Last week Microsoft announced a 40% cut in the price charged to hosting partners, from $25 to $15 per user per month. Salesforce.com, the SaaS leader in the CRM market, offers a five-user Group Edition of its service for as little as $100 per month -- or $20 per user per month. Normally user licenses start at $65 per month.
"Microsoft tends to play the price game as one of their weapons to gain market share," said Robert DeSisto, an enterprise software analyst for Stamford, Conn.-based Gartner Inc.
Microsoft's bigger play for market share will come next year, when it releases the next version of Dynamics CRM, code-named Titan.
"There are assumptions that it's going to have [better] functionality and performance, but we really don't know that yet," DeSisto said.
Titan will mark the first time that Microsoft itself will host Dynamics CRM. Customers that currently have to go to a channel partner to sign up will be able to choose to get it directly from Microsoft, or from a partner.
In the meantime, Microsoft Dynamics CRM hosting partners can use the lower subscription cost to extend relationships with their clients. At Sandhills Publishing Company in Lincoln, Neb., dealer services manager Greg Loseke said the lower price will allow his clients -- who work in the construction, trucking, agriculture and aircraft equipment industries -- to buy more licenses and let more users onto the system.
That, in turn, will open up more opportunity for Sandhill to sell its custom inventory and equipment life-cycle management applications -- which run on top of Microsoft Dynamics CRM.
"When you're more in their business, you can offer them more," Loseke said. Those stronger bonds will also help fend off competitors, he added.
One of Sandhills' clients gets at least one sales call a week from other hosting providers in the CRM market, from small independent companies all the way up to Salesforce.com, Loseke said. Microsoft's price cut will be a benefit in that area, too.
"It always helps to say, 'We're going to charge you less,'" Loseke said.
The current Microsoft Dynamics CRM offering is version 3.0. It's "a pretty significant improvement" over its predecessor, version 1.2, which created a lot of problems for customers, according to DeSisto. But Microsoft still has an uphill battle in the market because, ever since version 1.2 came out, competitors have been capitalizing on the perception that Microsoft is not up to snuff, he said.
Cutting the subscription price does reduce revenue, but shouldn't hurt Microsoft, because "they're big enough as a company to absorb that," DeSisto said.
But even at a lower price, Microsoft Dynamics CRM won't become more attractive than its competitors, according to one of them -- Bruce Francis, vice president of corporate strategy for Salesforce.com -- because Microsoft's edition is "inferior" to other SaaS offerings.
"Microsoft will do for Software as a Service what Zune did for music players," he said.