This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Microsoft's Low-End Entry into CRM May Be Just the Start

Microsoft's (MSFT - Get Report)announcement Tuesday that it plans to enter the customer-relationship management field with a product for small businesses has sent potential competitors scrambling to explain that they serve a different market.

But while that's likely to remain true for enterprise software makers such as Siebel (SEBL)and SAP (SAP - Get Report), other public and private companies that target mid-sized businesses may be likely to face Microsoft in the future.

"I think eventually they [Microsoft] will move to the mid-market," said Jon Ekoniak, an analyst with U.S. Bancorp Piper Jaffray, whose coverage includes enterprise software makers PeopleSoft (PSFT) and Oracle (ORCL) but not Microsoft. "That will be sometime in the future, but as they continue to move up with their databases, they are likely to move up with their applications."

Microsoft's Great Plains division announced Tuesday it will begin shipping its customer-relationship management product targeting small- and medium-sized businesses in the fourth quarter. Microsoft acquired Great Plains Software in December for $1.1 billion. The deal was seen as an attempt by Microsoft to move into the growing, Internet-based business market, in part by building on its bCentral business Web site. The CRM product will be offered both as a packaged product and hosted online through channel partners.

Shares of Microsoft fell fractionally in recent trading.

CRM players that target small companies, such as Britain's The Sage Group and privately held may be most at risk from Microsoft's new product, analysts say.

"The lower down in the market a vendor is, the more they should watch out for Microsoft," said Bob Austrian, an analyst at Banc of America Securities. "Up at the Siebel levels there's little if any worry anytime soon." Austrian has a buy rating on Siebel and his firm has done banking business for the company.

Indeed, Microsoft said it does not plan to target the enterprise CRM market, but will continue to sell to medium-sized enterprise customers through an alliance with Siebel.

Goldman Sachs analyst Rick Sherlund estimated Siebel derives $250 million in revenue from the midmarket. While Sherlund believes Microsoft's new CRM product targets the lower end, he said he still believes both SAP and Siebel have been anxious about Microsoft becoming a CRM competitor.

SalesLogix, the U.S. subsidiary of The Sage Group, said it will target its installed base of 1.2 million customers to combat Microsoft. Less than 4% of that customer base has purchased its CRM product, said Kevin Myers, vice president product and services marketing for SalesLogix.

Meanwhile, companies such as Pivotal (PVTL)and Onyx Software (ONYX) say their midsized customers operate larger businesses than Microsoft plans to serve. Their average deal size ranges from $200,000 to $400,000, far more than small companies can afford, and they operate a direct sales force, unlike Microsoft.

Shares of Siebel were down 1.37% in recent trading. Onyx was flat and Pivotal shares fell 3.5%.

"The [Microsoft] infrastructure is all about volume through channels at low prices -- not about custom work," said Onyx CEO Brent Frei. Still, Frei does not discount the possibility of Microsoft moving up the chain to compete against Onyx.

"That's a concern we've had since we founded the company eight years ago," he acknowledged. "What we've done is stay very, very close to Microsoft and understand what their strategy is and be an important component wherever they go."

For instance, Onyx is a partner with Microsoft in the financial services market, and works with Microsoft on Web services business, Frei said.

For Microsoft to move up the chain, it would have to not only build a sales force but also offer a more customized solution, said Matt Duncan, Pivotal's vice president of marketing. "The low-end companies are really looking for something that is more shrink-wrapped, out-of-box functionality," he said. Medium-sized companies want an application that costs less than what large enterprise companies like Siebel offer but that can be customized so that it's up and running in three to six months.

But with companies more focused on budgets these days, that may not always be true, noted Austrian of Banc of America Securities. "The fact that times are tough pushes buyers to packaged software that works out of the box. So there's more propensity for ready to go products," he said.

And that of course, is where Microsoft has dominated.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
ONYX $0.00 0.00%
MSFT $55.22 1.60%
SAP $79.72 0.91%
AAPL $117.34 -0.81%
FB $107.12 2.76%


Chart of I:DJI
DOW 17,888.35 +168.43 0.95%
S&P 500 2,102.63 +22.22 1.07%
NASDAQ 5,156.3060 +47.64 0.93%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs