Can Microsoft squeeze Salesforce?

Microsoft Corporation (NASDAQ: MSFT) is looking to take away business from Salesforce.com Inc (NYSE: CRM), with a CRM software as a service product that will be sold for free for the rest of this year to businesses with five or more users, according to Cowen. In 2008 and 2009, Microsoft's product will be sold at a large discount, compared with Salesforce's offerings. Next year, Microsoft plans to charge a promotional price of $39 per user per month, and in 2009 the price will go up to $44 per user per month, according to JMP Securities. That compares very favorably with Salesforce's list price of $65 per user per month for its professional edition.

The question is, how many customers will Microsoft take away from Salesforce with its low-price strategy? A majority of observers seem to believe that Salesforce's margins and sales will be at least somewhat squeezed by Microsoft's entrance into the market.

For example, JMP Securities forecasts that Microsoft's move may freeze some Salesforce.com sales cycles and put pressure on Salesforce.com's pricing. Cowen predicts that Microsoft will "challenge" Salesforce. ZDNet.com writer Joshua Greenbaum goes further, predicting that Salesforce.com "is the next Siebel," citing the access that Microsoft will give its mid-market customers to back-office enterprise resource planning systems as a key to Salesforce's impending demise.

But some believe that Microsoft's entrance into the software as a service party may be too late.

"Microsoft's late entry into the on-demand business ...could prove fatal to its effort to enter the market," said Gartner analyst Michael Maoz, as quoted by Computerworld writer Marc L. Songini. Maoz also notes that Microsoft will initially rely completely on its partners to sell its product, while Salesforce.com has a strong sales organization. Microsoft's service "only has a slight chance of succeeding," Maoz contends.

Actually, businesses that contemplate switching to Microsoft's CRM service this year may not view the offering as a totally free proposition. Business' IT professionals will most likely have to spend time learning the ins and out of the service, and then teaching the new system to other employees. There may also be a few kinks to work out when the companies begin using Microsoft's program. Some, if not many, businesses may balk at the disruption and the initial time demands in exchange for fairly insignificant savings, even over the long-term.

Also, Microsoft has been unable to become a major player in the past with its CRM software. It may be that there are some shortcomings in the giant's CRM products that putting them online and offering low prices cannot completely gloss over.

In the wake of the Microsoft news, even JMP is hedging its bets, leaving its "Market Perform" rating on Salesforce.com intact.