I am sure that by now you have already read about the rather surprising collaboration announcement between two of the biggest rivals in the CRM software space. In the first instance this looks very confusing, especially for all those that work closely with Microsoft Dynamics and for whom Salesforce.com has been depicted as the evil and uttermost enemy to fight. However, after carefully reading Satya Nadella press release and Kirill Tatarinov blog post you can have start to form a second impression of what is happening, and the famous words of Michael Corleone come to my mind.
Despite its relative importance for the company, Microsoft Dynamics is still dwarfed by the revenue generated by Microsoft’s sacred cows of Office and Windows. Also, looking back you can see how Microsoft grew from being a home/desktop software company to become an enterprise software company with most of its revenue coming now from this segment. Thus, the extreme importance of protecting what Microsoft calls “the stack” (Windows, Office, SharePoint, etc.) as the de facto productivity solution in the enterprise space. Even if this means swallowing some bitter tasting deals for some members of the Microsoft family.
Microsoft’s challenge looks like drawn from the innovator’s dilemma. Years ago this company was the challenger and slowly grow up from the bottom of the market displacing the established competitors that disregarded the lower margin segments and kept focusing on more profitable areas. However, with the disruptive innovations happening on the software space, Microsoft is now facing the other side of the coin. It has to change and make its crown jewels relevant on the world of devices and cloud services, and do it quick. Otherwise it will face new competitors slowly eroding its market share and it will end up cornered like others did before (e.g. DEC, Novell, Borland).
This co-opetion deal with Saleforce.com, like the previous move to offer Office on the IPad, is just signalling that Microsoft new leadership recognises the challenge and it is reacting to ensure it stays relevant. Convincing an organisation to switch its CRM is not an easy feat, the barriers to change are big, therefore enabling all Salesforce.com customers to easily use Office365 and Windows based devices is definitely good for Microsoft. It will allow to place its new devices to this customers, and maintain the relevance of Office for the enterprise segment.
Salesforce.com is also getting a significant benefit from this deal. It is well known in the Microsoft Dynamics side that the best compete strategy with Salesforce.com is to try and pivot the pure CRM conversation to bring in the whole picture of productivity and collaboration with the integrated Microsoft ‘stack’. As much as Salesforce.com has tried to fight that by building alliances and buying other vendors, Microsoft is still stronger on that game. Oracle and SAP, the other two big players on this arena, have already made similar deals with Microsoft, thus Salesforce.com risked being the only one without a solid integration on the Microsoft ‘stack’.
Despite leaving Microsoft Dynamics CRM in a harder position to compete against Salesforce.com, we could argue that this deal is a win-win as both sides will likely benefit from it. I am convinced that in Microsoft’s leadership mind this is a necessary evil and minor collateral damage. However, I personally believe that this can be a good thing for Microsoft Dynamics. Losing that USP of integration with the Microsoft ‘stack’ will force an increased investment to continue improving the core product and find a new edge against Salesforce.com.
Additionally, and this is a wild guess, there could be even longer term strategic implications. If Salesforce.com customers get used to rely on Microsoft Cloud and Devices for all the other needs outside CRM, we could reach a situation where the migration barriers between both CRM offerings are reduced and it would be an easier move for the customers to directly use another Microsoft service for CRM instead of a separate vendor. Therefore, this could end up actually being a Trojan horse entering the Salesforce.com tower.
Either way, only time will tell. Meanwhile, Microsoft Dynamics Marketing heads will no doubt have a hard work ahead to deal with Salesforce.com after losing one of its key differentiators, and will need to provide some positive spins for its partners. Not to mention Salesforce.com chief Marc Benioff having to water down his anti-Microsoft mantra.
What do you think?
Picture: Marc Benioff Twitter