Microsoft’s Aggressive Pricing Props Up Dynamics Revenues
Microsoft (NASDAQ:MSFT) is seeing increasing revenues from Dynamics, an enterprise software suite used for Customer Relationship Management (CRM) and Enterprise Resource Planning (ERP) that is sold as on-premise and on-demand formats. In order to attract more customers, Microsoft has adopted competitive pricing policies in the past as well as offered incentives to Oracle (NASDAQ:ORCL) and Salesforce.com (NYSE:CRM) customers if they to switch to Dynamics. These policies have proved to be quite effective in bringing more customers and revenues for the company. And this time around, Microsoft is also paying users to switch to its cloud CRM software, and this is likely to give tougher competition to CRM/ERP leaders like SAP (NYSE:SAP) and Oracle.
While we anticipate Microsoft’s Dynamics revenue will increase from $1.7 billion in 2012 to $2.5 billion by the end of our forecast period, Trefis members predict an increase from $1.9 billion in 2012 to $2.9 billion during the same period.
We currently have a Trefis price estimate of $28 for Microsoft’s stock, about 10% above the current market price.
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Microsoft Looking at Locking in Customers with Competitive Pricing & Offers
While SAP and Oracle are clear leaders in on-premise CRM market space, Salesforce.com is a leading player in cloud-based CRM offerings. Microsoft, which recently launched Dynamics CRM 2011, is trying to grab some of Salesforce’s customers by paying them to switch to Dynamics CRM. The deal is valid only for businesses in U.S and Canada, and they must sign a 2-year licensing subscription.
Microsoft will pay $150 in cash per user seat (minimum 50, maximum 500 seats per company) for customers that switch to its service. (See Microsoft Launches Dynamics CRM, Pays Users to Switch) In Jan 2011, Microsoft offered a similar offer encouraging users to switch with a promotional pricing of $34 per user per month for the first year, which is much cheaper compared to the $65 for Salesforce’s professional edition and Oracle’s starting price at $75.
Dynamics Forms Small Part of MSFT Stock
While Microsoft’s aggressive pricing policies will make the CRM/ERP market more competitive and finally benefiting end customers, the Dynamics suite accounts for a small portion of Microsoft’s overall revenues and hence any upside in this business will result in minor revenue growth. But the market for cloud-based offerings is huge and all major players are trying to get a piece of the pie, from SAP which is trying to regain lost market share and Microsoft that is hoping to build a bigger online CRM business.