February 25, 2002 11:25 AM PST

Microsoft gets down to business

Microsoft is setting its sights on the business software market with a new thrust expected to be announced in the coming weeks.

The Redmond, Wash.-based software company is expected to disclose some of its plans for moving into the customer relationship management, or CRM, software market, with a new package built on technology from its Great Plains unit, sources close to the company said.

It's no secret that Microsoft has had its eye on the market for business software. Speculation has run high that it would make an entry since it acquired Great Plains, a maker of accounting software for small and midsized businesses, in 2000.

But just how much of the market Microsoft will seek to capture--and how soon--isn't clear. The company appears to be targeting the small to medium segments of the market, or companies with between 25 and 5,000 employees, sources said.

Such a move will put Microsoft in direct competition with market leader Siebel Systems, as well as smaller companies such as Onyx Software and Pivotal. As makers of Windows-based software, those companies are also some of Microsoft's closest allies.

A Microsoft representative declined to comment on the company's plans for the CRM market. The company is scheduled to announce new details of its plans in business applications this week, however, and a Great Plains-focused customer conference is scheduled for next month. A Siebel representative could not immediately be reached for comment on Microsoft's upcoming plans.

"The big risk here is alienating their own partners, like Pivotal and Onyx," said Matt Rosoff, analyst with Microsoft watcher Directions on Microsoft. "Obviously, these small companies, if Microsoft is going to compete with them, are going to be in trouble."

Before the Great Plains purchase, Microsoft largely left the business application software market to Oracle, SAP, Siebel and other software makers. Instead, the company focused on selling the infrastructure software--database management and operating systems, for instance--that other companies could build applications on top of. Microsoft, in turn, would help market the business applications from those companies as a way to showcase its Windows products.

"Microsoft has grown up as a platform company. Selling business applications is a new twist," said Lynne Stockstad, general manager of global solutions at Great Plains.

Healthy and growing market
Microsoft has a lock on desktop business software with its collection of Office applications, which controls more than 90 percent of the market. Office accounts for more than a third of Microsoft's overall revenue.

But the desktop application market is starting to mature, meaning Microsoft is looking for new areas of growth. And CRM is one of the few growth areas in the business software market.

A recent survey of chief information officers by Deutsche Banc Alex Brown found that spending on CRM is one of the top priorities for companies in 2002. Market researcher IDC expects the worldwide market for CRM software to reach $14 billion in revenue by 2005.

That's caused Microsoft to re-examine an entry into business software and its strategy for Great Plains.

However conservative Microsoft's current aims are, the software giant appears to be girding for a fight.

In the first year of the Great Plains acquisition, Microsoft took a hands-off approach toward the company. Now, as Great Plains begins to integrate the software giant's .Net technologies into its products, the line between the two has blurred.

"The question is, Where does Great Plains stop and Microsoft begin?" Enterprise Applications Consulting analyst Joshua Greenbaum said.

Microsoft has some business application functions already in place across its software and Web businesses.

Microsoft's bCentral Web site, which dishes out applications over the Web to small businesses for a fee, already has some basic customer relationship technology built into its menu of software.

In addition, Great Plains already has a deal to resell a version of Siebel's Front Office package of software tailored for midsized companies of up to 500 employees, with tools for sales, customer service and marketing, among other applications.

But a new set of CRM software from Microsoft could put the software giant squarely in the crosshairs of CRM leaders.

A product code-named Gulf Coast is under development at Great Plains. Gulf Coast will include a new release of Great Plains' existing software along with a high-end product called E-Enterprise, part of the company's thrust into larger companies of 500 to 5,000 computer users. That upgrade includes more sophisticated CRM technology, according to Stockstad.

Microsoft also has a little-promoted "solutions" business that includes some Web-based CRM options.

Its business applications focus feeds into Microsoft's larger Web services and ".Net" ambitions.

The result of that, the ".Net Business Framework," is scheduled for release in the fourth quarter of this year alongside a new front-end Web portal-based application called the Business Desk, which will be able to render all Great Plains applications in a Web browser, according to company executives.

Microsoft's .Net is an overarching effort to connect all of its online properties and products together using a common set of Internet technologies and Microsoft software. It also will serve as the basis for the company's software-as-a-service push, with Microsoft collecting subscription fees rather than licensing revenue for usage of packages such as Office.

Leading up to the .Net integration, Great Plains will also release upgrades to its current Windows-based products, including a new version of its Dynamics and Solomon software by midyear and a second version of its Small Business Manager package by fall 2002.

In the next year, the company also plans to generally focus on small businesses and, in particular, the integration of Microsoft's Office into Small Business Manager, Stockstad said.

No worries--yet
Analysts view Microsoft's entry, at least initially, as little more than a nuisance for larger players like SAP or Oracle, believing Microsoft would settle for the low end of the market where it has more expertise.

"None of the big four or five CRM companies should be worried at all," Greenbaum said, noting Microsoft's inexperience at tackling the business process problems at large companies.

Microsoft's history shows it has had mixed success in entering new markets, such as set-top box software or media operations like Sidewalk.

But it has been hugely successful in coming from behind to capture the Web browser market; the database software business, where it continues to gain market share on rivals such as IBM and Oracle; and the server operating system business, where it has rapidly replaced old stalwarts such as Novell.

One company seemingly untroubled by Microsoft's plans is SAP, which sells enterprise resource planning and CRM software primarily to large companies. The company has increased its efforts to target smaller companies in recent years, however.

"They're masters at marketing at the low end," Allen Brault, senior vice president for small and medium-sized businesses at SAP America, said of Microsoft. "But this is a whole different ballgame. This is about how they're going to service the customer. This is something Microsoft historically is not built to do. They've typically relied on partners for that."

Other CRM makers are keeping a close eye on Microsoft. "They're addressing simpler businesses," said Les Wyatt, chief marketing officer at J.D. Edwards. "That said, we continue to watch (Great Plains) very closely."

As well it should, analysts said. Whenever the world's largest software maker throws its weight into a new area, that's cause for alarm.

"You have to think of Microsoft as the beast that swallows everything in its path. It must continue eating," Rosoff said.

 

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