Microsoft has finally given its endorsement to web-based business applications with the release of Dynamics CRM 4.0, although the lack of a directly hosted on-demand offering is a significant caveat to the upgrade.

The software giant’s efforts in customer relationship management (CRM) have a turbulent history with the first disk-based release panned by some critics for missing features, the second release having been cancelled and only CRM 3.0 finally helping Microsoft gain momentum in the sector.

With firms such as Salesforce.com enjoying hyper-growth with a pure web approach, Microsoft appeared to be a relic of the client/server age. But the 4.0 release gives it a bridge that spans on-premise installations and partner-hosted deployments. This will allow users to participate in the advantages enjoyed by the on-demand world, notably reduced upfront and administrative costs.

Microsoft has allowed partners to host CRM in the past but new pricing and support for multi-tenancy ­ that is, hosting multiple installations for multiple customers inside a single server ­ means the 4.0 release is the first fully-fledged effort, fuelling a push to grab more large customer wins.

“Most of our success to date has been in the mid-market and when we launched we were excited to have a 500-seat deal,” said Paul White, UK director of the Dynamics business group. “Today, 6,500 is our largest customer deployment in the UK and, within the next 12 months, I expect that to be 35,000.”

Some CRM partners said that multi-tenancy would also help lower costs for customers.

Neil Benson, managing director of Microsoft channel partner IncreaseCRM, said, “Because CRM 3.0 was single tenanted, it was an expense to our customers. The infrastructure cost had to be passed on to the end user, so our old model was per-user plus cost of infrastructure.”

Others said that demand for hosted programs is continuing to grow at a rapid clip.
“What is happening is almost unprecedented,” said Fabio Torlini, managing director at Rackspace, which is acting as a datacentre hosting partner for Microsoft’s CRM resellers. “We are inside the tornado and I am hiring 20 people a month in the UK. It is like the [year 2000] again.”

However, with Microsoft’s self-hosted CRM Live only being tested in the US and Canada, and no near-term plans for a UK offering, the firm’s commitment to the on-demand model remains in question.

Jason Nash, CRM product manager at Microsoft, noted his company already has deep roots in hosted software through Hotmail and promised that CRM Live “is coming but it will take time”.

However, the suspicion remains that Microsoft is culturally wedded to the client/server model that made its fortune, or as Zach Nelson, chief executive of on-demand firm NetSuite once put it, “This is a sacred cow that lives in Bill Gates’s office.”

With on-demand creating a sea-change in the way software is consumed, all eyes will be on Microsoft to see whether the company is ready to bend with the times.