Microsoft's Low-End Entry into CRM May Be Just the Start
Microsoft's (MSFT)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), other public and private companies that target mid-sized businesses may be likely to face Microsoft in the future.
"I think eventually they
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 Salesforce.com 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
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