Intelligent Enterprise

According to this article at MyCustomer.com, by Stuart Lauchlan, Microsoft is gunning for Salesforce.com and plans to declare a price war with a lower subscription price. Microsoft Dynamics Live CRM is Microsoft's answer to on-demand CRM, and subscription rates will be $44 per user, per month for the professional version and $59 per user, per month for the enterprise version. In addition, there will be an introductory price of $39 per user per month for the professional version, which will offer a complete suite of CRM software through Microsoft Outlook and browser clients, and will also use Microsoft Workflow Foundation. All of this was revealed at the Worldwide Partner Conference in Denver last week.

The price war approach could be the right strategy from Microsoft, considering that their main competitor, Salesforce.com, is way ahead of the game. Gartner seems to agree:

"A Gartner Group report on the CRM market last week suggests that Microsoft – which is described as a 'challenger' firm – could have hit on a potential weakness for Salesforce.com. Gartner highlighted Salesforce.com's high customer and revenue growth, good usability, straightforward deployments, use of a services-oriented architecture, and its status as a thought leader in the SaaS market, but it also cautioned against 'high costs ranging between $125 and $195 per user per month'."

Salesforce.com offers its Professional and Enterprise CRM editions for $65 and $125 per user per month, respectively. There is also a Group Edition that is $10 per user per month. However, Salesforce.com does not apologize for the price premium.

"CEO Marc Benioff told US reporters: 'When you have an inferior product you have to have an inferior price. That is why Zune is priced below iPod, and why Windows CE is priced below Blackberry, and why Microsoft CRM is priced below Salesforce.com.'"

Benioff may have a point there. As I talk to SaaS users in a wide range of business situations, I never hear much about subscription costs for SaaS-based CRM software. Instead, they are motivated by the on-demand model and the value of the product. Truth be told, the savings around SaaS are not in spending $40 versus $50 per month on subscription costs. It's the fact that the cost of maintaining a SaaS application is ten times less than the cost of maintaining an enterprise application. Indeed, the subscription fees are perhaps considered a non-issue, up to a point. I think subscription fees will become more of a focus in years to come, but not now.

While Microsoft will clearly be a player in the SaaS game, just through sheer investment, it will take some time before they have a critical mass of customers using their on-demand CRM service, and they will find that most won't choose them on price. They will be looking at direct value to the user, and the value of the SaaS model.

Microsoft may have an upper hand, long-term, because of its sheer size, but price won't be how it wins the war. It will be tight integration with their widely used office automation tools and its brand name. The latter is polarizing but still popular. The question remains about the viability of Microsoft in the SaaS space, so price won't be the determining factor for well-researched SaaS purchase decisions. Price wars make good press, but not good business.