towards entering partners' markets. This time, while Microsoft is clearly relying on partners to tailor Dynamics Live CRM, it's not clear how far Microsoft will require customers to go through partners. While some executives stuck to the party line at the Worldwide Partner Conference, others indicated customers would not be turned away if they wanted to sign up with Microsoft instead of partners.

Microsoft is clearly reaching out to partners. While there are obvious financial incentives on the table, key questions remain about the underlying service that can only be answered by Microsoft or as a result of this year's early adopter program. The question for partners will be when to leap and how much of their precious development and marketing resources to invest in an idea that's got clear possibilities but is still subject to phenomenal hype. So much hype, even Microsoft is treading carefully. ®