NEW YORK ( Trefis ) -- Microsoft (MSFT) - Get Report recently announced the availability of the cloud version of Microsoft Dynamics CRM (Customer Relationship Management) software, called the Dynamics CRM Online. With this move, most of Microsoft's competitors, SAP (SAP) - Get Report, Salesforce.com (CRM) - Get Report and Oracle (ORCL) - Get Report will feel the heat.
With CRM online, Microsoft is not only undercutting on license pricing, but also giving incentives to Oracle and Salesforce.com customers should they decide to switch. If Microsoft is successful in gaining share in the CRM market, it could impact Salesforce stock the most with SAP only slightly impacted.
We have a $128 Trefis price estimate for Salesforce.com stock, which is about 3% higher than the current market price.
Salesforce.com stock most dependent on CRM business
Companies often target all customers equally, irrespective of their needs, and this often leads to resource allocation inefficiencies and customer dissatisfaction. CRM is a software which helps companies acquire and retain customers, gain marketing and customer insight. Without the help of the CRM software, it becomes almost impossible to keep track of individual requirements.
Cloud-based CRM software constitutes around 63% of our estimate for Salesforce.com stock, and its market share in the CRM market has rapidly increased from around 7% in 2006 to 14% in 2010, and we estimate that it could continue to increase to around 25% by the end of Trefis forecast period.
However, Microsoft Dynamics CRM online is directly aimed to gain market share mainly at the expense of Salesforce.com. It has openly announced that eligible customers will receive up to $200 per user as rebate if they switch from Salesforce.com or Oracle to Microsoft. Additionally, new customers that sign offer by June 30 can receive promotional pricing of $34 per user per month for the first year. This pricing is much less that what Salesforce.com and Oracle currently offers to its customers. Salesforce.com currently offers $65 per user for Professional edition and $125 for Enterprise edition. For Oracle, the pricing starts at around $75 per user.
There could be a downside of more than 10% to our estimate for Salesforce.com stock if its CRM market share increases slowly to reach around 20% by the end of Trefis forecast period.
Upside to Microsoft stock and downside to SAP
Microsoft Dynamics is a business software suite and consists of CRM and ERP software. We estimate that Microsoft revenues from Dynamics software has increased from $0.9 billion in 2006 to $1.4 billion in 2010, and it will continue to increase to $2.4 billion by the end of Trefis forecast period. Since the Dynamics revenue contribution to Microsoft is small, the upside from faster Dynamics revenue growth is also small.
Although 21% of SAP stock value comes from CRM software, SAP is still a small player in cloud computing market and hence Microsoft's foray into the cloud CRM market is not a potent threat to SAP in the near term. (See
Leveraging SaaS Market Growth Critical for SAP Stock). Hence, market share loss for SAP, if any, should be minimal and hence we foresee limited downside to its stock.
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$128 Trefis Price estimate for Salesforce.com stock here .
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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.