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Microsoft Plans Web-Based CRM Offering

Updated from 4:49 p.m. EDT

Hoping to grab a larger piece of a $5.7 billion market and target rivals Salesforce.com (CRM - Get Report) and Oracle (ORCL - Get Report), Microsoft (MSFT - Get Report) plans to offer a Web-based version of its customer relationship management software.

The new products will be available in the second quarter of 2007 and will initially target small businesses, the software giant said Monday.

Announcing a product a year early is a classic tactic aimed at freezing purchases by customers who may prefer to actually see the new Microsoft CRM application before deciding what software to buy, said Cowen analyst Peter Goldmacher. "This is Marketing 101," he said in an interview. "Near term, it isn't a threat, and it's questionable that Microsoft will be a long-term threat to Salesforce, since this looks like a low-end product," he said. Cowen does not have an investmen-banking relationship with Salesforce.

Gartner software analyst Michael Maoz, who was briefed by Microsoft before Monday's announcement, says he doesn't expect the product to be in general circulation until 2008, even if Microsoft hits the formal 2007 deadline. However, because it will be fully interoperable with other Microsoft products, particularly Office, he sees potential for Microsoft CRM to become a force in a market that's well worth fighting for.

According to Maoz, the total market for CRM licenses and maintenance grew by 13.7% to $5.7 billion in 2005, while the much smaller market for hosted CRM, provided by Salesforce, RightNow Technologies (RNOW) and Oracle, which swallowed Siebel, once the leading CRM player, grew by about 30%.

The CRM market got even more competitive on Monday, when German software giant SAP (SAP) announced the acquisition of its partner, privately held Praxis Software Solutions, to provide e-commerce and web-based CRM to small and midsize businesses.

SAP is very strong in conventional CRM, by some accounts holding a lead by market share, but has not been strong in the on-demand category pioneered by Salesforce. The acquisition of Praxis reflects the company's desire to push harder in the space.

Shares of Salesforce, which fell 6% on Monday, bounced back to close up 80 cents, or 3.4%, to $24.20 on Tuesday; Oracle was off 5 cents to $14.54.

In separate Microsoft news that was perhaps weighing on its stock Tuesday, Chairman Bill Gates said during a visit to South Africa that there is an "80% chance" that Vista, the next version of the company's flagship Windows operating system, will be ready in January.

Although Vista is already several years late, Gates was careful not to guarantee that the software will meet its latest deadline. "We got to get this absolutely right," Gates said, according to wire service reports. "If the feedback from the beta tests shows it is not ready for prime time, I'd be glad to delay it."

Shares of Microsoft closed at $23.10, down 40 cents, or 1.7%.

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