By Michal Lev-Ram
January 21, 2011

Microsoft CEO Steve Ballmer is revved up about cloud-based software. But not for Photoshopping or watching DVR, like in his commercials. He’s aiming at enterprise, and taking on two heavy hitters in CRM.

On Thursday morning Ballmer introduced a new upgrade to Microsoft (MSFT) Dynamics CRM, a tool businesses use to manage client relationships. The latest version touts a handful of upgrades (like improved integration with other Microsoft products). But more importantly, it’s aggressively priced and will be available outside of the United States for the first time. Also for the first time, Microsoft says it is making the cloud-based edition of the software available before the on-premise, server-based version, which will come out in late February.

“That really reflects the push Microsoft is making into the cloud,” Ballmer said during an online launch event on Thursday.

Microsoft’s not the only one gunning for the cloud. Its latest CRM announcement is an attempt to snatch market share away from and Oracle, two big players in CRM software. In December Microsoft began offering a $200 rebate to customers who ditch (CRM) and Oracle (ORCL). To advertise the promotion, it came up with a new ad slogan: “Don’t get forced. Get what fits.” Throughout its online launch event on Thursday, Microsoft executives kept referring to its competitors’ “legacy systems” and even showcased testimonies from companies who made the switch to its CRM software.

Not to be outdone, Microsoft’s competitors are fighting back. On Monday issued a press release which claimed that “enterprises around the world are choosing Salesforce CRM over Microsoft Dynamics CRM.” In the release, called Microsoft a “legacy software vendor” and said it markets itself with “the cloud mantra.”

But Microsoft says it isn’t just cloudwashing. In its last fiscal year, the company invested $8.7 billion in research and development, mostly devoted to cloud technologies. And Microsoft has said that, in 2011, it expects nearly 90% of its engineers to work on cloud-related products and services (in addition to CRM software, Microsoft also sells cloud-based versions of Office and SharePoint and Windows Azure, a cloud computing platform).

Still, just because Microsoft pours money into a project doesn’t mean it will take off. But making an aggressive, global push for corporate cloud-computing customers is a good move for the company, which has been losing steam on the consumer business side with flops like the Kin and Zune.

Microsoft, with the exception of the Xbox franchise, has never been very good at developing products consumers actually want. Its bread and butter is selling to businesses and unabashedly going after its competitors. So will the “legacy software vendor” cash in on the cloud? It’s still too early to tell. But I think it’s safe to say its chances of stealing CRM clients from and Oracle are much better than its prospects of getting iPod users to buy a Zune.

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