Microsoft stirs up CRM

See correction below

Say what you will about Big Red, but when Microsoft sneezes, everyone else still catches a cold.

Can you name one other company that just by entering the market can affect all of the other established market vendors and the buyers of their products?

I'm thinking about CRM and how Microsoft's entry with its Business Solutions CRM is changing the business strategy of midmarket leaders such as Pivotal and Onyx Software.

Wendy Close, research director of Gartner’s CRM and advisory services, in Stamford, Conn., thinks that those companies and others will feel the heat from the Redmond giant by 2005, and that their safest course will be to find a differentiator.

"They need to go vertical," Close tells me.

Perhaps the proof points for what Close advises are already self-evident. Siebel profits for first quarter '03 were down a horrifying 93 percent over the first quarter of 2002. On top of that, the Gartner CRM study -- or better yet, the Gartner Bombshell -- found that more than 50 percent of all enterprise CRM deployments failed to produce measurable benefits.

What's the solution? Interface Software is probably on the right track. Interface targets one market only, professional services which for Interface includes billion-dollar law firms such as Skadden, Arps. Other markets within professional services include accounting, investment banking, asset and wealth management, and VCs, if there are any of them left.

Rick Klau, vice president of vertical markets at Interface, believes companies can learn from all those failures Gartner talks about. Horizontal approaches don't work. CRM needs to be tailored to the specific market. And if it takes more than a half hour to learn the package, it won't be used, Klau adds.

Upstream, Siebel, Oracle, SAP, and PeopleSoft are responding by segmenting their monolithic applications into more targeted vertical markets as well as chasing after midsize companies. After all, if Microsoft is seeing green fields in the midmarket, $500 million to $1 billion companies, why shouldn't the big CRM players? Don't they have a better story to tell than the Redmond upstart?

Perhaps, but it doesn't pay to underestimate Big Red. Microsoft is selling its CRM package through the channel with thousands of VARs adding additional, vertical functionality. Close calls Microsoft CRM "Outlook on steroids." And, believe it or not, the company already has some wins among the Fortune 500 according to Holly Holt, senior product manager of CRM at Microsoft.

And when I tell Holt how Close, an analyst at well-respected Gartner, characterizes Microsoft CRM, Holt just laughs. I wouldn't say it's a maniacal laugh, but it is certainly filled with a great deal of confidence.

Holt said a sizeable division of a Fortune 500 company -- she would wouldn't say which -- is now deploying Microsoft CRM. Part of Microsoft's strategy is to chase after the many semiautonomous divisions in large enterprises.

Let's face it, in this current economic climate, senior management may be more comfortable with Microsoft than with Siebel.

As vendors change their pitch, perhaps it's time for Fortune-sized companies doing the buying to take a different tact when selecting an enterprise application, at least for those semiautonomous divisions.

Here’s something to keep in mind: If the giant CRM-solution providers can move downstream with midmarket applications that have a total project cost in the $4,000 to $5,000 range per employee, as opposed to the $16,000 to $25,000 per employee price tag for the enterprise, maybe those enterprise apps were overpriced in the first place.

What do you think?

Correction

In this column, we originally misreported what dropped for Siebel by 93 percent first quarter '03 compared to first quarter '02.