Microsoft Launches Dynamics CRM, Pays Users to Switch
Microsoft (NASDAQ:MSFT) is one of the players in the increasingly competitive CRM (customer relationship management) software market. It offers the Microsoft Dynamics CRM solution in both forms – on-premise and on-demand. It competes primarily with Salesforce.com (NYSE:CRM), SAP (NYSE:SAP) and Oracle (NASDAQ:ORCL) in the CRM market. Just before the Dreamforce conference by Salesforce.com started, Microsoft announced a new deal to attract more customers to its Dynamics CRM offering. According to one report it is paying users to use Dynamics CRM Online, its CRM offering. [1]
We currently have a $28 Trefis price estimate for Microsoft, which implies a 10% upside to the current market price.
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Microsoft Trying to Beat Salesforce.com in Cloud CRM Software By Paying Users to Switch
SAP and Oracle are clearly the leaders in the overall CRM market but Salesforce.com is the top dog when it comes to cloud based CRM offerings. Lately, there has been a clear shift towards cloud based software, which is the reason why everyone is trying to beat Salesforce.com in that segment.
Microsoft is offering to pay $150 in cash per user seat (minimum 50 seats per company; maximum 500) for customers that switch to its Microsoft Dynamics CRM Online service. The deal is valid only for businesses in U.S and Canada, and they must sign a 2-year licensing subscription. Microsoft charges $44 per user per month for Dynamics CRM Online so the deal just means that Microsoft will be forgoing approximately 3.5 months of revenue per user, but in return, it locks them in for 2 years so the promotion pays for itself quickly.
We estimate that Microsoft will earn close to $1.6 billion in revenues from its Dynamics sofware suite comprised of ERP and CRM products. We expect the global CRM market to be worth $22 billion by 2018. If Microsoft is able to capture a significant share of the CRM market, it could positively impact its top line growth. However, the overall revenues from Dynamics CRM and ERP are still expected to be relatively low compared to Microsoft’s revenues from Windows and Office, so we don’t see any major impact on its stock price. You can check how any increase in revenues from Dynamics would affect Microsoft’s stock price estimate by tweaking the model above.
Notes:- Microsoft launches cloud CRM deal to compete with Salesforce, Oracle, Techflash, August 29, 2011 [↩]